For the first 15 years of running Tiger Global Management, Chase Coleman wore a suit every day in the hopes that investors would look past his inexperience. Today, his firm faces a different kind of reputational issue.
In the two decades since it was founded in 2001, Tiger Global has become one of the most profitable tech investors, holding stakes in more billion-dollar private start-ups than any other firm, according to CB Insights. The hedge funds it manages have outperformed the stock market by a factor of eight.
However, the more than $70bn group has recently gained notoriety for something else: a fast-paced style of investing that has unsettled the clubby ranks of Silicon Valley venture capitalists.
Tiger Global has been willing to move quicker, pay higher prices and forego board seats at rapidly growing start-ups. Its style, first developed in countries such as China, India and Russia, has now made its biggest splash in the US, where some rivals feel threatened by the investment firm’s aggressive tactics.
The pace of its investments has drawn shocked responses from the rest of the market. Already this year it has invested in more than 170 venture deals in start-ups, more than double its total in all of 2020, according to data from PitchBook. Tiger Global served as a lead investor in more than half of those financings — about three deals a week — effectively setting the price for a company’s shares.
Tiger Global has inspired plenty of imitators as public markets shrink and low interest rates send investors searching for returns in private tech companies. But few have attempted the strategy at the group’s scale, or with the same amount of fervour.
“The focus was on being fast and making money,” says Nazar Yasin, a former executive at Tiger Global who left the firm in 2013.
For most of its history, Tiger Global’s approach has produced significant profits. There have been times, however, when it has made missteps as it expanded into more than 30 countries, according to people familiar with its operations, investor correspondence and other documents detailing fund performance.
Silicon Valley venture capitalists have now begun questioning whether Tiger Global has stretched its limits, as the group seeks to raise a record $10bn fund from investors.
Michael Ewens, an economist at California Institute of Technology who studies start-up financing, says he cannot think of a traditional venture capital fund that has ever invested as quickly as Tiger Global.
“If they continue to make money with that model, then it’s good for everybody,” says Ewens. “But then it means that the venture investors were doing it wrong. It’s going to take five to eight years for us to know if that’s true.”
Targeting ByteDance
Tiger Global began life at an inauspicious moment, raising money for a stockpicking hedge fund following the dotcom burst in 2001. Originally named Tiger Technology, the fund targeted investments in fast-growing public companies and bet against businesses on the wrong side of technological change.
Coleman, its then 25-year-old founder and a descendant of New York’s Stuyvesant family, won early backing from Julian Robertson’s Tiger Management, one of the first elite hedge funds.
Out of those blue blood roots, Coleman has become one of the most bullish tech investors of his generation. This year, Forbes estimated his net worth at $10.3bn, more than double that of his mentor Robertson.
While Tiger Global made its name as a public stockpicking hedge fund under Coleman, the firm has recently attracted more notoriety for its private investment funds, which are overseen by longtime executive Scott Shleifer.
Tiger Global in India
160
Deals made in India since 2006, 29 in 2021 alone, according to PitchBook
$1bn
Size of the investment it led into Flipkart in 2014
$16bn
Size of the deal in which Walmart took a majority stake in Flipkart
One of the keys to Tiger Global’s strategy has been convincing backers, such as Stanford University’s endowment, to consistently invest each year in the group’s swelling tech funds. After raising an almost $6.7bn fund in March, Tiger Global had invested the vast majority of the capital by June, according to a letter to investors. Its new $10bn fund will begin accepting capital as soon as October.
In marketing documents, Tiger Global has stressed that the potential for tech companies is expanding across the world, commanding a growing slice of economic output. Writing to investors in June, the firm said it had “consistently underestimated” the market for private tech companies. Six months earlier, data suggested a $3tn market opportunity. It was now closer to $5tn, the firm said. It said a fund worth $10bn could be used to purchase a 2 per cent stake in the Chinese internet company ByteDance, the owner of TikTok, without investing in any other companies.
Tiger Global has recently looked to purchase billions of dollars of shares in ByteDance through secondary sales at prices valuing the company between $400bn and $450bn, believing it could double from there, says one person familiar with its thinking. The firm’s price for the company would already be more than double the $180bn valuation it received from investors in December.
