#8. Curators v. Allocators
December 13, 2021
Amidst the most active start-up/VC market we’ve ever had, a new name is climbing the ranks as one of the most recognizable: Tiger Global 🐯
Tiger has backed success stories such as Brex, JOKR, Robinhood, and Benchling. A lot has been written about Tiger and their strategy (see Mario’s excellent piece): move at lightning pace, retain an army of Bain consultants to do rapid diligence, show up to first meetings ultra-prepared, plow money in.
What makes Tiger different from a fund perspective is their approach as allocators rather than curators. Tiger isn’t interested in curating a portfolio like most VCs. They’re interested in allocating capital into the tech sector like a hedge fund. Tiger has done 330 deals so far this year. That’s just shy of 1 per day in 2021. To put that in context among other notable funds, Andreesen Horowitz has done 226, Accel has done 197, and Lightspeed has done 154. Tiger is far and away the most active.
The way Tiger is approaching their market may be a harbinger for what’s to come. Tiger does not necessarily look for moonshot investments, but rather focuses on hitting an 18% hurdle rate. The power law of VC (tl;dr: 1 or 2 investments make your return, the rest lose money) disagrees with this strategy. But enterprise SaaS has matured to a point where the risk/return profile of these companies is not what it was a decade ago.
As Ian Rountree of Cantos said, “SaaS is a hell of a drug." Enterprise SaaS solutions have a proven and repeatable playbook that has attracted non-dilutive (read: non-VC) forms of financing like venture debt and revenue-based financing. Not to detract from the innovation of the start-ups solutions or how hard it is to build a company, but the area has become so overcrowded with capital to the point that, even with huge successes, fund returns will be lower. Betting on enterprise SaaS is (relative to VC) a safe bet.
So is VC dead? No. But SaaS and marketplaces have matured to safe VC bets. Deep tech (e.g., bioengineering, quantum computing, new materials, new energy) is where outsized returns are to be had today. Darling Tiger recently said deep tech is “not an area of focus for us” which makes complete sense because it doesn’t fit the profile of blanket capital allocating.
What we now call “deep tech” is the equivalent of the semiconductor industry in which VC got its start and Silicon Valley got it’s name. The opportunity for significantly outsized VC returns still exists, just probably not in pure-play enterprise SaaS. Start looking at the weirder things to find the contrarian bets that will build our future.
