After spurring the VC bull market during 2020-21, Tiger Global appears all set to raise a brand new fund reportedly worth $2.2 billion, but this time round the company is promising a more targeted approach, especially in the AI and allied businesses.
According to CNBC, the latest venture capital fund, known as Private Investment Partners 17 (PIP 17) is promising a more humble approach to investing than the 2021 madness where Tiger Global was using the “spray and pray” method of investing big and moving fast to find more entities.
This information came from a note sent to potential limited partners (LPs), a copy of which was obtained by CNBC. Readers would recall that PIP 15 raised during 2021, had a massive $12.7 billion stacked which the company pumped into startups at a frenetic place and massive valuations.
When Tiger Global went ‘Spray and Pray’ in 2021
In a single year (2021), the hedge fund invested in 315 startups that often resulted in bidding battles among the VCs to secure stakes even in unproven startups. All they did then was bolster valuations without actually showing adequate proof of a unique business idea or the possibility of robust scale-up.
However, things went south pretty fast with as Tiger Global saw losses of about $17 billion during the tech stock meltdown of 2021-22, making it one of the largest-ever dollar declines in the hedge fund history. Per data provided by a fund of hedge funds managed by Edmond de Rothschild Group, Tiger Global erased about two-thirds of their gains since the launch of the fund in 2001.
Which is probably why the company is now promising a more disciplined approach with the PIP 17 that is similar in strategy, size and construction to its earliest predecessor and the most recent one (PIP 16). The fund targeted a raise of $6 billion but has closed substantially lower at $2.2 billion.
At this point in time, the last of the PIP series had big positions in OpenAI and Waymo. They invested in OpenAI in 2021 below a $16 billion valuation while Waymo it stood at $39 billion. Today both these have resulted in a major rebound in performance with Tiger Global indicating that PIP 16 was currently up 33% year-to-day as against PIP 15 that stood at 16%.
In spite of making two great bets, one of which is around AI and the other around indigenous auto technology, the company now seems wary. In the note to investors, the fund acknowledged that leaning on AI investments may be risky.
What does the investor note have to say about AI?
It went on to add that “valuations are elevated and, in our view, somethings unsupported by company fundamentals,” the note quoted by CNBC says. So, can we take this to mean that in spite of major opportunities in the AI ecosystem, Tiger Global actually believes that the best is behind them?
Since 2021, Tiger Global has raised $14.9 billion in two tranches and invested in several startups during the past four years. However, when interest rates began rising steadily, the startups faced their own challenges that did not include attempting to live up to the expectations set during the 2021 valuations game.
And things came to a head in 2022-23 when the venture market bottomed out things changed at the Tiger Global corner offices. While John Curtius left to start his own venture fund, Scott Shleiffer, who led their private equity investments moved into an advisory role and in parallel founder Chase Coleman took over the reins.
While the PIP16 for $2.2 billion came post this tectonic shifts at the management level, and resulted in major investments across the likes of Waymo, Databricks and OpenAI, the company is clearly stating that their next effort would be more careful insofar as the investment mindset is concerned.
Looks like Chase Coleman has laid out a clear strategy to prune the unwanted aggression of these past years, specifically so with elevated valuations coupled with unsupported fundamentals. “We also recognize the importance of approaching a technological shift of this magnitude with some humility,” said the note to private investors.
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