Tiger Global Management rode the tech increase like no different funding agency. It was funding extra startups than another U.S. investor when the market peaked final yr, and had tens of billions of {dollars} from pensions, endowments and wealthy shoppers driving on a few of Silicon Valley’s hottest shares.
With tech values plunging, the New York agency is humbled. The market rout has vaporized years of positive factors in a matter of months, calling into query Tiger’s massive bets.
Fueling Tiger’s rise was a double-barreled enterprise: A stock-picking arm put cash largely into public firms, whereas its venture-capital funds invested in startups all through the world. Both guess greater on tech because the market crested, leaving the agency uncovered on each fronts.
Tiger mentioned in a notice to traders final week that its hedge fund, which managed $23 billion on the finish of 2021, was down 52% this yr. That is likely one of the largest-ever losses by a hedge fund. Its different giant inventory fund—a long-only fund that managed $11 billion on the finish of 2021 and doesn’t brief shares—has misplaced 61.7%.
At the tip of April, the rout had worn out roughly two-thirds of the positive factors Tiger had made in these inventory funds since its founding, estimates cash supervisor LCH Investments.
Meanwhile, Tiger’s venture-capital funds are bracing for a slowdown within the tech-startup sector. As firms pivot from speedy progress to layoffs and money preservation, write-downs on Tiger’s enterprise funds—valued at $64 billion at year-end—have begun and extra are seemingly. Large venture-capital companies are warning of harsh instances to return.
Cheap cash reshaped Silicon Valley over the previous decade, as pension funds, wealthy traders and celebrities turned to well-connected cash managers to place cash in startups and fast-growing tech firms. As shares rose in the course of the pandemic, positive factors by tech funds attracted extra traders into the sector, whilst valuations pushed properly above historic norms.
Tiger, led by 46-year-old founder Charles “Chase” Coleman, stood out within the frenzy. Its venture-capital enterprise in March raised a $12.7 billion fund, one of many {industry}’s largest ever. Tiger total invested in 361 offers in 2021, up from 16 offers for all of 2017, greater than another U.S. supervisor, in accordance with analysis agency PitchBook Data Inc. It typically outflanked longstanding enterprise companies by shifting quicker and agreeing to extra beneficiant phrases with startups—generally providing cash to firms hours after assembly, some startup founders say.
As costs climbed, Tiger’s stock-investing arm traded monetary and vitality shares for buzzy know-how shares like DoorDash Inc. and Zoom Video Communications. Tiger’s hedge fund rose to $25 billion in measurement by late 2021, from $9 billion two years earlier.
“The timing just couldn’t have been worse,” mentioned David Bahnsen, funding chief for Bahnsen Group, a wealth-management agency primarily based in Newport Beach, Calif., which gained entry to Tiger’s hedge fund in November—proper in time for the fund’s dropping streak. A loss outdoors a recession “of that magnitude is completely, totally unacceptable,” he mentioned.
Tiger’s hedge fund has lately centered extra on shorting shares, a technique to defend in opposition to losses, it has instructed traders. It has mentioned it’s shopping for in areas the place it believes costs have fallen an excessive amount of, comparable to in some China-based electric-vehicle shares.
And the agency instructed traders it’s concentrating on fewer shares, slicing its administration charge by 0.5 share level and permitting traders to withdraw extra of their cash this yr than it traditionally allowed.
Its venture-capital arm, run by Scott Shleifer, 44, has reduce on deal-making, significantly investments in startups which might be nearing IPOs and want additional cash. Tiger additionally has steered startup investments towards youthful firms, the corporate has instructed startup founders—a dangerous guess that may take years longer to bear a lot fruit.
Tiger hasn’t commented on the losses publicly however has written common missives to traders in its stock-picking funds, which additionally embrace some startup investments, expressing a mixture of contrition and continued confidence in tech. “Our team remains maximally motivated to earn back recent losses,” Tiger wrote final week, including it was “highly confident in our investment process and the returns we will generate over the long term.”
It instructed traders in an April letter: “In hindsight, we should have sold more shares across our portfolio in 2021 than we did.” As of March, it mentioned, traders in its hedge fund at its 2001 genesis would nonetheless have averaged over 16% annual returns. A Tiger spokeswoman mentioned the enterprise enterprise has returned over $28 billion in income to traders since inception—together with greater than $6 billion within the final 18 months. Its early traders have averaged over 20% annual returns, an individual conversant in the numbers mentioned.
