The Tiger Global Memo From Sequoia Capital to Benchmark and Thrive The World's Best on the Rise of Tiger Global

In a special episode of 20 VC, host Harry Stebings explores the impact and strategies of Tiger Global with insights from venture capital leaders like Doug Leone of Sequoia, Bill Gurley of Benchmark, and Michael Eisenberg of Aleph. Discussions delve into the evolution of equity management, the competitive dynamics of passive versus active investment, and the significance of product-market fit. The conversation highlights the shift from traditional venture models to more global, multistage investment approaches, with firms like Tiger leveraging their assets to dominate the field. This shift has prompted VCs to adapt, focusing on adding value beyond capital and leveraging global insights to lower portfolio risks. As the venture landscape transforms, the episode underscores the inevitability of increased competition and the various strategies firms employ to stay relevant and successful.

• Harry Stebbings hosts the monthly show "20 VC: The Memo" where he delves into one company's story through the investor that led their round.
• The episode focuses on the rise of Tiger Global Management and includes opinions from industry leaders.
• Featured leaders are from Sequoia, Benchmark, GGV, Thrive, General Atlantic, and more.

"This is 20 VC the memo with me, Harry Stebbings. Now the memo is the monthly show where we go deep on one company, hearing the thoughts of the investor that led their round."

This quote introduces the show and its purpose, emphasizing the in-depth exploration of a single company and insights from the lead investor.

• Proper equity management is crucial for successful startups.
• Legi is presented as a next-generation equity management platform for scaling teams.
• Legi offers rich dashboards and scenario modeling for employees and investors.
• Betterup is mentioned as a company that promotes personal and professional growth, mental fitness, and leadership skills.
• Affinity is a relationship intelligence platform used by venture capital firms for network management and deal engagement.

"But one issue that occupies every successful startup is managing equity properly. Well, that's where Legi comes in."

This quote emphasizes the importance of equity management for startup success and introduces Legi as a solution.

• Doug Leone of Sequoia Capital emphasizes that venture capital is not a game but a serious business with significant stakes.
• The history of venture capital has seen various attempts to institutionalize and change the industry.
• Sequoia focuses on early-stage company building and long-term relationships with companies.
• Product-market fit is deemed as the founder's responsibility, while Sequoia aids in other areas post-fit.
• Sequoia iterates on its processes, including hiring, customer introductions, and board building.
• Leone believes that investing in too many deals per week prohibits the type of support Sequoia provides.

"Over the years, we have had numerous entrants trying to change the game. First of all, it's not the game... It is a business where people lives are at stake."

Doug Leone clarifies the gravity of the venture capital industry, countering the notion that it's simply a "game."

• Bill Gurley of Benchmark discusses the competitive late-stage private round environment.
• Tiger Global Management has adopted a bold strategy, likened to "SoftBank 2.0."
• Tiger's meticulous, research-driven approach is influencing other late-stage investors.
• The competition has intensified due to Tiger's strategy, leading to a chase among top players.

"There's one thing, idiosyncratic thing that's been happening with late stage that could get specifically to your question, Harry, about these decacorn rounds and what there appears to be a rather competitive environment going on between the different top players in the late stage private round, provoked mostly by Tiger."

Bill Gurley points out the unique competitive dynamics in late-stage investing caused by Tiger Global Management's aggressive approach.## Venture Firm Model Shift

• Hedge funds have transitioned from a two and 20 model to a venture capital model.
• In the venture model, capital is raised, invested, and then returned, without the concern for daily marks.
• Management fees are not tied to daily marks, emphasizing the movement of money through the system.
• This shift has led to a faster pace of raising rounds and a tendency to become valuation agnostic.
• Success stories like Winter, Snowflake, and Uber have influenced this indifference as they represent significant returns.

It's a very different model because you're not as worried about those marks. The daily marks and your management fees aren't tied to the marks. You're pushing money through the system, and there's ample money available and they're raising rounds faster and faster.

