Tiger Global is having a year.
According to a new report from Financial Times, the low-flying-yet-seemingly-ubiquitous 21-year-old outfit has seen losses of about $17 billion during this year’s tech stock sell-off. FT notes that’s one of the biggest dollar declines for a hedge fund in history.
As shocking, per FT, according to the calculations of a fund of hedge funds run by the Edmond de Rothschild Group, Tiger Global’s hedge fund assets have been so hard hit that the outfit has in four months erased about two-thirds of its gains since its launch in 2001. (Ouch.)
The question is whether that trouncing will impact the firm’s venture business, which — like that of many other venture businesses — has ballooned rapidly in recent years. In 2020, the firm closed its twelfth venture fund with $3.75 billion in capital commitments. Early last year, it closed its thirteenth venture fund (titled XIV for superstitious reasons) with $6.65 billion before closing its newest fund, fund XV, with a massive $12.7 billion in capital commitments in March of this year.
Yet even that new fund — which reportedly took less than six months to raise and includes $1.5 billion in commitments from Tiger Global’s own employees — is almost fully invested already, according to a source close to the firm.
On the one hand, it’s not entirely astonishing to anyone paying attention that Tiger Global has put so much money to work already. It added 118 unicorn companies to its list of portfolio companies last year, according to Crunchbase News, and it continued to outpace every other investor in the first quarter of this year.
Those rounds, at least until earlier this year, were not small. In December, Tiger Global led a $1.8 billion Series B investment into the nuclear fusion startup Commonwealth Fusion Systems. It November, it led a $600 million Series D round for the electric vehicle company Nuro.
The 78 deals it led in the first quarter of this year — including a $768 million Series E round for Getir, the Istanbul-based on-demand delivery service, a $530 million Series D round for the Paris-based online bank Qonto and a $273 million Series C round for French wholesale marketplace Ankorstore — wound up in companies that collectively raised $7.6 billion, Crunchbase News reported last month.
Still, $12.7 billion is a lot of money, and it’s not even June. (It’s not even mid-May.)
The question begged, naturally, is how much money Tiger Global can collect for its next fund — and by when.
In all likelihood, the firm — which declined to comment — has soft commitments in place already based on its recent performance. According to a letter to investors obtained by TechCrunch, the firm’s private portfolio funds — as of the end of the first quarter of this year — had generated a 25% net IRR since inception in 2003.
In the first quarter this year, wrote the firm, “remaining value in the funds decreased by 9%, following an increase of 54% in 2021.” (Presumably, that value has sunk further in Q2, as valuations begin to drop broadly across the startup ecosystem.)
According to that same investor letter, Tiger Global boasts of stakes in 38 companies that went public last year — including Coinbase, Freshworks, SentinelOne and Toast — and says it distributed $3.7 billion to investors last year.
Either way, there could hardly be a worse time to be raising another enormous venture fund. Almost every institutional investor in the world has seen its stock portfolio hammered. And it isn’t like venture firms set aside money inside a giant piggy bank; they call down committed capital from their investors as they need it.
That process allows VCs to begin the clock on each investment as soon as a check is written, but it also subjects them to extreme market volatility. When public shares start to nosedive as now, university endowments, pension funds and other institutional investors grow loath to fulfill their capital obligations because it means having to sell public company shares that are underwater.
These same institutions also typically pull back from their new fund commitments, because as their public market portfolios shrink, they become overweighted by their private market allocations. (Most have targets they’re supposed to meet to ensure that they’re sufficiently diversified.)
Current trends will begin impacting everyone if the market doesn’t bounce back, but with Tiger Global’s performance so dramatically changed from even four months ago, the terrain could prove especially tricky for its team.
It certainly has a weaker case to make. According to FT, hedge fund investors who invested at Tiger Global’s 2001 launch have made more than 20 times their initial investment — despite its massive new losses. But that’s just twice the return they would have received by investing in the S&P 500 over the same 21-year period (and that’s not taking into account Tiger Global’s management fees).
Meanwhile, Tiger Global’s venture bets could go sideways — along with many other firms’ investments — if the market for exits doesn’t improve.
Tiger Global apparently saw what was coming. Its team, which works as one unit to make both hedge fund and venture bets, had already all but abandoned late-stage venture deals by early February, as The Information reported that same month.
Venture capitalist Keith Rabois, whose firm, Founders Fund sometimes competes with hedge funds, told The Information at the time that some pullback from those giant rounds was inevitable given the plummeting share price of publicly traded tech companies. “If you have a high burn rate and have raised money at high prices, you’re going to run into a brick wall very fast,” he’d said of late-stage startups. “There’s no free money anymore.”
It’s easy to wonder if Tiger Global’s own strategy shift to earlier-stage startups has come too late, and there are no fast answers on this front. Unlike with its hedge fund business, Tiger Global has the luxury of some time before its more recent venture bets can be judged. (The firm has historically enjoyed some big venture wins, including bets on Facebook, Linkedin, Airbnb and Peloton.)
In the meantime, Tiger Global, which prides itself on its due diligence, may be celebrating a separate apparent win right now. It passed on the one-click-checkout company Bolt, which is currently being sued by its biggest customer for having “utterly failed to deliver on the technological capabilities that it held itself out as possessing,” says the customer; as bad, Bolt’s former employees say it had a tendency to overstate its metrics.
As The New York Times wrote today in a piece about Bolt, after Tiger Global executives met with the company, they weren’t convinced the merchants to which Bolt pointed them would use Bolt beyond a trial, and they deemed Bolt’s revenue projections overly bullish.
While a lot of heavy-hitting firms proceeded to fund Bolt, including General Atlantic, WestCap and Untitled Investments — a firm founded by a former Tiger Global investor who left the outfit in 2017 — Tiger Global passed on the deal.
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