Now you too can invest in the VC arm of the hedge fund that passed on Amazon

DE Shaw is one of the highest-grossing hedge funds in history (number three as of end-2022), but with zero capacity in its main quant-oriented investment vehicles it has long looked for new ways to extract fees serve clients.

In recent years the main strategy has been to build up DE Shaw Investment Management, which is focused on less juicy, long-only and higher-capacity systematic investment strategies like as “risk premia”. The business manages about $20bn (DE Shaw is pretty opaque on the split of its $60bn-plus assets under management) but has flatlined in recent years, leading to a hunt for something new.

So this news makes a lot of sense:

New York, February 14, 2023 — The D. E. Shaw group, a global investment and technology development firm, today announced that it has raised $1.1 billion in combined commitments for two new funds, D.E. Shaw Voltaic Fund and D. E. Shaw Diopter Fund, focused on private market investment opportunities. The firm’s entities, principals, and employees contributed more than $150 million in total to the new funds. These fundraises represent the latest milestone in the long-term buildout of the firm’s private investing strategies.

DE Shaw has managed small standalone credit funds since 2008, and has long dabbled in small private equity investments, but Voltaic — focused on post-seed and growth equity stages — is its first standalone venture capital fund.

In a sign of the messy VC fundraising environment, Voltaic’s $450mn fell below DE Shaw’s initial $500mn target. And at least some of that money came from DE Shaw insiders, who contributed $150mn of the $1.1bn combined fundraising announced today.

However, the new launch tickled FT Alphaville because some non-quant-obsessed normies mainly know DE Shaw as the hedge fund where Jeffrey Bezos worked before he started Amazon.

It’s possibly not strictly true that David Shaw straight-up passed on investing in Amazon, but the idea of starting an online bookseller that could become an “Everything Store” definitely got its genesis in DE Shaw’s exploration of various internet ventures.

Back in the early 1990s, DE Shaw developed and financed several other online businesses, such as email service Juno (which went public in 1999 and was eventually subsumed by a rival) and online brokerage FarSight (which Merrill Lynch eventually bought). Here’s an excerpt from Brad Stone’s book about Amazon:

Several executives who worked at DESCO at that time say the idea of the everything store was simple: an Internet company that served as the intermediary between customers and manufacturers and sold nearly every type of product, all over the world. One important element in the early vision was that customers could leave written evaluations of any product, a more egalitarian and credible version of the old Montgomery Ward catalog reviews of its own suppliers. Shaw himself confirmed the Internet-store concept when he told the New York Times Magazine in 1999, “The idea was always that someone would be allowed to make a profit as an intermediary. The key question is: Who will get to be that middleman?”

But instead of doing it in-house, Bezos left DE Shaw to start what would become Amazon solo — with Shaw’s blessing, and seemingly, none of his money. In the pantheon of great missed opportunities that ranks pretty highly.

DE Shaw follows Man Group and Two Sigma into the group of hedge funds looking to deploy their approach in private markets. It’ll be hard to do worse than some of the growth-jockey crossover hedge funds have done lately, after all.

And David Shaw seems to be doing pretty well in his new gig curing diseases.

Further reading:

DE Shaw: inside Manhattan’s ‘Silicon Valley’ hedge fund

Quant funds train sights on private equity market