Tech craze
Tiger Global’s genesis was in one other tech increase. Famed hedge-fund supervisor Julian Robertson noticed mounting losses earlier than the dot-com bust in 2000 at his Tiger Management whilst he predicted the collapse in web and know-how shares to return. He closed the agency in 2000 and seeded a handful of protégés with funding, together with Mr. Coleman.
Mr. Coleman, then 25, initially named his agency Tiger Technology, specializing in the tech sector. He racked up wins—together with by shorting tech shares—and recruited Mr. Shleifer, who labored as an analyst at Blackstone Group.
They prolonged their bets from public firms to personal startups, making a venture-capital arm that hunted for copycats of massive U.S. companies in markets comparable to China and India. Its first enterprise fund turned $71 million into $823 million, in accordance with Tiger paperwork reviewed by The Wall Street Journal. Profits from early investments in
—now Meta Platforms Inc.—and
JD.com Inc.,
now a Chinese e-commerce big, adopted, whereas the hedge fund saved up years of success.
The duo turned multibillionaires. Mr. Coleman has instructed traders he has practically all his internet price invested in Tiger. He paid $36.5 million for an condominium on Manhattan’s Upper East Side in 2008, subsequently combining it with a $52 million condominium one ground down.
Mr. Shleifer purchased an $18 million Upper East Side condominium and early final yr added a $122.7 million oceanfront Palm Beach, Fla., mansion on land as soon as owned by Donald Trump, one of the costly dwelling gross sales of all time. He travels the world in a Gulfstream beforehand owned by Steve Wynn’s Wynn Resorts, public data present.
As the tech increase raged by way of the late 2010s, they added bets on firms like used-car web site Carvana Co., whereas the enterprise fund invested early in Peloton Interactive Inc. and shoe maker Allbirds Inc. Tiger handed out Allbirds sneakers to attendees at a gathering of its traders earlier than the pandemic, an investor mentioned.
As tech shares surged with the pandemic, the duo guess greater on the sector. Wall Street promoted firms in enterprise software program and residential supply, viewing the pandemic as a catalyst for speedy adoption of their merchandise and apps. Tiger agreed: In a summer time 2021 slide presentation to traders, it mentioned it had a “relentless focus” on “the Internet, the defining economic theme of this generation.”
Tiger’s stock-focused funds invested billions of {dollars} in software program firms with already lofty valuations, comparable to Zoom. As the pandemic continued, Tiger traded out of profitable non-tech bets—it offered its holdings of private-equity agency Apollo Global Management that peaked at about $2 billion—and put extra into scorching names like fast-growing cloud software program firm Snowflake Inc.
When Tiger had constructed a stake of greater than $2 billion in Snowflake in late 2021, the startup’s market capitalization was round 100 instances its annual income. Historically, software program companies have been valued nearer to 5 instances income. Snowflake, Zoom and DoorDash shares are all down greater than 60% since November. Carvana’s inventory is down greater than 90% from its excessive.
Valuation warnings
It was Tiger’s enterprise enterprise that really took off. Armed with booming valuations from earlier fund bets on videogame platform Roblox Corp. and nicotine-vaping firm Juul Labs Inc., Mr. Shleifer went on a fundraising spree, discovering a wellspring of keen traders. Tiger got down to elevate $3.75 billion for a fund in 2020 and ended up with $6.7 billion, it mentioned in securities filings.
In 2021, as some veteran enterprise capitalists warned that valuations within the sector had been unsustainable, Tiger sought $10 billion for a fund, extolling the virtues of fast-growing software program firms to potential traders. It finalized the fund in March 2022 with $12.7 billion in commitments. The agency neared $100 billion in belongings beneath administration, an inner aim of some Tiger executives, folks conversant in the agency mentioned.
Mr. Shleifer likes to remind traders he has about $1 billion invested personally within the $12.7 billion fund, a big contribution for enterprise capital. Others investing included big retirement funds—California’s Calstrs and Calpers funds dedicated a mixed $400 million for the most recent fund—and an array of rich people by way of banks together with JPMorgan Chase & Co. and Morgan Stanley.
