Zuckerberg-backed Iconiq seeks new ways to cash in on start-ups amid IPO drought

Investment group that acts as family office of top entrepreneurs bets on M&A and secondary markets

Iconiq partners Seth Pierrepont, left, and Matt Jacobson © Iconiq Capital

An investment group affiliated with Meta chief Mark Zuckerberg and Twitter founder Jack Dorsey is looking for new ways to create value from its largest-ever venture fund, as a dearth of initial public offerings forces start-up investors to innovate.

Iconiq Capital, a San Francisco-based investment group, recently closed its new $5.75bn fund via its venture capital arm Iconiq Growth — an increase on its previous $4.1bn vehicle raised in 2021.

Matthew Jacobson, a partner at the firm, told the Financial Times the fund would adapt to a downturn in the public markets that has meant fewer start-ups have sought IPOs in recent years — the typical way that venture groups secure a return on their investments.

“The vast majority of our value has historically come from the public markets; we’ve had around 30 IPOs in the last 11 years,” said Jacobson. “That’s changing. We haven’t had a new company go public since 2021.”

Jacobson said Iconiq would instead take advantage of “new sources of activity”. Those include a growing number of mergers and acquisitions driven by strategic investors. Another is a jump in the trade of start-up stock on the secondary market, where venture investors exchange their existing stakes in companies.

The Silicon Valley group’s adjustment follows others in the venture industry. US VCs raised $191bn in 2022 but just $82bn last year, and are on course for a lower haul this year, according to PitchBook data. Investment into start-ups has fallen steeply over the same period.

Iconiq delayed closing its latest fund, after most of the new capital was pledged by investors two years ago, and did not commit to a single new company in 2022.

But last month Iconiq portfolio company QGenda, a healthcare software start-up, agreed to sell to Hearst, reportedly for more than $2bn. The group is also taking advantage of growing trade in start-up secondaries, as investors sell up in order to release their capital.

“We’re seeing a lot of early shareholders looking for liquidity and it creates opportunity in the market,” said Jacobson.

A boom in artificial intelligence has also helped draw investors including Iconiq off the sidelines. The firm has avoided start-ups developing underlying AI models, such as OpenAI and Anthropic, because of how “immensely capital intensive” their work is, said Jacobson.

Instead, it has made smaller investments in groups creating AI “applications” — tools and services built on top of AI models — including start-ups Glean, Writer, Evolution IQ and DeepL.

Iconiq Capital does not publicly disclose the names of its wealthy backers, although these are known to include Zuckerberg and Dorsey. Its advisory board includes Tiger Global boss Chase Coleman, KKR co-founder Henry Kravis and LinkedIn co-founder Reid Hoffman, according to a person with knowledge of the matter.

Iconiq Growth, the firm’s venture arm, is also building its presence in Europe, where it has backed payments group Adyen and the digital whiteboard software company Miro. It will have particular interest in groups in Paris and London where governments have shown a keen interest in building hubs for AI start-ups.

“The French government has been more front-footed — [President] Macron kicked that off years ago — but the UK has certainly responded,” said Seth Pierrepont, who leads Iconiq’s team in Europe.

“It helps that the folks running AI within the largest companies are largely European: Demis [Hassabis at Google], Yann [LeCun at Meta] and Mustafa [Suleyman at Microsoft],” he said.