The quote explains the change in hedge fund strategies, where the focus has shifted from daily financial valuation marks to pushing money through the system without the same level of concern for immediate returns, due to the abundance of capital.

• Having a large war chest allows a firm to dominate the cap table in a down market.
• Firms like Tiger can invest with less price sensitivity and take significant positions in companies.
• The current market sees more secondary transactions, allowing founders to cash out some of their stakes.
• It is uncertain how founders who have profited from secondary sales will react during tough times when cap table values are compressed.

What we often don't pay attention to is if you got the largest war chest at the table, you've got a shot to overwhelm the cap table in a down market.

This quote emphasizes the strategic advantage of possessing significant capital resources, which can be used to gain control or a significant share in a company's cap table, especially during market downturns.

• Firms with strong track records can raise substantial capital and have access to top entrepreneurs and companies.
• The combination of capital access and entrepreneurial connections is powerful.
• Investing more without lowering returns is seen as a beneficial strategy for both investors and entrepreneurs.

So we've got access to capital and we've also got access to entrepreneurs and great companies.

The quote highlights the competitive advantage of established firms like Sequoia, Tiger Global, and General Atlantic, which have both the financial resources and the network to access entrepreneurs and investment opportunities.

• The popularity of passive investment strategies, like Tiger's, is acknowledged but not seen as worrisome by some.
• Active investment firms believe entrepreneurs prefer assistance and access to networks and expertise over passive capital.
• Passive capital is viewed as a commodity, with price being the primary differentiator.
• Active firms are looking for ways to differentiate themselves, such as offering speed and ease of transactions.

But the reason I'm not is that in my experience, when I talk to an entrepreneur just like this, unfortunately recently on Zoom calls, and I say, if you want passive capital and you know what you're doing and you've got all the right people you want around the table, and you're like, give me the highest price possible, but kind of leave me alone. I want passive capital.

This quote reflects the sentiment that while passive capital is in demand for its simplicity and high valuations, there is a significant portion of entrepreneurs who value the active involvement, network, and expertise that come with active investment firms.

Leave you alone is pretty much a commodity. There's not different levels of leave you alone, at least as far as I can tell.

The quote implies that passive investment is undifferentiated except for the price offered, as the essence of passive investing is to provide capital without involvement, which is a uniform service across providers.## Venture Capital Approach and Outcomes

• Venture capitalists aim to differentiate their contributions to companies beyond merely providing capital.
• The goal is to significantly enhance the company's success, potentially leading to much greater returns on investment.

If you're a CEO, I'm going to change outcomes. I'm not just going to give you capital like everyone else. I'm going to create the difference between maybe a ten x opportunity, a 20 x opportunity.

The quote emphasizes the speaker's intent to be an active, outcome-changing investor rather than a passive capital provider, suggesting that their involvement could exponentially increase a company's value.

• GGV joined in 2013 and observed Sequoia's successful track record.
• The speaker predicted Tiger Global's model would be influential due to its multistage approach and public fund integration.
• The ability to engage third-party due diligence and invest globally provides more data points for better investment decisions.
• GGV has grown its AUM from 1 billion to 8 billion over two decades, allowing for multistage investments and global expansion.
• Being selective in deals and board involvement allows for deeper engagement with portfolio companies.
• GGV has become a preferred partner for firms like Tiger Global, focusing on value generation for the portfolio.

And one of the things I mentioned is that Sequoia has been amazing. VC, their track record over the last 20 years is incredible. But I mentioned that I think back in 2013, the model to look at will ends up being something what Tiger Global is building...

The quote reflects the speaker's foresight in 2013, admiring Sequoia but recognizing the potential in Tiger Global's emerging model, which has since proven successful.

