Tiger Global Management’s name has been in the startup news a lot recently. Here are a few of the brands they have been tied to, Coinbase, Roblox, Stripe, Hopin, ByteDance, Postmates, Kustomer, Credit Karma, Patreon, and the list goes on but I think you get the picture. They are leaving their mark on the Venture Capital market. So how does a public market hedge fund all of a sudden amass one of the most powerful private portfolios in the world? It’s tied to something we have discussed in multiple posts before but points to a larger disruption trend sweeping through private market venture deals.
It really boils down to one word. Liquidity.
We discussed in a post last week about the rise of the Family Office VC. We explored how family offices are quietly and quickly deploying more and more capital directly into private market deals and how family offices are quietly outspending VC funds by a factor of 10 and they are just getting started. Then enter Tiger Global, which just raised their 13th VC fund with $6.7B in fresh capital to deploy. So what do these two groups have in common? Their capital is diversified across asset classes, most importantly, their portfolios include plenty of exposure to public equities, debt, real estate, and cash-generating private equity, all of which “throw cash” or generate monthly/quarterly cash returns that both groups can pull down.
For Tiger, those cash returns can be used to disperse cash to their LPs, and for Family Offices that cash can be used to run the Office and support the families living expenses. What does that mean for their venture holdings? They can better afford to be patient. Is this the disruptive model that will end up breaking the VC norms of the past two decades? For now, Tiger Global and over hedge funds are sticking to later-stage deals, but Family Office’s are increasingly going direct into seed and other early-round deals and there have been a few instances where Tiger and others have dipped their toe in early as well.
An interesting scenario that we think might play out over the next 10–15 years in the venture scene. The Tiger Global’s and Family Offices of the world will team up to syndicate deals, they have more capital than and VC fund can imagine and will be able to outbid all the best deals. They will then turn to the new rising rank of solo GPs with smaller rolling funds to join these rounds and use their brand and community to virtue signal, using their personal brand as distribution and to validate the company to their communities eyes. This is a beautiful setup in which all players get to play to their strengths and win, the larger capital holders bring the cash, brand name solo GPs bring their community and reputation, and the founder gets the best of both worlds, hands-off capital with a GP partner to help them proliferate the business.
To take this a step further, Tiger, other hedge funds and Family Offices will probably build out a network of these solo GPs by being LPs in a handful of their funds and build out a scouting network and talent pipeline that funnels the best startups and capital allocators to Tiger Global and others.
Another interesting question, will you start to see smaller GPs adopt more of a blended model? Deploying debt or credit into startups along with equity to help make their fund more liquid and thus allow them to be more patient since they can throw cashback to their LPs in the short term? It’s an interesting scenario to think about.