- Tiger Global partners have reportedly committed to a $1 billion investment in seed-stage funds.
- Megasized VC firms are increasingly seeking to invest in startups at earlier stages.
- But Tiger’s strategy is unusual, and potentially game-changing, in multiple ways.
Tiger Global Management has rewritten the rules of venture capital with its aggressive investments in startups. Now it’s using a new tactic aimed at finding hot startups in their earliest stages.
The firm has committed $1 billion, raised from its partners’ personal funds, to invest in new and existing seed-stage funds, according to The Information. (Tiger declined comment.)
This is part of a growing trend of later-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 that the partners’ personal money is involved.
With this $1 billion, the firm has the ability to back dozens of seed funds and potentially get glimpses into hundreds of promising young companies at a time. It also recently led a $100 million round in the venture 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, widening a deals pipeline that already operates at a breakneck pace. Last year, it invested in more than 300 startups, even outpacing VC giants such as Andreessen Horowitz.
Tiger has won some of tech’s hottest venture capital deals, such as Patreon, Brex, and Hopin, through the sheer size of its $79 billion in assets coupled with an unconventional investment process.
That process involves working with outside consultants, particularly Bain, to do the due diligence on prospective investments. With that research in hand, one of Tiger’s partners, like John Curtius or Scott Shleifer, can call up founders and clinch deals in a matter of days. Tiger also typically doesn’t take board seats, which appeals to many founders who prefer less oversight.
But that process isn’t as well-suited to seed-stage startups, some VCs contend. Such companies may not yet have a functional product or service, let alone revenue — so they have scant data for investors to pore over. At the seed stage, VCs often make investment decisions based upon their confidence in the founders.
So investing in the VC funds that specialize in seed deals could offer Tiger much of the same benefits — access to many deals at a time — with fewer pitfalls of operating in the seed world.
Because Tiger has such massive coffers, it can easily win deals by offering high valuations, or lead funding rounds much larger than the average seed round, which according to Crunchbase stands at $4.6 million.
Still, by backing seed-stage funds rather than jumping into deals directly, Tiger should be less disruptive for seed valuations, Miriam Rivera, CEO and managing director of Ulu Ventures, told Insider.
But that remains to be seen because Tiger has also stepped up its own seed investments. It’s already backed 10 seed-stage startups this year, twice as many as it made in 2021, according to data from PitchBook.
Other firms, such as Insight Partners, have also doubled down on early-stage investments in order to gain an edge, since later rounds in high-growth startups are often much more competitive — and expensive. Investing at earlier stages is riskier but offers the opportunity for bigger profits.
It’s increasingly common for large VC firms to invest in other firms. Andreessen Horowitz, for instance, has backed the funds of several of its alumni, including Zal Bilimoria and Katie Haun. And VCs themselves often put their own money into angel investments or become limited partners, as investors in VC funds are called, in up-and-coming firms.
There are also some examples of partners at VC firms pooling their own funds to make investments. Some VC firms operate funds solely with their partners’ own money, as Homebrew recently announced it would do. And Sequoia has a separate investment firm which manages its partners’ personal assets and has co-invested in some of the VC firm’s funds.
But the sheer scale of the personal commitment from Tiger’s partners to seeding new funds stands out. As a result, Tiger has the potential to upend the landscape for early-stage investing much as it has done at later stages.