The Federal Reserve’s July interest rate hike takes capital costs to their highest level in 22 years, grinding the pace of initial public offerings to new lows. One investment manager is betting on companies staying private longer, and its successful fundraising proves there’s lucrative business in acquiring existing shares of companies aging in the IPO backlog.
West Hollywood-based Bracket Ventures Management LLC, known as Bracket Capital, recently raised $450 million across its third round of funds, with $150 million in its collective Fund III and $300 in co-investment vehicles.
Bracket Capital targets later-stage tech companies, acquiring shares from early employees and investors.
“When you think about somebody who is an early employee at Airbnb or Stripe or a company like that, they’re worth a ton of money on paper but have no ability to exchange shares for cash to be able to buy things,” said Harrison Horn, a partner at Bracket Capital. “We started on the back of this idea that we wanted to be primarily focused on secondary markets and providing liquidity to early employees, early investors.”
Rising interest rates have discouraged even the unicorns of tech — companies valued at $1 billion or more — from debuting on the stock market. According to S&P Global, the 321 IPOs launched globally in the second quarter marks the worst quarter for IPOs since 2020. While the private market waits for the cost of capital to drop, Bracket has already made moves.
The firm announced four investments so far from its third collection of funds, including becoming one of the largest shareholders in Santa Clara-based Soundhound AI Inc.
The secondary venture capital market has boomed in the past decade. In a 2022 report, secondary investor Industry Ventures LLC estimated the market to surpass $130 billion this year — more than five times the $24 billion transaction volume seen in 2011.
So far, Bracket’s investments have cashed in on that growth — with over $300 million in realized proceeds reported in the past three years. Bracket’s portfolio includes companies such as Hawthorne-based SpaceX, Airbnb Inc. and Sofi Technologies Inc.