A new ‘religion’
Tiger Global’s recent investment streak has confounded some rivals, who have whispered that the firm performs little due diligence and pays inflated prices, similar to Japan’s SoftBank.
Tiger Global has pushed back, telling investors that it “strived to remain disciplined, passing on opportunities we deemed good in favour of executing on great ones”. People familiar with Tiger Global’s strategy say it places a premium on accessing a wide swath of desirable start-ups in areas such as business software and fintech.
Some rivals have likened its portfolio to an index of the private tech market. In hot areas such as food delivery, Tiger Global has placed bets on competing companies, a practice that traditional venture investors typically shun.
Due to its ubiquity, Tiger Global has become the archetype for a breed of “crossover” firms such as Altimeter Capital Management and Coatue Management that began investing in public markets before migrating to private companies. These firms have often paid higher prices than competitors for shares in start-ups that had the potential to dominate large markets.
Michael Larsen, a managing director at Cambridge Associates who invests in venture funds, likened the conviction of the crossover firms to “religion”. “You’re prepared to act in ways that might seem unexpected to the rest of the market,” he says.
Others are playing catch-up. Everett Randle, a principal at the venture capital firm Founders Fund, wrote in an online post that Tiger Global was “playing a different game” compared with traditional tech investors by “breaking many long-held but outdated rules”.
Venture capitalists say Tiger Global frequently contacted companies with investment terms before they were prepared to raise funding, a practice that had largely been taboo.
Unlike many other tech investors, Tiger Global does not typically seek board seats and rarely becomes involved in a company’s operations. It has also sped up the investment process, often finalising deals in a matter of days rather than weeks. Start-up founders who have taken money from Tiger Global say the firm’s efficiency has helped it win deals.
“Everybody is now playing that game,” says one US venture capitalist who asked to remain anonymous. “The [top] funds are trying to elbow their way into those great companies.”
Tiger Global’s strategy has played out similarly around the world, as it hunted for stakes in dozens of internet companies resembling US giants such as Amazon and Google.
Tiger Global’s big tech bets
$290m
Investment in Facebook in the three years before the company’s IPO. Tiger Global more than tripled its money in that time
$220m
Size of Tiger Global’s original stake in JD.com. It made more than $6.8bn from its JD.com holdings
$10bn
Amount Tiger Global is seeking to raise for its new fund, some of which could be used to purchase a stake in ByteDance
Yasin, the former Tiger Global executive, says he would email founders about potential investments after surveying Amazon Alexa rankings to find popular websites and hiring McKinsey consultants to perform due diligence. “Typically founders in these markets are quite receptive if you show up with a cheque book and you can invest meaningful amounts of money in whatever round they want to raise,” he says.
Tiger Global’s search for Amazon lookalikes began in China in 2003. On a trip following the Sars viral outbreak, Shleifer struck rapid fire deals in three ecommerce companies, Alibaba, eLong and Joyo.
The firm received quick payouts after eLong listed in the US and Joyo completed a sale to Amazon in 2004. However, Shleifer backed away from the deal to purchase 4 per cent of Alibaba at a valuation of $250m, Tiger Global said in a letter to investors, losing out on the huge returns for early backers.
Tiger Global quickly began expanding into Russia, making early bets on Yandex and Israeli-Russian billionaire Yuri Milner’s Mail.ru conglomerate, both of which had developed search portals similar to Google.
The firm later invested in DST Global, a tech fund managed by Milner, according to investor documents. The investment gave it an early look at Facebook, after DST injected $200m into the social network at a valuation of $10bn, three years before its initial public offering in 2012.
While some investors viewed the price tag as inflated, Tiger Global followed DST into Facebook, purchasing stock on the secondary market in its first major US bet. The firm invested a total of almost $290m in Facebook in the three years before the company’s IPO, more than tripling its money before selling, according to fund documents.
Around the same time, Tiger Global began a deep push into India. Start-up founders and venture capitalists say the firm has since held an outsized influence on the country’s private tech markets, contributing to boom and bust cycles of funding.
Tiger Global has struck almost 170 deals in India since 2006, according to PitchBook data, leading some of the country’s largest funding rounds. In 2014, It shocked rival investors after it helped lead a $1bn investment in Indian ecommerce group Flipkart, at a valuation that represented a three to four times multiple of the company’s sales, say two people familiar with the deal.
