Inside Tiger Global’s Deal Machine

Author: The Information URL: https://www.theinformation.com/articles/inside-tiger-globals-deal-machine One-line: Tiger Global’s record-breaking deal pace — light diligence, top-of-market prices, no board seats — is an “investment flywheel” built to outrun traditional venture firms on speed and cost of capital.

Highlights #Bifurcation in Investing

• Gadson, who lost both legs to an explosion in Baghdad, shared this advice on overcoming intense adversity: “Focus on what you can do today.”
• Tiger’s managers said in a February letter to their investors that after reflecting on that advice and the firm’s 20 years of tech investing experience, they were determined to make its “investment flywheel spin faster.”
• Tiger’s unprecedented deal blitz, led by a co-founder of its private equity unit, Scott Shleifer, and its head of software investing, John Curtius
• Overall, Tiger has $65 billion in assets under management, far more than most Silicon Valley-based VC firms. Tiger says that collectively, its own employees are the firm’s largest investor.
• The firm’s current speed, which echoes the pace of SoftBank’s private tech investments starting four years ago, comes as more public stock market investors pursue stakes in privately held companies.
• “The longer the bull market goes, and the higher the [valuations] get at every stage, there is greater and greater incentive to [invest] earlier,” said Peter Wagner, a founder of Wing Venture Capital
• Tiger makes no promise that it will work closely with founders on growing their companies, a contrast to the approach a16z and other Silicon Valley VC firms have popularized. Instead, Tiger pays for its portfolio companies to access consultants at Bain & Co. who provide advice on things like how to launch a product in a new market, according to several founders of companies Tiger funded. #VC Platform
• Shleifer sent the founder five pages of notes documenting Tiger’s extensive interviews with several of the 3-year-old startup’s customers.
• Oftentimes, Tiger leapfrogs rivals simply by moving faster and offering founders a generous valuation for their companies.
• Tiger’s tendency to hold onto shares for years after a company goes public gives it an additional edge, say founders, because of the stability it can bring to the stock price. Although large venture firms such as Andreessen and Accel also hold company shares long after an initial public offering, they don’t operate hedge funds dedicated to investing in public stocks. As a result, they may need to distribute shares in the companies to their own investors sooner than Tiger would.
• Those wins plus gains from holdings in other newly public stocks such as Snowflake have given Tiger even more firepower to make additional investments.
• Overall, the net internal rate of return for Tiger’s private equity funds combined is 26%, according to the February investor letter. By comparison, the average net return for late-stage venture funds over a 30-year period is approximately 13%, according to 2014 research by Cambridge Associates.
• The firm’s partners are likely to keep working remotely at least part of the time. In February, Shleifer paid $122 million for a Palm Beach, Fla., mansion formerly owned by Donald Trump, and he plans to make it his primary residence this fall, this person said.
• Shleifer, 43, and Tiger’s founder, Chase Coleman III, 45, are the firm’s only two investors with the authority to make final investment decisions, according to a person familiar with the matter.
• Shleifer avoids getting bogged down in details and can turn on a salesman’s charm to close deals, say investors and founders who have worked with him. Shleifer looks at “how the world fits into something—he puts the overall thesis on top of stuff,” said Chris Olsen, a co-founder of venture firm Drive Capital and a former Sequoia Capital partner.
• Curtius is known for grilling founders on statistics such as churn rate and net retention and has gained a reputation for doling out high-priced term sheets. Of the more than 60 investments in private companies Curtius has worked on with Shleifer since joining Tiger, roughly one-third have boosted the companies’ paper value to $1 billion or more, according to The Information’s analysis.
• VCs derided the approach as overcapitalizing the startups, and the strategy proved somewhat defective when big investments including WeWork, Oyo and Katerra spiraled downward. On the other hand, the Vision Fund has since made a significant paper profit overall, thanks to the broad stock market boom and its stakes in companies such as Coupang, Uber and DoorDash.
• As the private tech market balloons in size, Tiger and other public market investors provide capital “in a way that’s tremendously more efficient for the founder and that, sustained over time, can be disruptive to a traditional venture [investing] model,” said Semil Shah, an early-stage startup investor. “They play the game very differently.” #Investing 101 2.0

Connections

• Bifurcation in Investing — Tiger as the leading edge of the split between high-velocity, low-touch capital and high-service brand-name venture.
• Investing 101 2.0 — the “play the game very differently” thesis: a new rulebook for deploying capital at scale.
• VC Platform — Tiger’s anti-platform stance: outsourced Bain consultants instead of in-house value-add.
• Tiger Global Management — the firm itself: $65B AUM, 26% net IRR, Shleifer + Coleman as sole decision-makers.
• Playing Different Games — Everett Randle’s essay analyzing this same Tiger playbook as a structural flywheel.