The late-stage market is whacked. You only need to look at how Tiger Global Management, previously one of the most active investors in all of startup-dom, has failed to find a buyer for a large basket of its stakes in private tech companies.
The fact that Tiger did not, as PitchBook wrote, find a buyer for “a percentage of its stakes in about 30 companies [packaged in a] strip sale” implies the issue here was that Tiger did not find a buyer willing to pay however much it wanted for those stakes.
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LPs in venture funds put their money into an aggregated pool that is then used by the venture firm to purchase a number of stakes in a variety of companies. The difference between an LP in a new fund and Tiger, which is looking to sell a wide swath of stakes, is that the traditional LP can’t know where its pledged capital will end up.
Tiger, on the other hand, reportedly was looking to sell a basket of its stakes to what we presume is a similar customer base. Its failing to find a buyer for that collection implies that, in this case, more information is not helping move those shares.
PitchBook reports that Tiger is now looking to sell individual stakes in some of its portfolio companies to generate liquidity. Other investors are also struggling to sell collections of stakes, but they’re not seeing bids either, the report said.
Tiger did not immediately respond to a request for comment.
This is not a massive shock. Tiger was incredibly active in 2021, when startup valuations were elevated. Since then, prices have fallen and the firm has slowed its investment cadence. This has likely left Tiger with an array of stakes in startups that are not priced according to today’s market.
Given that there is a lot of sturm und drang in the late-stage market about what companies are really worth and how they’ll be able to raise more money without getting their valuations butchered, Tiger is bound to struggle with the market dynamics.
You might ask why Tiger is trying to sell a group of stakes together if it wants liquidity so badly. Why not just skip directly to selling shares in its hottest portfolio companies? It’s because the firm likely wanted to group its most valuable startup investments with its lesser bets — the investments with more limited upside, to put it politely — to generate liquidity.
But that option is seemingly off the table for now, so Tiger is trying to find buyers for its best stuff. But that’s merely a retelling of the old venture maxim: ‘Great companies can always raise.’ It doesn’t mean much, because this failure to easily sell a basket of startup shares offered at a presumably healthy discount is a clear signal of what’s going on.
If you rewind the clock, earlier this year, investor Elad Gil predicted that a bunch of startups that raised money at peak prices in and around 2021 were going to start running out of cash in late 2023 and 2024. That means Tiger is likely holding on to a number of stakes in companies that are not going to be around for much longer. Better to try and sell those stakes before they go to zero, right?
We feel Gil is on to something, and this doesn’t seem to be a rare perspective. Investors do not want to be left holding the bag for prior, misplaced exuberance.
Venture investing regularly sees attempts to shake things up and turn it into a more standardized investing effort. Some have been successful in doing that, but winners so far have only been found in the early stages — your Y Combinators and Techstars. For later-stage dealmaking, the track record is less impressive.
But I would be willing to bet you lunch that the next time there’s a venture boom, we’ll see another firm pull a Tiger and try to build stakes in hundreds of startups very quickly. The results will probably be similar.