6/20/2023: Growth Funds Struggle to Fundraise
LPs pulled back from Tiger and Insight's latest funds
(I am traveling for the next two weeks so my posts will tend to be shorter and more for recording interesting news in tech, investing and macroeconomics.)
According to The Information, Tiger raised just $2.7B out of the $6B target for their newest tech growth funds. Insight Partner also announced they have slashed their $20B target for its latest fund to $15B due to the “great reset in tech”. In a note to investors, the firm said
The sharp fall in valuations has reset the market in a very positive way. In 2021, we saw exceptional growth in technology demand but challenging valuations and a lack of discipline around cost structures and rates of cash burn. We believe the great reset has solved those two challenges.
Basically, Insight Partners admitted that the firm overdid it in 2021. Tiger at the time was also super aggressive. I was in a deal with Tiger and they really pushed the valuation to crazy levels. Back in 2021, companies could raise at the $1B unicorn valuation with $25M of ARR. Now, I believe the valuations have fallen to 10-15X of ARR for late stage companies given they are still able to raise. Many companies are in a tough situation because they don’t have a sustainable business model with actual profit margins and their ugly cap table makes fundraising virtually impossible. Although the stock market is rallying, many newly IPO tech companies are still 60+% off their 2021 peak. We start to see companies fail and I expect the failures to accelerate in H2 2023. But this is healthy for the tech ecosystem. Scarcity of funding will instill more resilience. Fragile companies will die and strong companies will come out ahead and get stronger.