Tiger Global believes India is likely to earn the highest equity returns in the world going forward, his partner Scott Shleifer said during an investor call on Tuesday, even as he admitted that the investor giant has made much more money in China and the US and acknowledged that the local startup ecosystem struggles with governance and unit economics challenges.
“We think this is the best place to invest,” says Shleifer from India. “We were able to buy 16 or 17% of Flipkart for $8 million in 2010,” he said of the investment in the e-commerce giant, which is currently valued at more than $36 billion. “We were able to buy 10% of Inframarket for $8 million. We bought a third of Upstox for $50 million.
Tiger Global is one of the most prolific investors in India, funding more than a third of all unicorn startups in the country. The New York-based company, which ranks India among the top three markets globally, has deployed more than $6.5 billion in India since its inception, businesskinda.com reported last year.
India has attracted more than $75 billion in investment over the past decade from technology giants such as Google, Meta, Microsoft and Amazon and investors including Sequoia, Tiger Global, Accel and Lightspeed. But the country’s burgeoning startup ecosystem has seen very few exits, and many consumer internet startups listed on the stock exchange over the past two years are trading significantly below their listing prices.
Shleifer acknowledged that the return on India so far has been nothing to write home about.
“Return on capital in India is historically poor. If you look at the leading internet companies, be it Google, Facebook, Alibaba or Tencent, the revenues for them became greater than the costs more than a decade ago. You had a great legacy over the past 17-18 years of materially profitable internet businesses. So the returns on stocks on the Internet became very high and the returns to investors were very high. But that didn’t happen in India,” he said on the call, which was also attended by Alpha Wave Global co-founder and partner Navroz Udwadia and saw participation from around 200 entrepreneurs, investors and bankers.
Until the past two or three years, India had about zero profitable internet-based startups, while banks and companies in other industries were thriving, Shleifer said. “As a result, returns on capital for investors like us are below average… way below. Our return in India is about 20% gross since inception. That compares to the mid 30’s in the US on the private side and low in the 50’s in China. But that’s in the past,” he said.
Shleifer offered a sympathetic view of India’s poor returns, claiming that the country could not have made a ton from its $3 trillion economy. “We’ve seen incremental profit margins on market leaders are fantastic. So this big risk that you’d have a great country that would get a share of GDP, but there wouldn’t just be excess profit pools that could have a sustainable competitive advantage, we think has fallen off a cliff.
He argued that historically low yields in India put the country in a better position than the US going into the recession. “You didn’t have a lot of excess capital in India like few other places.”
Funding in Indian startups – as has been the case elsewhere in the world – has shrunk over the past year as investors became more cautious about broader market conditions. The last time Indian startups experienced a sharp fall in funding was around 2015 and 2016, when the country struggled with the aftermath of excess funding among dozens of internet startups.
“I think it was very helpful that the internet in India went through a bubble in 2015. We contributed to it at Tiger Global, so we’re not throwing stones. The Indian internet in 2015 came closest to a real bubble bursting. The reason I bring that up is because I think that’s been very helpful today and over the years. In 2022, our investment portfolio in India performed much closer to budget from the start of the year than our businesses in other geographies.”
Slides from Tiger Global’s presentation:
This is an evolving story. More to follow.
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