Tiger Global disrupts VCs again by backing seed funds
- Tiger Global partners have reportedly pledged to invest $1 billion in seed funding.
- Large VCs are increasingly looking to invest in early-stage startups.
- But Tiger’s strategy is unusual and can be a game-changer in several ways.
Tiger Global Management has rewritten the rules of venture capital with its aggressive investments in startups. He’s now using a new tactic aimed at finding hot early-stage startups.
The company has pledged to invest $1 billion, from its partners’ personal funds, into new and existing seed funds, according to The Information. (Tiger declined to comment.)
It’s part of a growing trend of late-stage venture capital firms investing in more early-stage startups. But it’s notable for two reasons: the size of the investment — $1 billion — and the fact that the partners’ personal money is involved.
With this billion dollars, the company has the capacity to support dozens of seed funds and potentially preview hundreds of promising start-ups at once. He also recently led a $100 million round in venture capital investment platform AngelList, which caters to groups of angel investors and solo VCs who typically back early-stage startups.
All of this will help Tiger spot more investment-worthy startups as they grow, expanding a deal pipeline that’s already operating at breakneck speed. Last year, he invested in more than 300 startups, surpassing even venture capital giants like Andreessen Horowitz.
Tiger has won some of the most high-profile venture capital deals in tech, such as Patreon, Brex and Hopin, thanks to the size of its $79 billion in assets coupled with an unconventional investment process.
This process involves working with outside consultants, particularly Bain, to do due diligence on potential investments. With this research in hand, one of Tiger’s partners, like John Curtius or Scott Shleifer, can call the founders and close deals within days. Additionally, Tiger typically does not sit on the board, which appeals to many founders who prefer less oversight.
But this process isn’t as well-suited for early-stage startups, some VCs argue. These companies may not yet have a working product or service, let alone revenue – so they have little data for investors to dig into. At the seed stage, VCs often make investment decisions based on their confidence in the founders.
So investing in venture capital funds specializing in seed deals could offer Tiger many of the same benefits – access to many deals at once – with fewer pitfalls to operate in the seed world.
Because Tiger has such huge coffers, it can easily win deals by offering high valuations or run funding rounds much larger than the average seed round, which Crunchbase says is $4.6 million. dollars.
Still, by backing seed funds rather than jumping straight into deals, Tiger should be less disruptive to seed valuations, Ulu Ventures CEO and Managing Director Miriam Rivera told Insider.
But that remains to be seen as Tiger has also stepped up its own start-up investments. It has already backed 10 early-stage startups this year, twice as many as in 2021, according to data from PitchBook.
Other companies, such as Insight Partners, have also doubled their seed investments in order to gain an edge, as later rounds in high-growth startups are often much more competitive and expensive. Investing at earlier stages is more risky but offers the possibility of making bigger profits.
It is increasingly common for large venture capital firms to invest in other companies. Andreessen Horowitz, for example, has supported the funds of several of his former students, including Zal Bilimoria and Katie Haun. And VCs themselves often invest their own money in angel investments or become limited partners, as investors in VC funds are called, in emerging companies.
There are also a few examples of venture capital firm partners pooling their own funds to make investments. Some venture capitalists operate funds solely with their partners’ money, as Homebrew recently announced. And Sequoia has a separate investment company that manages its partners’ personal assets and has co-invested in some of the venture capital firm’s funds.
But the extent of Tiger’s partners’ personal commitment to seeding new funds stands out. As a result, Tiger has the potential to shake up the investment landscape at an early stage, just as it has in later stages.