Tue, 23/06/2015 - 11:00
James Williams (pictured) reviews a study of ex-Tiger Management managers and their conflicting approach to companies in the private technology sector.
A recent study by CB Insights reveals that competition is alive and kicking among Julian Robertson's `Tiger Cubs'; a stable of over 30 high profile managers who, at one time, all worked at Tiger Management before leaving the den with seed capital from Robertson.
What CB Insights shows, using a CB Insights Business Social Graph (see fig 1), is that while the Tiger Cubs invest in similar companies in the public markets, in the high-risk, high-growth tech and broader venture capital private markets, they are taking opposing bets.
Two Titans, Tiger Global Management LLC run by Charles Coleman and Philippe Laffont's Coatue Management LLC, stand out in particular, due to the frequency of deals in which these two funds are engaging.
™There is a lot of overlap in the public investments among Tiger Cubs so we wanted to explore that in more detail, and see how that was playing out in the private markets,∫ explains Michael Dempsey, an analyst at CB Insights. ™The hedge fund world is very much a zero-sum game, but the Tiger Cubs have long been rumoured to share trading ideas. Because of this, I would have expected to see a little more syndication among Tiger Cubs when investing in the VC space, but then again, a lot of the Tiger Cub strategies are not as full-bore as Tiger Global or Coatue when it comes to private investing.∫
There are two private market sectors in particular where Tiger Capital and Coatue hold opposing positions: private lending, and e-hailing applications. Whereas Tiger Global holds a position in Uber, the online cab and private driver service, Coatue has added Lyft to its portfolio.
Uber is also a good example of where Tiger Cubs are co-investing. As CB Insights notes, Lone Pine Capital, and Glade Brook Capital were part of a consortium of Tiger Cubs that contributed the bulk of the money to Uber's USD1.2 billion Series E financing. In addition, Coatue and Tiger share NextDoor, Uxin Pai, and Kuaidi Dache, an Asian equivalent of Uber, in their portfolio.
With respect to private lending, Tiger Global previously invested in Avant, OnDeck Capital (now public), and DianRong, with Coatue taking an opposing bet in Lending Club. This position was added to the portfolio in November 2013 when Lending Club had a valuation of USD2.3 billion. Last year, it went public with an IPO that saw it raise USD9 billion.
Other direct competitors include Box, which Coatue invested in pre-IPO in its Series G versus Dropbox which landed an investment from Valiant Capital Partners in 2011.
So what does this tell us about the mindset of Tiger Cubs?
“Tiger and Coatue are the two main funds competing, whereas Maverick Capital and Viking Global tend to do their own thing. Lone Pine Capital’s only private tech investment is in Uber, while Valiant Capital has been active and has a few competing bets (Uber, Dropbox, Evernote).
“I don’t know if there is now as much collaboration among Tiger Cubs as perhaps there used to be. In the private markets, Tiger is the most active manager. For example, Kuaidi Dache (an Asian e-hailing company) was one of the first international investments that Coatue made, whereas Tiger Global has been doing this for a while. Maybe it just doesn’t make sense for Tiger Global to invite other Tiger Cubs to co-invest because a lot of these hedge funds aren’t interested in just putting in, say USD5 million. Their fund economics require meaningful ownership in rounds,” says Dempsey.
Lone Pine and Glade Brook Capital aren’t as experienced or active in the VC-driven tech space. Because of this, they are more inclined to do syndicate deals in companies like Uber, which already has massive scale and a good valuation. By comparison, Coatue is more willing to take a go-it-alone bet on Lyft.
This not only shows a high level of conviction at work at Coatue, it also suggests that the firm has a higher risk tolerance when making these private market investments. At Tiger Global, it has a reputation for being fast with the term sheet when its analysts identify a solid prospect to invest in.
“I’m obviously not privy to how these managers invest in private markets but in general, Tiger Global will meet with a company they’ve identified and create a term sheet in a number of days; they are very fast and that’s why they are doing so many deals. They did nine deals in April,” says Dempsey.
One interesting, albeit purely qualitative insight, into the way that Coatue and Tiger Global are searching for alpha-generating opportunities in tech, is the type of companies that they favour.
Lending Club, for example, is more of a retail, consumer-focused Peer-to-Peer lending platform, compared to OnDeck Capital, in which Tiger invested, which is more focused on small business lending.
Extend that to e-hailing, and Coatue favours Lyft, also more of a consumer-focused company, whereas Tiger has opted to stick with Uber, which offers a black car service (more business-oriented) to its customers. These are very general observations, but give some degree of insight into the investment philosophy of both managers.
Asked if there were any major surprises in the Social Graph, Dempsey says that he was intrigued to see that Valiant was backing Dropbox and Evernote.
“While they are both billion dollar companies, they are certainly not as safe a bet from a returns perspective like Uber is.
“The main takeaway is that Tiger Cubs aren’t syndicating deals as much as we thought they would be in the private markets. The bigger funds – Coatue and Tiger Global – have their own conviction and don’t need to involve other hedge funds. They are happy to invest directly in funding rounds, and are also happy to compete by putting on opposing bets,” concludes Dempsey.