Point72 Ventures Eyeing emerging technologies
Steven Cohen’s investment strategy now extends far beyond the public markets.
The billionaire hedge fund investor’s two-year-old venture capital firm, Point72 Ventures, represents a major business complementing the main investment firm managing his fortune, Point72 Asset Management. Seeking to become a bigger player in a competitive field, Ventures has staked its future on technology firms it sees as industry leaders that would generate significant returns.
“In the U.S., there are a lot of venture capital firms, so you have to think carefully about how you differentiate yourself,” Matthew Granade, the head of Point72 Ventures, said in a recent interview at Point72’s headquarters, in Stamford’s Waterside section. “Of all the venture capital firms in the world, we probably have the best set of relationships into the financial sector of anyone.”
The firm did not make Cohen available for an interview for this article.
‘Doing the work’
Ventures was founded in May 2016, about two and a half years after Cohen converted his hedge fund, SAC Capital Advisors, into Point72 Asset Management. Its launch responded to the large volume of deals pitched to Cohen.
Since its inception, Ventures’ investments have focused on firms specializing in financial technology, artificial intelligence and machine learning.
“In fin-tech ... we felt we really understood a lot of aspects of that space, which meant we thought we could invest smartly there,” Granade said. “We’re focused on a few areas where we think there are really interesting things going on in the world, where the world is really changing.”
A team of 15 works for Ventures, with groups based at Point72 headquarters and in Palo Alto, Calif.
Ventures members prepare memos running about 25 to 30 pages on prospective investments. Those reports then go to Cohen; as Ventures’ funder, he has the final say in allocations. Accompanying discussions with him can range from “22 seconds” to an hour and a half, according to Granade.
“We’ll be thinking about autonomous cars, and he’ll want a full tour of all the technology that needs to come together to make an autonomous car work,” Granade said. “We’ll take 45 minutes, walk him through all of that and come back to the company we’re investing in. It’s a great experience.”
Ventures operates separately from Point72 Asset Management. But the industry insights gleaned by Ventures are shared — or “cross-pollinated,” as Granade describes the process — with Asset Management.
“Steve enjoys it a lot; he loves meeting the entrepreneurs,” said Granade, who, like Cohen, lives in Greenwich. “There’s an energy they bring and a passion for what they’re doing that he very personally resonates with, being an entrepreneur himself.”
The track record of Cohen, 62, would be well known to prospective recipients of Ventures funds. While he is widely regarded as one of the most talented investors of his generation, regulatory controversies have shadowed him.
In January 2016, he was banned for two years from supervising hedge funds as part of a settlement with the U.S. Securities and Exchange Commission connected to allegations that he failed to properly monitor a former portfolio manager convicted of insider trading.
Observers said Cohen’s reputation would play a role in his firm’s success.
“For an entrepreneur raising money, there are two key questions: ‘Does the check clear?’ Second, if it does, ‘Do I have a set of investors who can give me the most help?’” said Steve Blank, a serial technology entrepreneur in Silicon Valley and lecturer in the business school at the University of California-Berkeley. “I’m not sure Cohen’s name is the asset he thinks it is, but his connections in the financial world are second to none.”
Managing the portfolio
To date, Ventures has made about three dozen investments.
The firm declined to disclose the cumulative amount of those allotments, but it confirmed several deals have individually totaled several million dollars.
Typically, Ventures invests in startups fundraising in the early “seed,” “Series A” and “Series B” rounds.
“We have a ‘do the work’ philosophy — and that phrase comes directly from Steve,” Granade said. “We’re very rigorous in terms of our diligence and thinking about how a business is going to evolve over the next five to seven years, capital requirements, how its economics are going to work. We really pride ourselves on that.”
John Fawcett, co-founder and CEO of Boston-based crowd-sourced quantitative investment firm Quantopian, gave a similar account of the firm’s involvement with its portfolio companies.
Quantopian’s connection with Ventures predates the latter’s founding: Granade has served on the Quantopian board since 2012.
Since Ventures’ $4 million investment in the firm in 2016, it has helped Quantopian secure the prime broker for its trading and has assisted in other ways, such as consulting on product development.
“To be able to have the advice of Matthew (Granade), Steve (Cohen) and other experts is just incredible,” Fawcett said. “They have a very broad view of different strategies and investment methods. Having their feedback has been invaluable.”
Aiming for growth
Assessing Ventures’ returns on investments would take a number of years, Granade said. But he said the firm has been encouraged by early results. He cited the firm last year seeing around 97 percent of fin-tech deals done by U.S. venture capital groups and about 80 percent of such transactions for AI-machine learning companies.
Subsequent investments could focus on cybersecurity and digital health care, Granade said.
Some venture capital experts said Ventures should also target firms working on cryptocurrencies such as bitcoin, and the supporting technology of blockchain.
“Their investments are solid; they’re really interesting things that make sense,” said Blank, of the University of California . “But the edge is where the ‘crazy people’ are, and that would include blockchain and bitcoin. If Cohen is doing this to learn new things about the future of finance, this portfolio mix is pretty conservative.”
While they have not invested so far in cryptocurrency-focused firms, Ventures officials said they were studying the sector.
Another Cohen investing arm — Cohen Private Ventures, whose investments include private equity — has taken a stake in a cryptocurrency and blockchain-oriented hedge fund, Bloomberg reported last week.
At the same time, Ventures is looking to expand into markets such as Europe, Asia-Pacific and Australia that have less-developed venture capital communities.
“We have a very robust venture capital system, but if you go to Australia, it’s not like that,” Granade said. “We think there are a lot of opportunities to help companies there. The most important thing is to continue to do great deals and be disciplined about what we’re doing and stick to our investment process.”
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