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Tiger Global: How to Win

readthegeneralist.com

99 pointsimartin2k24 comments

Ugh, just read the original that this post rips off, which has all the analysis and none of the egregious over-writing.

https://randle.substack.com/p/playing-different-games

No wonder I had the DejaVu feeling.

They are both worthwhile articles, for different reasons.

I think the real thing is they simply compete better than traditional VCs. If there is a deal, they find it faster, offer more money, less terms, less primadonna dancing, and are ready to close basically same/next day.

In contrast, Tier 1/2 VCs are used to getting warm intros straight into their inbox, a subservient pitch, and hemming and hawing through their thesis process, friends process, and the same through their partners.

So if the decision is ready by the time a TG partner talks with a founder, the process is flipped. The sense of enthusiasm and alignment is already there as is the sheer ability to do a deal: TG is chasing in one, and the founder pitching in the other. When TG reduces a financing to a bank loan / sale, and less talk of marriage, which would you rather, a 1mo-6mo 'process' that takes the CEO out of company operations, or a next day sure thing?

There is truth to both, but the VC market is almost entirely firms that are nails on chalkboard for founders, and very few pre-approved-like as w TG. If you just need a deal and move on, they can win a ton.

To summarize, most people need money, not VCs.

The Information had a good article on this recently. In essence, starting a software start-up is less risky today than it was in VCs’ heydays. This is particularly true for enterprise SaaS. That makes the sourcing side of VC easier, which enables scale. Tiger is bringing wholesale fundraising economies of scale to VC. If their thesis, that the mean risk of a software start-up is lower and randomly distributed, and that VCs’ “value adds” in terms of coaching founders and picking start-ups is not worth the scaling cost, then they should replace VCs in this space. Counterfactual: Tiger has been investing in a historic bull market for technology companies.

According to the OP, which borrows liberally from an earlier piece by someone else[a], the way to win for VC firms is by investing more capital, faster, with less due diligence, and at higher (market-clearing) valuations than competitors. Just throw money at things that look, you know, like promising winners. Don't waste time on things like assessing risk.

While in theory it's always possible to lose money investing in startups (gasp), there is NO mention of that possibility in this article. The concept of risk of loss appears to be... foreign to the author, I guess?

Over the past six to seven decades, the US venture capital industry has gone through a handful of boom-and-bust cycles. For example, many VC funds that launched at the peak of the last major VC boom, in 1998-2000, ended up losing 50-100% of LP capital over the next decade.

Perhaps all that "ancient" history is irrelevant now. Maybe there's no risk of loss anymore? Maybe this time it's different?

[a] See this comment: https://news.ycombinator.com/item?id=29297400

Do GPs get sued if LPs lose money?

> Don't waste time on things like assessing risk.

They assess risk differently. They do due diligence. The average VC assesses risk poorly, 50% of VCs lose money*, let alone return enough for value-at-risk. Doing a deal a day will give them enough data for them to measure actual risk/rewards over time. You don’t learn much if you only play a few times a year.

Edit: Also a traditional fund might invest in say ten companies and that LP funding round is betting one of those investments will return all the profit. This is a high variance investment strategy and the LPs returns are highly correlated with market conditions. With investments in a lot more companies as Tiger are doing, the variance is driven down, especially if the fund is spread across companies with varying ages. I suspect that there is more scope for LPs to cash out earlier, unlike a typical LP problem where money is locked up for a decade and is highly illiquid. I have read that a VC funds one company and says no to 99. There absolutely has to be A LOT of money left on the table in the other 99 - the signal to noise ratio of understanding new enterprises is so high that it is guaranteed.

> While in theory it's always possible to lose money investing in startups (gasp), there is NO mention of that possibility in this article.

I think that the risk of losses is implicit enough. The article definitely mentions your “boom-and-bust” cycles: “The most significant risk to Tiger is macroeconomic.” “Should the sector experience a sharp downturn”…

Also: “Tiger will need to make sure it does not become the poster-child for failures of [governance]”.

Edit: Interestingly enough, AVC who is usually insightful, recently wrote about how seed investment $1M for 1% is a poor investment strategy https://avc.com/2021/11/seed-rounds-at-100mm-post-money/ and the Tiger Global article mentions the critical part of Tiger Global’s involvement with seed funds that AVC missed: “To make sure it sees more deals, Tiger cozies up to seed funds. […] The source I spoke to noted that Tiger essentially asks these managers, ‘How do we become the only partner you bring Series As to?’.”

