Investors have long invested in other investors as a way to get exposure to ambitious, speedy smaller funds (and access to hot deals before their neighbors notice). Andreessen Horowitz has been doing it for years, most recently putting money into a fund for NFT art, and same with Lightspeed and Sequoia, now have well-known scout programs that give starter capital to ambitious emerging investors.
While fund of funds isn’t a new strategy, it’s one that is gaining significant steam in a softening late-stage market and a rush to back the best pre-seed companies out there. Recent efforts from Tiger Global Management and Seven Seven Six – Alexis Ohanian and Katelin Holloway’s venture capital firm – show just how much attention is going toward emerging fund managers.
To start, The Information reported this week that hedge fund Tiger Global Management is allocating $1 billion for early-stage tech funds. The fund, the story reports, has already backed firms including Better Tomorrow Ventures, which raised a $225 million fund, Moxie Ventures, which landed $85 million for Fund II, and Chapter One Ventures, which recently launched an accelerator program off of a $40 million fund raise.
Days later, 776 announced the Titans Fund, an investment vehicle and accelerator that hopes to help emerging fund managers start their own, independent investment firms. The fund, besides providing activational capital, wants to help aspiring investors with advice on how to actually execute on their theses. The investors will also get access to Cerebro, 776’s software tool that connects portfolio companies to a searchable database of over 40,000 contacts.
The throughline between Tiger Global and 776 is that both investment firms want exposure into the early-stage, and instead of doing that themselves, they can lean on experimental investors to de-risk and even lead those first checks. Sure enough, just months ago Bain Capital announced a $1.3 billion fund to back younger firms and startups, which helps the firm support diverse founders, and gives its existing limited partners newer opportunities to seed.
The growth of fund of funds taps into another growing trend: a blooming interest in codifying the investment world. In the past, there was an informal handshake-type vibe to co-investing and passing on deal flow. Now, in a world where scouts can just start a rolling fund and emerging managers are able to lean on the community to win deals, firms need to put money where their collaboration is.