It’s shocking that a bunch of noisy retail traders have effectively managed to shutter one of the most successful hedge funds on Wall Street.
Melvin Capital, Gabe Plotkin’s once high-returning hedge fund, is liquidating its portfolio, Plotkin told investors in a letter this week.
It’s been less than a year and a half since the GameStop trading frenzy shook the financial markets. A slew of day traders, spurned on by commentary in the Reddit channel WallStreetBets, ignited a remarkable share in GameStop stock that forced hedge funds like Melvin to close positions at $7 billion in losses.
That trading saga ignited a House committee hearing, and it unveiled just how powerful retail investors have become in today’s markets. This has been going on for some time, as I’ve written about previously. And it’s happening in the private markets as well—where PE firms are vying to land whoever they can get as investors and angels are backing nascent startup founders.
But the closure of Melvin Capital, which ended last year down 39% and was down 23% in April, will go down in history as a remarkable milestone of that transition. A powerhouse hedge fund with $8.7 billion in AUM as of last month is closing its doors. Plotkin, who had posted incredible returns of around 30% annually for six years, is stepping away from managing external capital.
“I am sorry. I got this one wrong. I made a mistake. I apologize,” Plotkin wrote to investors in a letter. “In hindsight and despite our intentions, we recognize now that we focused on future returns and team continuity without sufficient consideration of your investment losses.”
Melvin Capital didn’t have a whole lot of time to recover. After its multi-billion losses, the firm had to reckon with steep market declines. Tiger Global’s public fund has been hit by $17 billion in losses this year during the tech selloff, and other hedge funds don’t seem much better off.
But the catalyst was GameStop, and Plotkin’s defeat has become a symbol of how a group of noisy—and sometimes extremely offensive or vulgar—day traders, some of whom feel taken advantage of by Wall Street’s asset-heavy investment firms, have gathered enough momentum to initiate wild sways in the markets when they choose to rally together. It’s also a well-served reminder of how a single risky bet can take a firm out of business.
It’s worth noting that, while it may be remarkable, this is not a glowing David vs. Goliath fairytale. Some traders are ruthless: Plotkin reportedly had to hire extra security for his family and has been berated with anti-Semitic slurs since the events from last January.
Ken Griffin, hedge fund Citadel’s CEO, lodged criticisms at retail traders at an event hosted by Bloomberg Intelligence. “It’s not Gabe’s money that you are taking down. You’re taking down the money of a pension plan that belongs to a teacher.”
With more and more brokerage startups entering the markets, you have to wonder: Who will retail investors target next?
Trimming it… Buy now pay later giant Klarna Bank is reportedly seeking new funding at a valuation in the low $30 billions—which would lower its latest post-valuation by about a third, people familiar with the matter told the Wall Street Journal. Klarna appears to be the second major unicorn, following Instacart earlier this year, to be slicing billions off its valuation in the private market amid the public tech stock spiral.
Until Monday,
Jessica Mathews
Twitter: @jessicakmathews
Email: [email protected]
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Jackson Fordyce curated the deals section of today’s newsletter.
VENTURE DEALS
- Velocity Global, a Denver-based HR platform, raised $400 million in Series B funding led by Eldridge and Norwest Venture Partners.
- Recurrent, a Miami-based digital media company, raised $300 million in funding led by funds managed by Blackstone Tactical Opportunities.
- Caribou, a Washington D.C.-based automotive financing platform, raised $115 million in Series C funding led by Goldman Sachs Asset Management and was joined by investors including Innovius Capital, Harmonic, Accomplice, CMFG Ventures, Curql Fund, Firebolt Ventures, Gaingels, Moderne Ventures, Motley Fool Ventures, and others.
- Noyo, a San Francisco-based employee benefits platform, raised $45 million in Series B funding led by Norwest Venture Partners and was joined by investors including Workday Ventures, Gusto, Cap Table Coalition, Costanoa Ventures, Spark Capital, Homebrew, Operator Collective, Fika Ventures, Precursor Ventures, Garuda Ventures, Core Innovation Capital, and Webb Investment Network.
- Inceptor Bio, a Morrisville, N.C.-based biotech platform developing cancer therapies, raised $37 million in Series A funding led by Kineticos Ventures.
- Fetcher, a New York-based recruiting automation platform, raised $27 million in Series B funding led by Tola Capital and was joined by investors including G20 Ventures, KFund, and Accomplice.
