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January 4th, 2024
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Tiger vs. SoftBank: Inside the investing playbooks that upended Silicon Valley
Protocol | Biz Carson | Jul 12, 2021
The two firms invested the most money into startups so far in 2021. But how they do it is completely different.
Nylas CEO Gleb Polyakov had been following the Silicon Valley playbook for raising money: meet with firms; deal with associates, then partners; and try to clinch funding for his developer-tools startup.
Then Tiger Global handed over a term sheet.
When Polyakov alerted other firms interested in investing in his hot API maker to Tiger's offer, one of the more traditional firms he had been talking to abandoned the deal.
There's an "old boys' club" and a "process" Silicon Valley VC firms like to follow, said Polyakov. "And if you don't follow the process they get very upset and very insulted, which seems a little silly."
The last firm to turn the tables on Sand Hill Road before Tiger was SoftBank. The Japanese conglomerate had raised a $100 billion fund to invest in tech startups, and its "capital cannon," as Uber CEO Dara Khosrowshahi called it, became a thing entrepreneurs wanted behind them in support, not facing them as a threat. The investment strategy set off an arms race of firms raising larger and larger growth funds to compete in deals.
See: Tiger Global: what happens when ‘normal’ returns?
Now in 2021, there's been an explosion in venture capital investment as all that cash has sought places to land. The first half of 2021 shattered records with $288 billion invested in startups globally.
Leading the pack is Tiger Global Management, which has emerged as this year's funding jockey, setting a blistering pace with venture firms racing to keep up. Tiger Global has invested in over 120 startups already this year, according to an analysis by PitchBook for Protocol, and shows no signs of slowing down with a $6.7 billion fund announced in April and a rumored $10 billion fund on its heels.
"Their strategy right now seems to be hinging a lot on 'Money is still cheap.' The public markets are still accepting these unicorns and VC-backed companies and sustaining those high valuations that they're seeing in the private markets," said PitchBook analyst Kyle Stanford. "Sometime last year [Tiger Global] saw the opportunity to just put as much money to work in the market right now as they can, and that's what they did."
SoftBank, meanwhile, has returned to the market after the WeWork deal's fallout cooled outside investors' interest in its Vision Fund 2. The firm rebounded after mega-hits like Coupang and DoorDash, and is now as much of a player as when it first shook up the venture capital world. SoftBank recently upped the size of Vision Fund 2 to $30 billion of its own money and has made 90 investments from the fund.
See: SEC has an active and ongoing investigation on Softbank ‘Nasdaq whale’
Tiger Global and SoftBank are now the two largest investors when it comes to dollars invested in startups for 2021. But the approach to how the two deploy capital is incredibly different.
Kings and nerds
SoftBank is a kingmaker, led by internet emperor Masayoshi "Masa" Son. All of the investments involve a pitch to the chief of SoftBank, who is said to back founders who inspire him and reward CEOs who have the biggest, most audacious plans.
Tiger Global doesn't have the same kind of frontman. Don't try Googling it: Its website presents all of three pages to the public internet, hiding the rest for investors. It prefers to stay out of the press. Instead, it's known for studying its prey and then pouncing on a deal. Its relentless speed is a result of having done much of the diligence on an investment before it even approaches a company. Once it's invested, it remains largely hands-off — a big contrast to SoftBank, which will take board seats and hasn't been afraid to switch up management when needed.
Look Back 2013: Borderless Investments: The Top US Venture Capitalists Investing in Canadian Startups
What they have in common — and what makes them both symbols of this golden age of venture investing — is being open-checkbook investors who aren't afraid of pouring hundreds of millions into a startup with a desire to hold that position into the public markets. As such, they've both shaken up the venture capital market in 2021 and are the new forces driving deal speed and price in late-stage investing.
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