Unlike competitors such as Sequoia Capital India, Tiger Global maintains a minimal presence in the country. An office in Bangalore employs a couple of employees working in research.
Trivikraman Thampy says Tiger Global invested $5m in his Indian gaming company Games 24×7 in 2011 after a single phone call. By the end of 2020, the firm said its remaining $4.1m stake in the company had increased in value by more than 50 times, according to fund documents.
From 2016 Tiger Global began to reduce its investments in India. But it has returned in even greater force this year, making 29 investments, according to PitchBook. “They are very aggressive,” says Thampy. “If they find what they believe is the right business in the right market, with the right entrepreneurs, they don’t hesitate.”
‘Red Ferrari syndrome’
Tiger Global’s investments have not always played out according to plan. Its fourth and sixth private tech funds made annual internal rates of return of under 10 per cent up to the end of last year, after fees, according to fund documents.
Others have made outsized gains. Tiger Global’s fifth private tech fund, with stakes in China’s JD.com, Flipkart and Facebook, has made investors about eight times their $1.1bn of invested capital. The fund’s investments in JD.com alone turned less than $220m into nearly $6.8bn of proceeds.
The private tech funds have, on average, made annual returns of 26 per cent over time, after fees, and none have lost money, Tiger Global has said.
However, in some countries it has proved more difficult to deliver large dividends. Tiger Global lost 85 per cent of the nearly $220m it invested from the sixth private tech fund in eight Brazilian companies, according to fund documents, and subsequently scaled back its investments in the country.
In India, Tiger Global told investors in a letter this year, the firm had “made mistakes and had many opportunities for improvement”. It has waited years for many of its Indian investments to pay off, as the country’s public markets have been slow to accept fast-growing tech companies with uneven profits.
Flipkart has accounted for the vast majority of Tiger Global’s realised investment gains in the country, following the 2018 sale of a majority stake to Walmart in a $16bn deal. And it still has a stake of about 20 per cent in the company, the documents show. Walmart has reportedly looked at taking Flipkart public as soon as this year.
Tiger Global has also told investors that it made mistakes by not holding on to profitable stakes for longer and passing on the opportunity to invest in blue-chip companies due to valuation concerns.
Some investors say they stopped committing money because Tiger Global grew too quickly. At the firm’s current size, it would bring in at least $1bn a year in management fees alone, which are meant to support a staff of about 120 employees.
“Every time you turned around, they were raising funds,” says Greg Bohlen, co-founder of Union Grove Venture Partners, a previous investor in Tiger Global. “Eventually, ‘red Ferrari syndrome’ takes place.”
Some backers have also worried about the kinds of distractions that come with billions of dollars in personal wealth. In February, Shleifer purchased a $132m home in Palm Beach, Florida, on land once owned by former US president Donald Trump, the priciest residential real estate transaction in the town’s history.
But other investors say they trust Tiger Global executives to focus on performance. Its partners and employees have committed up to $1bn to the next $10bn private fund, a large sum compared with typical contributions from venture capital partnerships.
In the mid-2010s, multiple people familiar with the matter say Coleman quietly withdrew from day-to-day oversight of Tiger Global. He began spending more time interacting with investors, including over rounds of golf, some of the people add. Coleman returned to active management of the firm a few years ago, as key executives such as Lee Fixel, a partner widely viewed as the engineer of its strategy in India, were preparing to leave, the people say.
The firm says: “Coleman has never stepped back from leading Tiger Global day to day, or otherwise.” The firm declined to make executives available for interview for this article.
Coleman has recently played an active role in some of Tiger Global’s splashiest investments, including in artificial intelligence start-up Scale AI, say two people familiar with the matter.
In December, Scale announced a deal led by Tiger Global that valued it at more than $3.5bn. Four months later the firm helped arrange another funding round that doubled the start-up’s value to more than $7bn.
At the time, Scale had a bit more than $100m in annual recurring revenues, says one person familiar with the deal, meaning Tiger Global valued the company at about 70 times that metric. It was a valuation that would have been almost unheard of until this year.
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