Inside Tiger Global’s Close Ties to Consulting Firm Bain & Co.

As Tiger Global Management plowed money into technology startups at an astonishing speed in 2021, the firm attracted envy, fear, and scorn from Silicon Valley.

Tiger reeled in billions of dollars and outmaneuvered many venture-capital firms by moving quicker and promising a more hands-off approach to close deals. Critics were more than happy to point out that Tiger had gotten its start as a hedge fund and that large-scale startup investing was not its primary business.

Soon, the naysayers began to whisper that Tiger’s secret involved cutting corners. The firm, they said, was outsourcing much of its due diligence to an army of consultants from Bain & Co., while skimping on the hands-on support VCs often provide to founders.

The tactic allowed it to evaluate markets and make investments in a wide variety of companies with just a fraction of the staff employed by large multistage venture firms. It also offended those who believe a VC’s special sauce comes from in-house expertise and guidance to companies.

For a while, the complaints came across as sour grapes. Tiger led the industry in deals last year, pouring money into 339 startups, according to data from CB Insights — more than one deal a business day. Getting Tiger as an investor became a stamp of legitimacy for founders. 

Now, as startup valuations have gotten chopped down amid a sharp, sudden downturn in the tech sector, Tiger’s rapid approach to backing private companies — and its dependence on Bain — is under scrutiny. Though Tiger has largely used Bain for its private portfolio, its public hedge-fund strategy has fallen more than 50% this year, heightening pressure on the firm’s model. 

In recent weeks, Tiger has halted most of its venture investing, particularly in late-stage rounds, pulled back on providing follow-on capital to startups already in its portfolio, and even embraced the taboo, pulling a term sheet it had already promised, rival venture capitalists who wished to remain anonymous because they were speaking on private matters said. Bain did not respond to requests for comment.

Insider spoke with more than a dozen people who offered previously unreported details on the controversial tie-up between Tiger and Bain. Though Tiger has years left to turn its performance around, its grand experiment to upend the decades-old venture-capital industry is now in doubt, leaving investors with questions and founders in the lurch.

One of the firm’s limited partners — an investor who has backed one of its private-investment funds — is now voicing what had been unthinkable just a year or more ago. He said he had lost confidence in the firm’s approach.

At the end of last year, when the private-market boom was still going strong, the LP was dismayed to receive a capital call from Tiger for half the capital he had committed only weeks earlier. The firm told its investors it was doubling down on positions it already had, the LP, who declined to be identified because he is bound by confidentiality agreements, said.

“I want to believe them,” the LP said. “But I think it’s unlikely I will see that money again.”

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Tiger is run by Chase Coleman, a protégé of the renowned hedge-fund investor Julian Robertson and a descendant of Peter Stuyvesant, who governed New York when it was still a Dutch colony. Coleman has been investing in private markets for nearly two decades, with much of the firm’s early success coming from prescient bets on Chinese internet companies. 

But it was in the past few years, fueled by Tiger’s successful investments in Spotify, Peloton, and Roblox, among others, that the firm had been able to attract eyewatering amounts of capital. After raising $5 billion in 2020 and more than double that in 2021, it now manages $75 billion, split between strategies in a public hedge fund, a long-only public fund, and private venture-capital funds. 

Tiger Global

To deploy its capital, Tiger reimagined the traditional venture-capital model. Instead of hiring a team of analysts devoted specifically to scouring the world for promising startups, the firm’s partners leaned heavily on consultants from Bain, said startup founders with direct knowledge of the relationship and others in the industry who are familiar with it.

Tiger’s team — at roughly 40 people, according to a person familiar with the firm — is much smaller than those at several VC firms that command tens of billions of dollars in assets, including Andreessen Horowitz and Insight Partners. Andreessen Horowitz has a staff of over 300, according to the firm. Insight also employs about 300 people.

I want to believe them. But I think it’s unlikely I will see that money again.

