Everett Randle has an excellent piece up titled Playing Different Games: Or why Tiger is eating your lunch (& deals). Here, the big idea is that Tiger Global’s rapid deployment of capital into startups is fundamentally different than traditional venture, and is a better model when executed well. From the article summing up the Tiger Global approach:
- Be (very) aggressive in pre-empting good tech businesses
- Move (very) quickly through diligence & term sheet issuance
- Pay (very) high prices relative to historical norms and/or competitors
- Take a (very) lightweight approach to company involvement post-investment
- Above all, deploy capital, deploy capital, deploy capital
Historically, the VC business is opposite of the startup business. VCs are small, boutique partnerships that don’t scale. Serving on boards, and doing it well, takes time and energy, often limiting VCs to no more than 8-10 engagements. VCs typically have little skin in the game, only providing a tiny percentage of the fund’s capital. In addition, venture firms take many years, if not a full decade, to know how they did for a particular fund.
Knowing that this is the norm, Tiger Global designed their approach to smartly take advantage of the traditional model, summarized as the opposite of the points above:
- Wait for tech businesses to raise money and hope they get networked to you or you met them prior to the round
- Require traditional due diligence and term sheet issuance standards so that investment errors and write-offs are minimized
- Think about historical valuations and pay “fair” prices for startups
- Get involved post investment via a board seat, regular entrepreneur calls, and continued value-add
- Deploy capital on a schedule and hope that there are enough quality deals during that timeframe to do well
Here’s the conundrum: entrepreneurs still need everything in the historical venture playbook. Building a large business is hard and time consuming. Due diligence is important. Board work is important. Prudently deploying capital is important.
Knowing that the yeoman’s work is being done by the seed, Series A, and/or Series B investor to help the entrepreneur build a great business, why not stand on their shoulders and bypass the traditional model? Lighter touch, higher valuations, and faster speed results in a more scalable, higher velocity business.
Welcome to high velocity venture capital.