Venture group G Squared raises $1 billion to invest in early discount stocks

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Venture capital group G Squared has raised $1.1 billion for its latest fund to capitalize on growing investor demand for its strategy of buying pre-existing stakes in start-ups.

Founded in 2011 and based in Chicago, G Squared has backed tech groups such as artificial intelligence company Anthropic and cybersecurity specialist Wiz.

While typical venture capitalists focus on buying new shares in start-ups, G Squared invests most of its funds in existing shares, bought directly from start-up employees and investors who want to -and sell some of their holdings.

The secondary market has grown due to a slowdown in IPOs and takeovers that would otherwise allow shareholders to sell their stakes.

The new fund is the company’s sixth and is a similar size to the previous one. According to founder and managing partner Larry Aschebrook, it will now have about $4 billion under management.

Aschebrook said many fund managers have faced pressure from their institutional investors to return cash, but are finding it difficult to do so because of the slow market for initial public offerings.

“For years, traditional growth companies and managers have seen secondaries as something bad,” he told the Financial Times. “Thankfully, it’s finally our time to shine.”

Other groups are also looking to capitalize on the challenging market, such as Pinegrove Capital Partners, a new group backed by Brookfield Asset Management and Sequoia Heritage that was formed last year to target buying stakes in start-ups with reduced price.

Aschebrook said investors can buy shares on the secondary market at about a 30 percent discount to the company’s value and a 70 percent to 80 percent discount to the prices investors paid during the pandemic’s low-interest boom period of coronavirus. .

G Squared has also backed companies including sports retailer Fanatics and European transport group Bolt.

It bought about $135 million in shares in Amazon-backed Anthropic from FTX as part of the cryptocurrency exchange’s bankruptcy proceedings.

G Squared says it has a “concentrated” portfolio and has generated roughly double the cash investors pay out — a measure known as “distributed to paid-in capital,” or DPI — over its five- to seven-year investment time frame.

Only 9% of venture funds raised in 2021 returned any capital to their end investors, according to Carta, a software company used by start-ups to track their investors. By comparison, a quarter of funds in 2017 returned capital over the same time horizon.

There are some signs of increased activity in venture markets, such as the recent investment in British financial technology group Revolut – in which G Squared is also an investor – and Aschebrook said he has seen an improvement.

“You’re seeing the market grow in secondary auctions,” Aschebrook said, with a focus on “really big, mature businesses.”