Bain provided reams of research on companies, including revenue estimates and competitive analysis, as well as market analysis that enabled Tiger’s partners to make quick decisions on the startups they chose to back — winning deals in a matter of days — and the terms they sought to offer those companies. Founders have spoken about getting offers for tens or hundreds of millions of dollars in funding after a single phone call, once unthinkable for a venture-capital industry that’s used to taking weeks, if not a month or more, to vet a prospective investment. 

“Tiger’s a pretty aggressive investor,” said Clint Sharp, the CEO of Cribl, a data-services company that in May announced a $150 million Series D round led by Tiger. “You get a phone call, and they tell you the price they’re willing to pay. It’s up to you to decide to take it or not take it.”

Tiger’s outsourcing to Bain also meant the firm would take a hands-off approach with the startups it backed. It famously avoids taking board seats, which some founders count as a perk, since it allows them to operate their companies with less oversight than a traditional venture capitalist.

For more hands-on support, Tiger often directs them to Bain’s consultants, who offer founders services such as developing business strategies and making introductions to prospective customers. According to one rival venture capitalist, Tiger also gives startups access to the services offered by the executive-recruiting firm Heidrick & Struggles. 

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Bain’s typical consulting model is to do one-off projects for clients that might cost anywhere from $1 million to $10 million, a former Bain executive said. A private-equity firm interested in an investment might hire Bain or another large consulting firm to conduct market analysis and build investment models, which often require sourcing obscure data, the person said.

Bain’s private-equity group, known internally as PEG, typically handles these and other due-diligence tasks, according to the former Bain executive. But one advantage of the model is that consulting firms have the flexibility to expand and contract their deal-by-deal staffing so consultants can easily be put onto and taken off projects depending on the workload.

While most of Bain’s clients use the firm for one-off assignments, Tiger’s innovation involved signing Bain to longer-term retainer contracts. Coatue Management, which also invests in both public and private markets, has followed suit in keeping Bain on retainer, according to one person with direct knowledge of the relationship.

“They will have a pipeline of projects to work on,” a venture capitalist who has worked with Bain told Insider. When the investor’s firm seeks to examine a particular market, such as bank infrastructure or device security, it turns to Bain, which will provide a list of the companies in the space and identify the market leaders.

Tiger works with a set of senior partners at Bain who assemble a team of consultants whenever the investment firm wants to examine an industry or country. Some of those consultants may be on the ground in the local markets of interest to Tiger. In essence, Tiger pays Bain consultants to be at its beck and call at any time of day.

Hypothetically, it means that one of Tiger’s private-investment partners — including Scott Shleifer, John Curtius, Alex Cook, and Evan Feinberg — could order up a project on Friday evening and have a 100-page report or PowerPoint deck ready for them on Monday morning, an investor said. At least one investor who spoke with Insider said Tiger offered him one of Bain’s reports as he considered a coinvestment. Coatue would sometimes slap its logo on Bain’s report and pass it off as its own, the venture capitalist who has worked with Bain said.

For that white-glove service that essentially outsources diligence, Tiger pays more than $100 million a year, according to four venture capitalists and a tech executive who have heard the number. Coatue pays Bain several million dollars a month for a team of roughly 12 people, one person estimated. A person close to the firm disputed this figure. 

While investment firms could build an in-house consultancy for less than $100 million, they wouldn’t be able to modulate its size according to deal flow, another venture capitalist said. And for every team of consultants they hired, they would have to build out a larger human-resources team. 

“The noncash overhead would be a lot,” the person said.

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Using Bain allowed Tiger to cast an incredibly wide net across the global

technology industry

, building a portfolio akin to an index of the most valuable startups in the world, just as Vanguard does in the public markets and Y Combinator does for seed-stage companies. 

Some of those bets have already begun to look less favorable. Several of Tiger’s portfolio companies, including Superhuman and Vedantu, recently laid off significant portions of their staffers. Stripe and ByteDance have had their valuations slashed by other investors, such as Fidelity, and Instacart marked down its own valuation earlier this year by 40%.

