What's Behind India's Unicorn-Frenzy?
It takes a Tiger to make a Unicorn. In the jungle of VCs, Tiger Global has outplayed all other players with its unique set of rules. Read on!
Tiger Global, a New-York based hedge fund has invested in 60 companies worldwide in the first 3 months of 2021. Even India has not been spared from Tiger’s hunting spree.
We got 11 unicorns (startups with valuations more than US$1 bn) in the first 3 months of 2021 (we got the same number of unicorns in the entire 2020). And, Tiger Global has invested in 7 of them!
It sounds all very exciting. But, Tiger’s quick moves have created ripples in the entire ecosystem and threatened other players of the jungle. Other investors don’t want to be left behind, and are feeling compelled to make a move. Seeing this opportunity, the startup founders are running to taste the blood of funding. Amidst this frenzy, breeds the fear of wrong moves and a big downfall in the future.
So, has the Tiger gone mad?
Well, let’s look at its modus operandi -
It offers money to startups that aren't even looking to raise funds. It gives more than what a startup is worth.
It closes deals at lightning speed, in a matter of days - the decision is often made over a single Zoom call.
It invests in directly competing companies, like Byju’s and Unacademy, Dream11 and My11Circle, Groww and Upstox, unlike traditional VCs who find this move wasteful.
Sounds mad now? Definitely.
But, let’s dig in a little deeper to understand this madness and how it works for them.
Traditional VCs are run by general partners (GPs), who hold just 1-2% of the total funds of the VC. The rest of the capital is provided by investors who don’t actively manage the funds (called the limited partners). Now, because the GPs are dealing with someone else’s money, they are accountable and have to justify their decisions. And, this is where they lose their speed and Tiger gains its agility.
The GPs of Tiger are different. They are also the largest investors in the funds. It’s their money. They can take any decision they want to. But, taking quick decisions is not just a privilege, it is a necessity too.
When it is throwing so much money, it needs to make sure that the chance of success is high. And, what can ensure this success?
As many strikes as possible. Diversification. Tiger hunts all kinds of companies and gives them a premium to ensure it gets their meat. From early-stage startups to growth-stage companies to publicly listed ones, all of them. Thus, to make many strikes, it has to increase its speed of signing the deals while maintaining the Tiger Global quality. How?
Tiger outsources the job of deep-diving into its investments to reputed consulting firms (like Bain) to ensure that all its bases are covered. This also helps in quick decision-making by Tiger, as it is already well informed about the business and the company it talks to.
And well, its strategy to invest in competing companies is a masterstroke.
It doesn’t bet on companies or industries really. It bets on human psychology and market trends. In whichever direction Tiger senses the wind to blow in the future, it speeds in that direction. It doesn’t take a genius to figure out that one of the horses in the herd will be successful. And so successful, that it can comfortably absorb the losses of its competitors and still manage to get good returns. How do we know?
The answer lies in Tiger’s success. Tiger had placed bets on Facebook, LinkedIn, Flipkart, Spotify, Coinbase (7th biggest IPO of all time in the US). Need we say more?
Can you think of any other hedge fund that follows Tiger Global’s strategy? Let us know in the comments below :)
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