* https://techcrunch.com/2017/06/01/the-meeting-that-showed-me...

I wouldn't write off traditional VCs just yet. Traditional VCs like Sequoia and Bessemer have been through a tech bubble and the GFC and have the scars to show for it. Tiger has been investing in an incredible bull run in tech which has seen valuations now eclipse the first tech bubble in 2000. It remains to be seen whether things will burst in the same way or have a soft landing (or continue their upward march indefinitely!). It also remains to be seen what will happen to newer entrants like Tiger if things do turn south dramatically.

According to wikipedia (https://en.wikipedia.org/wiki/Tiger_Global_Management), Tiger Global started investing in PE market in 2003, so they went through the GFC. They've been investing in start-ups longer than A16Z and many others.

VC are annoyed because someone may show them that their due diligence is useless. But it is always funny to see that VC thinks their decision process is smart when in fact most of their portfolio will not return anything.

Is VC really more efficient than giving money to anyone who has a master degree and some customers ?

Aren’t these two points in contradiction with each other? Also not a good sign when adverts (this basically is one) hit the front page of HN

Founders may be sick of “hands-on” investors. Part of Tiger’s pitch is that it will be an unobtrusive capital partner. That approach runs counter to industry norms as most firms compete to demonstrate a willingness to roll up their sleeves and help. The fact that so many founders find Tiger’s laissez-faire attitude attractive exemplifies the lack of trust many have in VC’s value propositions.

Hedge fund managers can bring novel perspectives to startups. Though perhaps less visionary than their venture capital counterparts, some founders find the detail and rigor of hedge fund managers’ thinking refreshing.

(1) sounds like micromanagement to me, whereas (2) sounds more hands off.

Yeah, I can see that angle. I can imagine most VCs would say the same thing “we don’t micromanage, its your company, but we will try to give you good ideas”

Umm I don't know seems like a lot of words for someone / something that got lucky. I am only familiar with Flipkart where Tiger global invested billions and it would have turned into humongous piece of turd. To think about it everyone was losing patience with Flipkart loses including proven "investment genius" Masayoshi Son. If that Flipkart investment sank billions, Tiger Global would never have recovered. But Indian governments protectionist policy of not allowing Walmart to settle previously. And then later on suddenly allowing to Walmart to take majority stake in India's "crown jewel" Flipkart. For those who know India it was a kind of "License fee" for Walmart to operate in India.

Flipkart owners were absolute crybabies when losing money and market share. They claimed it is another case of enslaving India by foreign companies like East India company hundreds of years back. Later on they forgot all nationalism and quite happy sold majority to Walmart.

I am sure with enough time and effort one can find many more of these kind of investments from Tiger Global. All this talk of outsourcing work to external consultants seems straight from people who would not know head from their ass. So even after spectacular failure of Son's Global Fund people feel this kind of cultish hype about investors work.

When the fed is printing money hand over fist (and only has plans to slow down the printing press, not to reverse it), the way to win to is close your eyes and buy (almost everything) and quickly.

https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

An interesting story of disruption. Tiger Global offers lighter diligence, cheaper capital, and less oversight of its portfolio companies. Sounds like a great strategy for frothy times, but what happens when risk is “off” and tech is no longer bid endlessly higher?

Companies that raised 100s of millions from Tigers will survive and thrive while all of the cash strapped startups will go out of business.

and they will buy great teams and some tech on the cheap.

What happens? They will get less returns not zero. This is not a company in the traditional sense that they will go bankrupt so they will be fine.From the article, they are spreading the risk over various companies so there are going to be homeruns. They are also focusing on the growth stage not seed so at this point there are some signals on product market fit. Linking it to tech employment, its similar to engineers focusing on growing companies knowing that the chances of payout are high from stock options is high.

It used to be that every "layer" of VCs thought that the layer below is dart-throwing monkeys and the layer above is spreadsheet-jockeys, implying that they were the only ones using judgement.

So, now the ones near the top think that they are losing to monkeys.

More interesting: compare-contrast Tiger Global with SoftBank

How to Win: Outraise competition to buy market share

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