With the influx of large funds like SoftBank’s Vision Fund and Tiger Global Management, investing in silicon valley startups has undergone tremendous changes. These mega funds are pouring billions of dollars into high-growth startups, helping them expand rapidly but also leading to overreliance on funding. Startups now have to move faster and think bigger in order to absorb large checks. The accelerated pace of dealmaking, more systematic evaluation of startups, and lower return expectations from investors are reshaping the silicon valley investment landscape.
Vision Fund’s $100 billion fund dwarfs the entire VC industry in the US
The $100 billion Vision Fund started by SoftBank in 2017 is almost twice as large as all US venture capital funds combined in 2018. It has invested about $1 billion per week in its first year, with money coming mostly from Saudi Arabia and Abu Dhabi. The minimum check size of $100 million pressures traditional VCs to create bigger funds to stay competitive. But even Vision Fund is not the most active mega-round investor today.
Tiger Global invests 10 times more in startups in Jan-May 2021 than 2020
Tiger Global Management, a hedge fund also investing in private tech firms, has been even more aggressive than SoftBank recently. It invested in 118 startups in Jan-May 2021, 10 times more than 2020, with its portfolio counting over 400 firms now. It aims to raise an additional $10 billion, which is small by Vision Fund’s standards but still substantial in the VC world. Tiger has been backing tech winners like Facebook for 20 years.
Systematic evaluation and early warning system help Tiger identify top startups
Unlike SoftBank that relies on gut feeling and celebrity founders, Tiger Global uses metrics and data to systematically evaluate startups, despite not taking board seats. It also has an early warning system to spot promising startups, putting money into similar firms when a new model takes off. Traditional VCs have a lot to learn from their disciplined investment strategy.
Faster deal-making, lower return expectations reshape silicon valley investing
The acceleration of remote meetings on Zoom and similar platforms enables much faster deal-making, allowing investors and founders to evaluate many more options. Investors are also lowering their return expectations, given poor historical returns from many VC funds. These trends contribute to the success of funds like Tiger Global and will persist even if they scale back investments.
The influx of mega-funds like SoftBank’s Vision Fund and Tiger Global has led to a flooding of capital into high-growth silicon valley startups. Startups now operate in a supercharged manner – moving faster, raising more money, and thinking bigger. The investment landscape has also changed permanently with compressed fundraising timelines, more systematic evaluation of startups, and lower return expectations from traditional VC investors.