“The Tiger” here refers to Tiger Global Management LLC
To do anything remotely tangible in a business, you need funds. To materialize your idea, hire employees and all that stuff requires money. So yeah, as they say, Finance is the life-blood of business.
You could either bootstrap your business with your own money or borrow from others. Without sufficient track-record or credit score, don’t even think of going to a bank. But how do you grow your business and develop a track record without funds? That itself poses a chicken first or the egg first situation.
The solution? Venture Funds, Angel Investors Or those with boatloads of money like, I don’t know, Hedge Funds?
What is a Hedge Fund?
Hedge funds are usually pooled funds that are aggregated from investors which is managed by an experienced fund manager. The funds are then invested in different avenues using sophisticated investment strategies in a way that it provides maximum return to the investors of the fund.
The fund is usually setup as a limited partnership and the investors of such funds are called Limited Partners(LPs). They usually comprise of other businesses or High Net-worth Individuals as entry to such funds require huge initial investments and these investments usually have a lock-in period ranging from one to n number of years.
The star of this thread is a such a Hedge Fund called Tiger Global Management LLC.
Julian Robertson, one of the greatest fund managers of all time managed a hedge fund called Tiger Management. He is credited with turning his start-up capital of $8 million into over $22 billion over a period of about 20 years.
During his time at Tiger, Robertson mentored many young minds under him. They were called Tiger Cubs and they went on to manage around 50 of the world’s top hedge funds, including Andreas Halvorsen’s Viking, Philippe Laffont of Coatue Management, Lee Ainslie of Maverick Capital and Chase Coleman of Tiger Global Management.
In 2000, Robertson closed Tiger Management, and entrusted Coleman with over $25 million to manage with which he started Tiger Technology as a hedge fund investing in public equity market. It was later renamed to Tiger Global Management LLC and started investing in the private equity markets from 2003, making it a crossover hedge fund.
How Traditional Venture Capital Works?
In a way, Venture Capital funds are like hedge funds that invest in startups.
A typical VC fund will raise capital from its investors(LPs) and will use the funds to invest in startups that they believe will earn them higher returns in the future. Most of them also provide advisory services too. After a particular point, in the future, the VCs exit their position by selling their stake.
VCs in general, try to invest in a company at the early stage and exit after it goes public so as to maximize their returns. They can do this only with those companies that survive till it goes public. Therefore, they put in a lot of work, analyzing different metrics to select and invest in the best startups.
Thereafter, they place a member on the board of the new business to have a say in its workings and make sure they burn through the funds they have provided. As such, they usually tend to invest their funds over a long period of time say 1-5 years or more.
Clearly, it is a long process from the beginning to the end.
The Momentum of The Tiger
Tiger Global, on the other hand, plays it entirely different than the rest. To begin with, it is a crossover hedge fund with about $65 billion in AUM and has more than 650 investments to its name!
They raise funds ever so often, it seems. They raised their 13th fund totaling $6.65 billion in March, which they initially mentioned in their letter to shareholders to be of $3.75 billion but ended up raising almost double the amount. Just last week, they were said to raise another $10 billion for a new fund.
They are not just raising funds. The rate at which they invest is ridiculous. According to an article in The Information, Tiger averaged four deals per week during the first quarter. If you think that’s a lot, how about the fact that they did 26 deals in just the month of April(according to Jason Calacanis)!
The Modus Operandi Here
In short, there are 2 main elements here – deal velocity and BFC capital.
- Deal Velocity – Tiger invests it at a high velocity. This leads to more investments and thus a diversified portfolio wherein even if one of the businesses blows up, it won’t affect the overall return much.
- BFC capital – It stands for Better, Faster and Cheaper capital. They spot high growth startups and bid the highest offer, a lot higher than anything on the table and don’t place any members on the board like traditional VCs.
What Tiger does is just invest in the business and let the founders and let the founders do their thing. This is the main reason why even if there are other VCs that have a better brand come with offers, founders tend to take Tiger’s deal as it is easy money with almost “no strings attached“!
On the face of it, it may seem that the Tigers of the world will takeover VCs. But there still will be startups at the earlier stages that might want a hand-holding investor and does not bother giving up board seats for better guidance. They also take offers from VCs with a better brand value at even higher cost of capital with the hope that it will boost their prospects to attract better talents and investors down the line. For those companies at their later stage, the Tiger proposition is the best way to go ahead.