📶 Revisiting the Tiger strategy (2.5 years later)

Where Tiger went wrong, our revamped referral program, plus the best jobs and links from the week

Author

Clay Norris
December 19, 2023 • Estimated Reading Time: 10 minutes

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Three years ago, Tiger Global was changing the venture world.

Today, they are hurting.

A lot has happened between now and then, and we try to make sense of it all in this week’s piece.

If you think we’re right, wrong, or way wrong, let us know in the comments.

TL;DR:

NEWS
Revisiting the Tiger strategy 📉

If you work in venture (and even if you don’t), chances are you have heard of Tiger Global.

They were poster children for innovative financing when times were good, and they have been dragged through the mud now that times are bad.

It’s been 2.5 years since this masterpiece was written about their strategy. With the benefit of 20/20 hindsight, let’s see where things went wrong.

The Tiger strategy (2020 - 2022):

Most venture capital funds move SLOW. Founders know this, VCs know this, LPs know this, and it seemed like this was a universal truth in the venture community.

But nobody told the Tiger guys.

Starting in 2020, they started getting access to every hot deal. Here’s the abbreviated investment strategy that helped them win allocations consistently:

  • Aggressively pre-empt good tech businesses

  • Move ridiculously fast through diligence (sometimes offering term sheets within 48 hours) by outsourcing diligence to Bain consultants

  • Ignore price sensitivity and pay more than other funds are willing to

  • Move to the next deal and take a lightweight approach to company involvement post-investment

Above all else, they deployed capital, and they did FAST. They were financiers, they eliminated friction in the diligence process, and they made decisions quickly.

And they were winning.

Other funds were being forced to adopt a version of their high-velocity model, founders were fundraising faster, markups were happening, and LPs were happy.

Fast forward two-and-a-half years, and that’s all in the past.

For a more detailed deep dive into the Tiger strategy, I highly recommend this piece.

What went wrong:

Fast forward to today, and Tiger’s biggest fund has an 18% markdown, two senior partners have left, deal volume has fallen off a cliff (shown in the chart above), and the latest fund closed at 55% less than what it set out to raise.

They still manage billions in AUM (they’ll be alright), but there are some core lessons for other funds thinking about running a similar strategy.

  • Higher velocity = higher exposure. Most investors will admit that they like going fast (Who doesn’t like getting deals done?). But you sacrifice a lot in order to make quick investment decisions, and Tiger is paying the price for those quick decisions today. Higher velocity is a multiplier when it’s the right strategy, but it also works the other way when things go South.

  • Lowering price sensitivity standards becomes a downward spiral. Speaking from an LPs perspective today, if you don’t have a portfolio strategy with ownership targets, you aren’t investible. Especially now that valuation multiples have returned to normal, it has become almost statistically impossible to beat the market without strict ownership targets.

  • No involvement post-investment. I actually don’t have a problem with this approach. Most VCs can’t help companies beyond giving them money (despite desperately trying to). Tiger was upfront that companies should only look at them as a source of capital, but their lack of involvement post-check created little-to-no opportunities for follow-on investments to double down on their winners.

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