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.
"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.
"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.
"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."
"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
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.
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.
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.
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
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.
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.
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.
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
"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.
"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.
"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.
"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.
"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.