Spurred by their appetite for technology companies and seeking higher returns, a growing number of hedge fund managers have started to invest more in private Internet companies.

When daily coupon website LivingSocial said it raised $400m in April, the firms putting up cash included hedge-funds Tiger Global Management, Lone Pine Capital and Brookside Capital, people familiar with the matter say. Tiger's name popped up again in late June, when the New York firm grabbed a piece of the $100m financing round for Square Inc, a mobile-payments start-up led by Twitter co-founder Jack Dorsey.