Privately, a few of Tiger’s traders have grumbled concerning the speedy clip at which the agency was elevating successive enterprise funds. Greg Bohlen of investor Union Grove Venture Partners mentioned he stopped investing with Tiger’s enterprise funds round a decade in the past given the fundraising progress, which has saved him away since. “We were concerned with the acceleration of pace,” he mentioned.
Tiger took a special method to funding from that of many Silicon Valley enterprise companies, which wish to be actively concerned with founders, appearing as coaches for CEOs. Those companies typically take board seats, push for added funding phrases that shield them in downturns and wish to take their time to analysis firms earlier than investing.
Some startup founders mentioned Tiger as a substitute tells them its aim is to remain out of the best way. If an organization desires connections, Tiger could make them. If founders need analysis, Tiger will fee consultants for them. But Tiger’s foremost providing is cash, the founders mentioned: It comes shortly and sometimes with out new strings connected.
Other enterprise traders name it an index-fund-like method to enterprise capital—making it weak to a sector-wide chill. While conventional companies focus their bets hoping for one or two winners to drive their returns, Tiger spreads bets broadly, generally backing rivals. Its current method has focused high younger firms in enterprise software program, funds and different sectors which might be rising income so quick that they’ll turn out to be big even when valuations all through the sector fall, Tiger has instructed traders.
Tiger outsources a lot of its background analysis to advisor Bain & Co., the place analysts interview clients and create dossiers on potential firms. Some founders mentioned they had been amazed Tiger may precisely estimate nonpublic income and different figures. Tiger tells startups that it’s certainly one of Bain’s largest shoppers and that it pays the corporate greater than $100 million a yr, in accordance with some founders. Bain didn’t reply to requests for remark.
‘Fuel and freedom’
Ali Javid, chief govt of Wrapbook, an entertainment-industry software program firm he co-founded in 2018, got down to elevate Series B funding—an early spherical of funding—in October. He emailed a Tiger companion, who shortly requested to talk the following morning at 8:30. When they spoke, “He had already gone through our entire Series B deck,” Mr. Javid mentioned, referring to his fundraising presentation. “Three hours later, I got a term sheet for $100 million.”
The deal valued the corporate at $1 billion, up from about $150 million in a funding spherical seven months earlier, in accordance with PitchBook. “Tiger offered us fuel and freedom to execute,” Mr. Javid mentioned.
Tiger led a $555 million spherical of funding in fall 2021 into Moonpay, a Miami-based startup that backers name the PayPal of cryptocurrency. The so-called Series A early spherical valued it at $3.4 billion, an funding the three-year-old firm described as historic, given its measurement and valuation for such a younger firm. The common early-stage startup funding spherical is lower than $20 million, in accordance with PitchBook.
Then got here the pullback. The market capitalization of cryptocurrencies has fallen by over $1.5 trillion since November, roughly halving the worth, and buying and selling quantity has plunged in nonfungible tokens—digital deeds, typically tied to artwork, that may be traded—a Moonpay promoting level.
Similar developments are occurring all through the startup sector, the place main figures are warning startups to show from hypergrowth to survival—slicing jobs and projections.
Tiger’s write-downs of its startup bets in its enterprise and stock-picking funds have been modest to this point in contrast with its public holdings, folks conversant in Tiger’s numbers mentioned. But a enterprise fund’s efficiency typically lags behind drops in public markets. Private firms are more durable to worth, and managers typically depend on an organization’s valuation at a previous fundraising spherical.
Early this yr, Tiger instructed traders the $2.3 billion it invested throughout quite a few funds in ByteDance was price about $6.4 billion—an enormous win. But since, it has written down its stake by over $2 billion, estimating ByteDance’s valuation at lower than $300 billion, folks conversant in the numbers mentioned.
Other traders have marked ByteDance decrease, suggesting extra ache for Tiger if its rivals’ takes show proper. Sequoia China, the China enterprise of venture-capital agency Sequoia Capital, has valued it internally at $180 billion, the agency has instructed shoppers. ByteDance didn’t reply to requests for remark.
Tiger is trying forward because it cuts. While many enterprise traders pause fundraising throughout downturns, Tiger has begun speaking to traders about elevating its subsequent fund, in accordance with individuals who have spoken to the agency, hoping to complete fundraising early subsequent yr.
Write to Eliot Brown at [email protected] and Juliet Chung at [email protected]
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