UD #03: The Tiger And The Tree

Venture capitalists look for various things when evaluating start-ups but every VC is ultimately looking for businesses that are scalable and can develop defensible moats. The irony is that VC funds themselves are typically unscalable and often differentiated by nothing more than their brand. The barrier to scaling for most VCs is the Partner’s bandwidth. VCs often take a board seat and 10%-30% ownership in a company each round. Since they can only sit on about 10-12 board seats at a time and board seats are a multi-year commitment, the capacity to take on another board seat is only available once in a while.

This model has made it particularly difficult for VC firms to expand geographically. Most investors would rather save their limited capacity to sit on boards for companies in geographies they are more familiar with and where they don't have to travel internationally for board meetings.

However, the internet is in the deployment age and every sector in every country is going to be transformed by the internet. VCs looking to back the best companies will have to go global. There are two distinct playbooks for funds looking to go global - and they couldn't be more different.

Crouching Tiger, Pre-emptive Round

Julian Robertson had spent two decades as one of the best value investors in the world. Julian invested in companies with strong fundamentals led by competent management teams. In the late '90s, as the dot-com bubble gathered steam, investors moved money from value stocks into growth stocks and Julian's performance suffered. Ultimately, he shut down his fund and return money to his investors. What he did next was remarkable, he seeded over 30 of his employees with $25M each to start their own funds. An additional 30 others, went on to start their own funds without raising seed capital from Julian.

One of those funds was Tiger Global, which was launched by Chase Coleman as a long-short global public equities fund. In 2006, Chase would bring onboard Lee Fixel, who had been investing in China, to lead its business in India alongside Mohan Lakhamraju. Tiger Global made a handful of later-stage investments into early successful Indian internet businesses like MakeMyTrip and Just Dial.

Mohan Lakhamraju left Tiger Global in 2009 and the firm decided to close its India office. Without a local operation in India, its strategy had to change - and it started to ...