Tiger Global Navigating the VC Path and SaaS startups.

Navigating the Storm: SaaS Startups and the Valuation Shadow in the Post-Boom Era.

Private Companies aren’t trackable but their valuations should relatively track the performance of similar public companies. Tiger Global is a great example of how high valuations can hurt your fund performance in the long run.

Chase Coleman’s Tiger Global, known for its aggressive funding strategy, significantly increased the pace of startup investments, backing nearly one startup every day in 2021. This approach, characterized by fast decision-making and generous valuations, attracted both attention and criticism with some sources even saying that Tiger was investing in startups after just one phone call with the founder. The firm's 2021 spree led to 41 portfolio companies going public, distributing $8.3 billion to investors, but the tide turned in 2022. Economic shifts, regulatory challenges, and a change in interest rates impacted Tiger's performance, causing losses in its hedge fund and private fund.

The firm faced difficulties in raising its new venture capital fund and grappled with controversies, including an anonymous memo with unverified allegations circulating among investors. Despite past successes, Tiger struggled to sell certain stakes at desired valuations. The private market slowdown further impacted the firm, with valuations decreasing, and the hedge fund lagging behind.

As of now, Tiger's assets are reportedly weighted heavily on the private side, with the firm navigating challenges to convince limited partners about its future success.

The venture capital funding boom of 2021 and 2022 gave way to a significant crash in 2023, creating challenges for SaaS startups in securing funding. The drop in VC dollars and global funding posed difficulties for companies that had flourished during the previous high-growth period. One particular issue looming over such startups is the risk of a valuation shadow—a situation where an overvalued startup struggles to meet unrealistic growth and revenue targets set during more prosperous times.

The causes of a valuation shadow are multifaceted, often linked to economic contractions, misaligned investor-founder goals, and market hype. The consequences can be severe, leading to overspending, impossible growth expectations, and difficulties securing additional funding. To prevent or overcome a valuation shadow, founders are advised to re-evaluate their financials objectively, shift focus from growth to revenue generation, resist large funding offers, and consider alternative financing options like revenue-based financing.

Source: Bloomberg, Financial Times