Tiger Global Tried to Sell VC Fund Stakes in Latest Sign of Strategy Shift
THE TAKEAWAY
- Tiger Global has tried to sell some stakes in VC funds that specialize in young startups, as the once-prolific startup investor backs away from a strategy designed to increase exposure to these fledgling firms.
Tiger Global Management, the most prolific investor in private tech companies during the recent boom, also invested in dozens of venture capital firms as it sought to forge closer ties to the young startups those funds backed. But in recent months, the New York–based investment firm has been looking to dump some of those VC fund stakes.
The firm has been working with banks to sell some of its VC fund investments to firms that specialize in the secondary market for private tech stocks and venture funds, according to a person with direct knowledge and two others who were briefed about it. Tiger partners last year committed at least $80 million to the VC funds, one of these people said, including Better Tomorrow Ventures, Chapter One Ventures and Moxxie Ventures.
The specific stakes Tiger is looking to sell and whether it completed any sales couldn’t be learned.
The VC-stake sale discussions follow a bruising year for the firm, which has invested more than $24 billion in private startups since early 2020. Last year, as stock markets collapsed, Tiger slashed the value of its private tech portfolio, according to its fundraising documents, which were reported by The Information.
While it’s not uncommon for investors in VC firms—known as limited partners—to sell their stakes, Tiger’s attempt may reflect the tougher fund-raising environment for venture capital. The sale of venture fund stakes by LPs tends to be more common during bear markets when they don’t believe their investment returns will increase or because they need cash sooner than expected. Wealthy individuals and endowments also may sell VC stakes to balance their portfolio after finding themselves overexposed to private tech startups after the severe drop in public stocks last year.
LPs in VC funds are free to sell their stakes unless the LP agreement they signed prohibits it. Still, some venture capitalists say they frown upon such stake sales.
The VC fund stakes are from a fund Tiger raised, Crescent, which pooled personal capital from Tiger staff to invest in the VCs, according to a person familiar with the matter. Because tech valuations have declined, Tiger may have to sell the VC stakes at a discount to the original commitment amount.
Nonetheless, Tiger could use the proceeds to invest in its new venture fund, which it is currently raising. Tiger previously told at least one founder it needed to pare back its commitments to seed investors because the partners wanted to instead use some of their personal capital for the firm’s next fund, The Information earlier reported. Tiger’s employees usually invest a large sum in the firm’s own funds.
Strategy Change
For Tiger, the move away from VC funds comes as the investment firm pulls back from rapid-fire dealmaking, particularly in mature startups. After inking more than 300 deals in 2022, Tiger has participated in just 12 deals so far this year, according to financial data firm PitchBook.
The firm also has lowered the target size of its current venture fund to $5 billion from $6 billion, The Wall Street Journal reported in February, after closing a new $12.7 billion fund last year.
The strategy of investing in small VC funds arose early last year as Tiger and other large VC investors turned from backing startups on the cusp of an initial public offering to investing more in young startups for whom public offerings might be years in the future—when stock markets will presumably have recovered. In backing funds that specialize in seed investments for startups, Tiger aimed to increase its access to promising young companies.
Tiger’s partners had planned to invest just over $300 million in these sorts of funds every year, The Information reported. But during the course of 2022, the souring stock market and a negative response from Tiger’s own LPs prompted the firm to curb those ambitions. Tiger called several of the fund managers to whom it had given verbal or written promises and said it wanted to reduce those commitments, The Information previously reported. In several instances, Tiger proceeded with the seed-fund investments as planned and did not attempt to scale back, some fund managers said.