• There is a trend towards unbundling venture capital into separate functions: investing, board membership, and portfolio services.
• Tiger Global represents this unbundling by not taking board seats and focusing on investment.
• The industry is watching to see who will adopt variations of the Andreessen model with large operating teams.
• GGV seeks a balance by providing essential services globally and facilitating knowledge sharing among founders.
• The strategy is to capitalize on global trends and enable portfolio companies to benefit from each other's experiences.

Do you think Naval spoken before about the unbundling of venture into investing itself? Board membership, portfolio services do you think kind of tiger is the embodiment of that unbundling...

The quote discusses the concept of unbundling venture capital functions, with Tiger Global exemplifying this trend by focusing on investment without traditional board roles.

• Technology investing has transitioned from a niche to a highly competitive, attractive business.
• Asset managers are drawn to the space due to its profitability, not just interest in technology.
• Tiger Global's approach, focusing on speed and founder-friendly terms, has forced other investors to adapt.
• The industry's passive success is challenged by the need to actively compete in the evolving landscape.

We know there's a lot of complaints about tiger investing. We think it's natural and totally inevitable as technology investing goes from this niche asset class venture that was small group people to actually being a good business.

The quote acknowledges complaints about Tiger Global's aggressive investing style but views it as a natural evolution of a growing and lucrative technology investment sector, where competition is intensifying.## Venture Capital Market Evolution

• The venture capital market has transformed from a niche category to a much larger one.
• Competition is now seen from various perspectives and is more intense.
• Firms that were somewhat good in the past could dominate the market due to less competition.
• The current market requires firms to actively compete to succeed.

"It was kind of the man with one eye, king of the blind, or however that line goes. And if you were somewhat good, you cleaned up in the market back then, it's just a different game now because you're kind of seeing competition from lots of different lenses and it's broken from this niche category into a much larger one."

This quote highlights the increased complexity and competition in the venture capital market compared to the past when it was easier for somewhat good firms to succeed.

• Firms, including the speaker's New York-based firm, have had to adapt and fight for their place in the market.
• The firm had to overcome geographical challenges and bootstrap their own ecosystem.
• Older firms are evolving to stay competitive.
• Passive success is less likely in the current market; active competition is necessary.

"We've never had it easy breaking in as a firm. Two, we were a New York based firm, and so we had to crawl our way into a lot of west coast deals. We had to be a part of bootstrapping the New York ecosystem."

This quote illustrates the challenges faced by the speaker's firm in establishing itself, including geographic hurdles and the need to create their own opportunities.

• Tiger Global Management's approach is making other investors feel insignificant.
• Tiger's massive ambitions and success are causing others to reevaluate their position in the industry.
• The discomfort caused by Tiger's strategy is leading to pushback from other firms.

"I think another reason people are complaining is what Tiger's doing is maybe making them feel insignificant. Tiger clearly has massive ambitions, and investors who are seemingly a big part of this tech ecosystem are looking a little smaller now."

This quote discusses the disruptive impact of Tiger Global Management on the perceptions and feelings of other investors in the tech ecosystem.

• The venture capital industry will likely feature various strategies and styles in ten years.
• Firms will leverage their unique strengths to compete in the technology sector.
• The speaker's firm focuses on the builder mindset rather than financial investment strategies.
• Technology will become so broad that each firm will find its niche.

"No, I think there's just going to be different styles and it's going to evolve based and people are going to leverage the strategies that they've used to win in their own games to try to compete."

This quote predicts the diversification of strategies within the venture capital industry, with firms applying their existing strengths to compete.

• Building an industry-defining company requires proper management of equity.
• Legy is a tool that helps startups manage equity and engage employees and investors.
• Equity management is crucial for motivating teams and having transparent investor relations.
• BetterUp focuses on personal and professional growth, which is important for employee retention and company performance.
• Affinity is a CRM platform that provides relationship intelligence to help manage networks and close investment deals.

"There is no set recipe for creating an industry defining company. But one issue that occupies every successful startup is managing equity properly."

This quote emphasizes the importance of equity management in the success of a startup, highlighting it as a common concern among successful companies.