- Bravado, a San Francisco-based professional network for B2B sales teams, raised $26 million in Series B funding led by Tiger Global and was joined by investors including Redpoint Ventures, XYZ Ventures, Freestyle Capital, Precursor, and other angels.
- UrbanFootprint, a Berkeley, Calif.-based urban intelligence platform, raised $25 million in Series B funding. Citi (via its Citi Ventures and SPRINT groups) and Social Capital led the round and were joined by investors including 2150, A/O PropTech, Assured Guaranty, Dcode Capital, Valo Ventures, and Radicle Impact.
- DoraHacks, a Singapore-based hacker movement and Web3 developer platform, raised $20 million in Series B1 funding. FTX Ventures and Liberty City Ventures led the round and were joined by investors including Circle Ventures, Gemini Frontier Fund, Sky9 Capital, Crypto.com Capital, and Amber Group.
- FloorFound, an Austin-based reusable ecommerce platform for oversized retail products, raised $10.5 million in Series A funding. Next Coast Ventures and LiveOak Venture Partners led the round and were joined by investors including FlyBridge Capital Partners, Schematic Ventures, and Datapoint Capital.
- Flexspace, a New York and San Francisco-based coworking network provider, raised $6 million in seed funding led by M13 and was joined by investors including R-Squared Ventures and Magenta Venture Partners.
- ChargeFUZE, a Los Angeles-based mobile charging provider, raised $5 million in seed funding led by Beverly Pacific, TR Ventures, VA2, Carro co-founder and president Jason Goldberg, and former Walt Disney Parks and Resorts president of worldwide operations Al Weiss, and were joined by others.
- Included, a Seattle-based employee engagement and people analytics platform, raised $3.5 million in seed funding led by Trilogy Equity Partners and was joined by investors including Flying Fish Partners, SignalFire, and Alumni Ventures.
- Aumio, a Berlin-based sleep and meditation app for children, raised €3 million ($3.18 million) in funding led by Partech and byFounders.
PRIVATE EQUITY
- CorroHealth, backed by Carlyle, acquired ParaRev, an Elgin, Ill.-based health care accounts receivable recovery and resolution management solutions provider. Financial terms were not disclosed.
- Marigny Investments acquired Victory Supply, a Mt. Pleasant, Tenn.-based inmate clothing and detention supplies distributor. Financial terms were not disclosed.
- Narrow Gauge Capital acquired a majority stake in Inco-Check, an Irvine, Calif.-based quality control and audit services and software for banks, credit unions, and lenders provider. Financial terms were not disclosed.
- Salt Creek Capital acquired Bay Standard and Bay Standard Manufacturing, a Brentwood, Calif.-based manufacturer, importer and distributor of threaded rod, fasteners, and related products. Financial terms were not disclosed.
- Thomas H. Lee Partners acquired a majority stake in Inriver, a Malmö, Sweden-based product information management solution. Financial terms were not disclosed.
EXITS
- Clearlake Capital Group acquired BBB Industries, a Daphne, Ala.-based automotive aftermarket manufacturer, from Genstar Capital. Financial terms were not disclosed.
OTHER
- Centennial Resource Development agreed to acquire Colgate Energy, a Midland, Texas-based oil and natural gas company. A deal is valued at about $2.5 billion.
- Cipherloc Corporation agreed to acquire SideChannel, a Worcester, Mass.-based cybersecurity services company. Financial terms were not disclosed.
- Fastly acquired Glitch, a New York-based full-stack developer platform. Financial terms were not disclosed.
IPOS
- Go First, a Mumbai-based airline company, plans to raise 36 billion rupees ($464 million) through an initial public offering in July.
FUNDS + FUNDS OF FUNDS
- GreenPoint Partners, a New York-based alternatives investment firm, raised $134 million for a fund focused on tech companies.
- Round13, a Toronto-based venture capital firm, raised $70 million for a fund focused on Web3 projects and crypto companies.
PEOPLE
- Levine Leichtman Capital Partners, a Beverly Hills-based private equity firm, hired Lindsay Grider as global head of fundraising and investor relations. Formerly, she was with Tailwater Capital.
- Paradigm, a San Francisco-based crypto investment firm, hired Caitlin Pintavorn as an investment associate. Formerly, she was with Insight Partners.
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