Or why Tiger is eating your lunch (& your deals)
Brad G at the All-in summit just said... the thing about Tiger is you have to understand they were playing a different game... you have to know the game you are playing
Lee led Series A of one of our portfolio companies and Addition just invested in another of ours. I definitely think your article nailed it. The cubs are in a different game, especially when it comes to late-stage rounds. On the other hand, Lee is also very good at early stage. Maybe it's just the animal instinct of these hedge fund guys that happen to work perfectly in this massive capital supply era created by the Fed. In any case people with a skin in the game cannot rest.
the biggest lie in venture capital "we're more than just money" / the biggest lie from founders "all estimates are conservative" ;>
The one premise, and a large one too that this whole argument is based on, that I don’t agree with is that if you deploy capital faster, you’ll get returns faster. Companies still take the same time (maybe a few weeks less due to saved time from diligence) to grow / mature / IPO no matter how easy it is to get money in.
Removing that assumption, Tiger is just doing more deals at higher valuations and diluting the returns for themselves and the entire VC ecosystem.
It’s like a game theory problem (and classic competition) where if all VCs were price disciplined, they can continue making good money. As soon as one VC lowers pricing, that VC will make outsized returns but the next round of the game, everyone else will lower their prices and the equilibrium will be lower returns for VCs and less dilution / more returns for founders.
It’s easy to mistake excessive risk taking for genius while the market keeps going up.
There’s an equivalent to these guys in every asset class in every bull cycle. You could’ve written the same article in 2006 about the most aggressive subprime lender who did away with the last remnants of due diligence requirements to increase velocity.
This is just so dope. Tiger's crushing it in India and now I know why
This is probably the brutally honest account of the VC industry I have ever read. Man, you're a terrific writer. I'm looking forward to your insights.
This is bringing some of the Buffet etiquettes to the tech world. "We have lower due diligence expenses than anyone in America" - Munger and Buffet when commenting on PetroChina investments.
"We have a significant advantage and it gets bigger as we get bigger. in terms of big deals, people want to rely on the process and people want to get a deal done, they wanna know it's gonna be done and so they will come to us. Mars knew ... we didn't have any lawyers involved and no directors involved we just got our call, made sense and we said yes."
More here: https://www.youtube.com/watch?v=BQHILdryQ_o
Everett thank you for excellent work empowering good founders to transform world. I’m sharing how we as a true Peter’s “Zero to One” are solving world’s #1 emergency problem of climate change (CA record heat waves!!!) as anticipated winners of Elon’s $100M Carbon contest. We solve world’s #1 problem of climate change caused by carbon hardware by using patent pending superior software and website empowered patented sustainable hardware! Petra also solves one concern Jason Calacanis addressed of “trust”with Tiger generously funding founders to assure successful launches to actualize greatest ROI and benefit from lifetime relationships. Petra is unique due to our expert, ethical founder and vertical integration nixing risk of loss via easily liquidated hardware assets at 70% LTV with min ROI starting at 15% and exponential growth from there. Please see: www.PetraInvestor.com. Again thanks for great work! CMH @ Petra.co.
You're exposing a lot of truths in the current (still bubbly) VC markets. I would add a few points:
- this has been seen before (PE in 2006-07) and we all know how it played out eventually. Some people made money, most didn't
- VC has a long feedback cycle. LPs generally invest in two funds before knowing if it was grandstanding or real cash (exit-generated money). So let's see how it plays out
- there is a market, at late-stage as you correctly point out, for this approach. And yes, Tiger built a great machine to address it. I would add free-riding to the mix, I'm not in the know but I guess they move even faster when they know a top VC is looking at the deal (that's what hedge funds used to do 15 years ago)
- my only worry is for the employees of startups playing this game. Founders, GPs, and LPs may all make money, but what happens if the model crashes and these startups are left with limited options to keep growing (or option pools that are worthless)
Thanks for the analysis. Definitely getting the ball rolling.
Amazing article! Thanks a lot! I think still the biggest hurdle and bottleneck for all of the above mentioned is finding great companies and founders. There is a strong inequality between money and good startups.
Thanks for this article. You mention a couple of times how the due diligence process has become increasingly “commoditised” - can you share a bit more about that?
A little late to the party but here are a few observations as an ex-tech, and current HF guy. Tiger is mainly composed of traders, they sure know the ebbs and flows of the market and they run a diversified portfolio, they don;t care if a few of those go sour, who gives? Expected returns are, on average, 3x (MoM), so, it can handle a high fail ratio. Further, when you are trader, you tend to develop better animal insticts, over time. Remember, these guys are still good at fundamental analysis and being in the centre of planet, i.e. NYC, they are constantly being fed expensive, but high quality information flow on macro, geographies, politics and whole lot of different macro and fundamentals that help in their investment decisions. Having lived in SF and worked in start-ups with VCs, I can attest first hand how self-righteous and-indulgent (in a seemingly decent demeanour) the VCs can be. Plus, being slow thinker and acting slow for whatever the reason (i.e. diligence, and so forth) eventually makes you slow to grab fast changing facts.. Again, any good trader always doubts his own beliefs, even the high conviction ones. That is what drives Tiger, despite those seemingly hasty deals. They would change their mind, before you would change your shirt.
Hi Everett it was a great time reading this article. May I have your permission to translate it to Chinese and share with readers of my blog (with link to your original)? Thank you!
The private company stock market is becoming quite liquid even for early stage companies if you look at what Carta and Nasdaq are doing. With greater liquidity (of stock and human capital), the VC investing game is becoming more like hedge fund investing - passive, liquid, speedy. Is this a temporary phenomenon enabled by zero interest rate? Don't know.