Reuters

Tiger has told investors that it marked down its private portfolio 9% in aggregate at the end of the first quarter. Still, valuations for private companies tend to lag public-market prices, and former darlings of the venture-capital world, including Coinbase, DoorDash,

Zoom

, and Snowflake, have slumped 60% or more from their peaks.

Tiger’s indexlike strategy for backing startups is bound to produce heavy losses alongside its outsize successes, but that’s deliberate, one investor told Insider. The firm’s reliance on Bain to make those investments quickly is reasonable within that context, the person said, adding that because each startup makes up a minuscule portion of the portfolio, “you shouldn’t spend a lot of time on it.”

But the recent and sharp market downturn poses a test to that approach, especially as several companies that raised massive amounts of funding last year now find themselves scrambling to slash costs. Valuations for late-stage startups have fallen sharply across the industry: They plunged 28% in the first quarter of 2022 from the fourth quarter of 2021, according to PitchBook, and investors largely expect them to tumble further in coming months.

In light of the losses, Tiger has pulled back from the entire industry. According to CB Insights, the investment firm has made 71 deals in startups in the second quarter and is on track to complete 94 deals by the end of June, a 27% decline in private investments from the first quarter of 2022. That data may not capture the full extent of Tiger’s slowdown in private investments, since funding announcements often come months after a company has signed a term sheet.

Tiger’s hands-off approach may come back to harm companies in its portfolio because it means the firm’s principals aren’t close to any one management team. The firm has largely turned away from the type of follow-on investments that companies in distress count on to stay afloat. Should those companies need additional capital, they will face difficulties in fundraising, since other large investment firms, including SoftBank, Coatue, and D1, have also slowed down. 

“I think founders took funds from them thinking that these people in a downside scenario will reserve capital and can back them through a difficult period,” one VC said in reference to Tiger. “But that’s not how they operate. They will walk away from things, and they will be unemotional about it.”

In at least one recent case, a venture capitalist in the Bay Area told Insider, Tiger pulled a term sheet for one of the startups it agreed to fund — a practice that’s typically frowned upon in the industry.

“They’re staying on the sideline,” the VC, who declined to be identified because he did not want to publicly criticize a competitor, said. “They’re all out.”

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Tiger’s reliance on Bain also allows the firm to pivot quickly in the middle of a market shift, and within the smaller group of investments it’s making, Tiger appears to be tweaking its focus. It has shifted toward backing early-stage companies and away from the massive pre-IPO funding rounds the firm was accustomed to leading, four investors told Insider. Tiger’s partners have also begun backing venture firms that specialize in seed-stage investments.

Data from CB Insights reflects this shift: Early-stage investments have accounted for 48% of Tiger’s deals this quarter, compared with just 19% for all last year. Just nine of its investments in the second quarter have been in companies raising rounds at Series D or later stages. The firm has expanded to more geographies as well: This year, Tiger has invested across 37 geographic regions, for example, compared with just nine in 2020, CB Insights’ data showed.

Tiger’s a pretty aggressive investor. You get a phone call, and they tell you the price they’re willing to pay.

But it’s unclear how well Tiger’s investment strategy will work as it makes this shift, Alex Lee, a senior editor at the market-research firm CB Insights, said. Bain’s decades of experience with private-equity consulting transfers much more easily to mature companies than to early-stage startups.

“I am curious how that shifts toward this early stage, this new focus,” he said. “There isn’t as much data available or as much of a track record, so it will be interesting to see how Tiger’s strategy shifts, or the kind of due diligence it is doing on these companies.”

At least one investor isn’t happy about having to find out. The limited partner who got the unwelcome capital call earlier this year told Insider he had soured on the firm’s approach.

The LP said he was recently told Tiger had slightly marked up the companies it doubled down on in late 2021, but he’s skeptical. Startup funding and valuations hit records at the end of 2021, so it’s likely that Tiger invested at the top of the market. 

“I suspect not because a lot of these companies are going to go under,” he said.

“​​In hindsight, it’s obvious they were using it to catch a falling knife,” he said. “They were buying assets that would go down more.”