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Under The Hood: How Early Netflix And Zillow Investor TCV Uses A Crossover Strategy To Fund Growth Companies

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TCV (Technology Crossover Ventures) has been investing in private and public technology companies for the past 26 years, a time horizon that’s given it the benefit of perspective.

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The Menlo Park, California-based firm was one of the first investors in Netflix and Zillow, but perhaps more notable than the success of its early bets is its penchant for playing the long game with its portfolio companies, some of which it continues to invest in after they’ve gone public.

picture of Neil Tolaney, general partner at TCV
Neil Tolaney, general partner at TCV

With that in mind, we spoke with Neil Tolaney, a general partner at the firm, about growth stage investing, the firm’s new $4 billion fund, and what TCV is investing in this year.

“We didn’t just start five years ago,” said Tolaney of the firm, which first invested in Netflix at Series C in 1999.

Alongside its private and public market investing focus, TCV likes to be involved with its portfolio companies over a long period of time.

“There’s an incredible network effect that you build with entrepreneurs, and adding value to various efforts over a long period of time,” he said.

As an example, TCV founder and general partner Jay Hoag has been on the Netflix board for 20 years. Hoag is also on the board of Zillow, whose Series A TCV led alongside Benchmark in 2005. Amy Bohutinsky, the previous CMO of Zillow, is now a venture partner at the firm and works with a variety of TCV’s portfolio companies.

After TCV invested in Spotify by leading a growth round in 2013, a deal that valued the music streaming company at $4.25 billion, former Netflix CFO Barry McCarthy, an executive adviser with TCV, joined Spotify as its chief financial officer. TCV general partner Woody Marshall is still on the Spotify board.

Tolaney himself rejoined TCV in 2020, having spent two years at the firm a decade prior as a vice president. He was more recently a partner at Francisco Partners, a private equity firm investing in technology companies.

Crossover investor

The “crossover” in TCV’s name comes from its approach as a growth investor.

“Crossover stands for investing at the IPO, which we will do in the preponderance of situations,” Tolaney said.

He didn’t specify how much the fund invests in private companies versus public companies.

Interestingly, TCV doesn’t view an IPO as a liquidity event. “We actually view it as a financing event for the company,” Tolaney said. “And in many cases we are participating.”

He did confirm that the majority of the firm’s public investments are those where it has been a private investor. Still, there are times the firm will invest in public companies without having first invested while the company was still private.

The firm’s largest public offerings include two companies in which it first invested in 2018: Peloton and LegalZoom.

In the case of LegalZoom, which went public in June, TCV “ended up anchoring the IPO, and investing $90 million or 15 percent of the offering, in that context, when we had a trailing private investment that was over $100 million,” Tolaney said.

$4 billion fund

TCV invests on a global scale and is currently investing out of its 11th fund, its largest to date at $4 billion. Its very first fund at $100 million—just 3 percent the size of its current fund, raised in January 2021—was raised in 1995.

Tolaney said TCV will typically invest between $30 million and $40 million in a deal from its new flagship fund and up to 10 percent of the fund, or $400 million. “It’s a wide aperture by which to make growth-oriented investments,” he said.

The firm has raised funds fairly consistently up through to fund 7 in 2008. Given the size of fund 7 and the financial crisis, it did not raise another fund for more than six years until it announced fund 8 in 2014. Each fund since 2014 has increased in size.

PE doubles down

Global startup funding at the half-year mark in 2021 shattered all records as private equity and hedge funds have significantly increased funding to private companies, per Crunchbase data. Firms including Tiger Global Management, the SoftBank Vision Fund, Insight Partners and Coatue top these lists when you look at measures like amounts led or co-led. In the case of each of those firms, they’re also beating their own records for investment pace.

TCV, too, has increased its investment pace year over year, but not as dramatically as others leading in this space, Crunchbase data shows.

The firm is an investor in 33 private unicorns, including 15 unicorn companies that it has invested in since the beginning of 2020, per Crunchbase data.

TCV in 2021

Tolaney invests in consumer technology and media companies, as well as those that serve small businesses. “We invest behind great entrepreneurs disrupting very large markets through a unique value proposition that’s technology- and product-based,” said Tolaney.

To date in 2021, the firm has made 18 disclosed investments at a total of $5 billion raised by these companies.

Its investments this year include leading a $130 million investment in Hotmart, founded in Brazil, and headquartered in the Netherlands, built for creators to run their digital businesses.

“Everybody has rethought what they want to do on a day-to-day basis in a remote environment,” said Tolaney, who is focused on the global creator economy, which has grown to an estimated 50 million creators during the pandemic.

Hotmart itself has benefitted from word-of-mouth promotion. The platform allows creators to learn best practices, manage content across different platforms, and monetize through various payment platforms.

TCV this year has also made investments in German-based Trade Republic, a no-commission stock broker that raised a $900 million Series C round led by Sequoia Capital with new investors TCV and Thrive Capital. TCV also led a $400 million secondary investment with D1 Capital Partners and Falcon Edge in India-based Dream11, a fantasy sports company.

The firm is also a significant investor in point-of-sale restaurant management platform Toast, which recently filed to go public.

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