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Hey friends 👋 ,

Happy Tuesday and welcome to the third issue of Through the Noise!

I hope you all had a tremendous long Easter weekend– it's time to strap in and enjoy.

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Tiger Global: Default Aggressive

Tiger Global made more private investments than any other firm in 2021. What's become apparent is Tiger operates at an unparalleled velocity to any other player in the world of venture capital. I refer to velocity, as Tiger's strategy is characterised by both magnitude and direction. Last year they invested over $58bn across 344 rounds. Tiger's latest fund, Private Investment Partners 15, closed $12.7bn in less than four months.

A ravishing hunger for quick deals facilitated by deep pockets and a hands-off approach means the company is light on its toes, leading to an extraordinary speed in decision making. Whether you're astonished or annoyed, Tiger's undeniable speed paves the way for a new investing approach in the early-stage private markets.

The approach resembles similarity to an exchange-traded fund (ETF). In the public markets, an ETF is a basket of securities that trades on an exchange like a stock. Because there are multiple assets within an ETF, they are a popular instrument for risk management through diversified exposure.

Tiger's "ETF approach" captures private market beta whilst incurring a lot of failed investments along the way. Casting minds back to last week's piece on The Babe Ruth Effect, we know that strikeouts don’t matter, home runs do.

Tiger's sample size (344 investments in 2021) is far greater that its private market counterparts, the closest being SoftBank with 202 rounds participated. The winners define the outcome of Tiger's portfolio delivering the bulk of returns. This follows suit for the VC strategy of the last two decades. Only this time, aggression and risk have been cranked upwards.

The new $12.7bn fund is double the company’s previous growth fund, which raised $6.65bn upon last year's close. The magnitude of deals is similarly staggering: 344 rounds was 4.4x greater than the 79 deals completed back in 2020. 2022 is no different with Tiger picking up the pace once more. So far, the company has closed two deals every business day until mid-February.

One thing that has changed in 2022 is Tiger's focus within the fundraising lifecycle. They have shifted gear away from late-stage startups and pre-IPO towards early stage. So far, late-stage deals account for only 17% of their exposure, down from 49% two years ago.

In 2021, the company served as the lead or co-lead investor on 65% of their round participation. The new fund significantly increases the amount Tiger must invest. As we see a movement in the target of this allocation from late-stage to seed and series A, it's important to consider the valuations the public markets will have to accept down the line.

When Tiger jumps, so does its cubs. The company's most frequent co-investors are Accel, Coatue, DST Global and Sequoia. Albeit not all participating in early stage, when the party arrives at a lofty early-stage valuation, the implied valuation down the line will be a tough pill for the public markets to swallow.

Quarterly performance of VC funds tracked by Refinitiv

Pivoting over to the public markets, Tiger's $35bn flagship hedge fund lost 34% in the first quarter of 2022. Whilst Tiger's hedge fund has a 15% cap on exposure to private companies, there are specific risks that must be considered as VC performance takes a similar tumble. Private market valuations lag public market valuations. At the end of March, Instacart, the grocery delivery company slashed its valuation from $39bn to $24bn– almost 40%! The question now lies to how other companies will adapt to prevailing market conditions.

The maturity mismatch for hedge funds such as Tiger participating in private investments can't be overlooked. Private investment risk is opaque and assets are illiquid. Long-term investments are funded with capital of a much shorter duration. When the inevitable happens– a downturn– investor redemptions could be a demanding consideration.

Takeaway

Tiger is casting a broad net with an "ETF approach" to the private markets. Their default aggressive stance and velocity of operations has led to many resounding successes within VC. Only time will tell whether the greater availability of capital and ever expanding fund sizes at an early stage will skew implied valuations into the public markets down the line.

Through the Noise Podcast

Last week we recorded the third episode of the Through the Noise podcast.

Our guest Greg Moran, the Co-Founder and General Partner at Evergreen Mountain Equity Partners, an early stage venture firm focused exclusively on the future of work and HR related technologies.

It was a high energy, action packed episode– you can't miss this one!

Catch the episode on Spotify, Apple and Callin.

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That's all for today friends!

As always feel free to reach out @thealexbanks as I'd love to hear your feedback.

Thanks for reading and I'll catch you next Monday.

Alex