For the first time, European and Asian private investors can invest in top US tech funds.

Many investors wonder how top US tech funds manage to consistently deliver outsized returns over extended periods of time. So how do these fund managers achieve such strong results?

There is significant disparity in performance between top tier and average funds

Venture capital IRRs by vintage 2008-2017 top tier (decile) vs. median

We studied publicly available data and research in depth and found these key reasons:

1

Top US tech funds invest predominantly in companies in the rapidly growing technology sector, which captures an increasing share of the global economy.

2

The US start-up clusters in California and on the East Coast dominate global technology innovation as shown by the number of unicorns created. Their early backers have an unparalleled opportunity to create outsized returns.

3

Top US tech funds create preferred access to the best opportunities.

4

Top US tech funds take a long-term view and invest with  high success across market cycles.

1

Top US tech funds invest predominantly in companies in the rapidly growing technology sector.

As the global economy is digitising, entire industries are transformed by emerging technology. In particular, categories such as software and emerging tech – such as IoT, SaaS and AI – are set to experience very high growth rates.1

The transformation of digital platforms is driving enormous growth in segments such as cloud computing, artificial intelligence (AI), automation and mobile to name but a few. Software in particular has continued dominating deals in the tech sector with 71% of the total tech deal value during Q3 2019. In fact, of the 10 largest tech deals, seven involved software companies.2

Looking at the global software market, it has grown dramatically over the past decades and is expected to exceed $500 billion by 2021. It is expected to cross $1T in revenues by 2030, creating significant opportunities.3

Todays mega companies are all in tech

Largest public companies by market cap

2

The US start-up ecosystem has been the most successful environment for creating and scaling up new businesses.

The number of private unicorns (private companies with a valuation of >$1B) and their valuations are evidence that access to private markets is essential for capturing the value created by the most successful startups.

Google, Facebook, Amazon, Microsoft – these industry giants, along with many other household names, all received US tech funding before going public.

US tech funds typically target early stage and private growth companies within the US tech ecosystem, focusing especially on the two most prominent global tech clusters: Silicon Valley and Silicon Alley (NYC). By investing in these markets, US tech investors have created both the highest number of unicorns as well as the regional market with the largest market capitalization of companies with unicorn status. According to CB Insights, there were a total of 432 unicorn startups with a total cumulative valuation of ~ $1,331 billion as of December 2019.

Source: CB Insights (Dec 2019)
3

Top US tech funds get the first call for the best opportunities.

Top venture capital funds often remain the top performers for long periods of time due to their status as preferred partners of the most promising companies and entrepreneurs.

Private asset classes have long been known for persistence in outperformance – specifically, the outperformance of the same managers year over year. What does this mean? Top performers are more likely than the rest to continue to outperform.4 Of all private asset classes, this characteristic is the strongest in venture capital5, where that outperformance has resulted in part by two factors: early successes and tight knit regional networks.6

Success breeds success: The track records of the top tier funds have earned them a reputation of picking winners, which has rightly earned them the first call from promising ventures and entrepreneurs. In an environment that has become increasingly competitive, this informal “right of first refusal” is a critical competitive advantage and may allow both better opportunities and preferential pricing. Not only that, initial success also provides investors with more co-investment opportunities in funding rounds led by their peers.

Tight knit local networks: Part of the outperformance can be explained by the tight networks of the key start-up clusters, such as the community in Silicon Valley. Many of the investment managers and their advisors have their own experience as founders and some of them have started and scaled multiple successful businesses. On top of skills and good investment judgement, these investors have developed tight networks and relationships allowing them to source opportunities and help accelerate the development of investments.

In essence, the track records of these top funds and their local networks allow them to access the most attractive opportunities, effectively to help establish a self-fulfilling performance prophecy by pairing successful founders with great venture capitalists.

13 firms have made over 200 investments in current unicorns

Number of current unicorns in which the firm is featured as a Select Investor on CB Insights

57
Sequoia
Capital
21
Accel Partners
17
Anderssen
Horowitz
16
Insight Partners
14
Khosla
Ventures
14
Founders Fund
13
Bessemer Venture
Partners
13
Lightspeed Venture Partners
11
Greylock Partners
11
Index Ventures
9
Battery Ventures
8
Y
Combinator
7
iVP
Data as of April 8 2020
Source: CB Insights
4

Top US tech funds take a long-term view and invest across market cycles.

When it comes to investing, top US tech funds take a long-term view on investment opportunities and are known to invest across market cycles. Staying invested across the cycle is hence of paramount importance in order to capture the full extent of the market’s value creation.

Not only that, when it comes to keeping tabs on technologies that shape the world we live in, the top US tech funds are regarded as best in class. Such companies capitalise on secular trends and are hence far less impacted by cyclicality.

For example, Facebook was founded in 2004 but continued raising capital in the challenging environment of 2008 and 2009. By the time it went public in 2012, had reached a valuation of $104bn, one of the highest to date for any public offering.

Moonfare provides unique access to top US tech funds.

With Moonfare’s access to top US tech funds, qualified investors have the unique chance to invest in this exclusive and attractive asset class. We are the first to do so in Europe and Asia and are excited to present this opportunity to the Moonfare community.

However, our fund allocations are only available on a limited basis, as exemplified by our first allocation in US Tech which closed within a week. Current investment opportunities are on a first-come, first-served basis and not all allocation requests may be met.

Moonfare opens up the world of Private Markets to qualified professional investors like never before.

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