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 the 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’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 that Tiger Global has put so much money to work already to those paying attention. 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.
The question begged, naturally, is how much money Tiger can collect for its next fund — and by when.
Presumably, the firm — to which we reached out earlier today with questions that have not been answered yet — has soft commitments in place already. Yet there could hardly be a worse time to be raising another massive fund from its backers
Almost every institutional investor in the world has seen its stock portfolio hammered. And as many readers will know, venture firms don’t 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’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 the 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’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 earlier 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 answer 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 at least one 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” and whose former employees say had a tendency to overstate its metrics.
As The New York Times wrote today in a piece about Bolt, after Tiger executives met with the company, they weren’t so sure 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.