Tiger Global believes India is likely to generate the highest equity returns in the world in the future, partner Scott Shleifer said on an investor conference call on Tuesday. The startup ecosystem is a governance and unit he tackles economics challenges.
“We think it will be a great place to invest. In 2010, we were able to buy 16% or 17% of Flipkart for $8 million,” said Schleifer of India, who now owns 360. He spoke of his investment in the e-commerce giant, which is valued at over $100 million. “He could buy 10% of the infrastructure market for $8 million. A third of Upstox he could buy for $50 million.”
Tiger Global is one of India’s most invested investors, backing over a third of the country’s unicorn startups. The New York-based company, which counts India among the world’s top three markets, has made more than $6.5 billion in India since its inception, TechCrunch reported last year.
Over the past decade, India has attracted over $75 billion in investments from technology giants such as Google, Meta, Microsoft and Amazon, as well as investors such as Sequoia, Tiger Global, Accel and Lightspeed. However, there have been few exits from the country’s burgeoning startup ecosystem, with many consumer internet startups going public in the past two years trading well below their listing prices.
Shleifer acknowledged that earnings in India have been unremarkable so far.
“India’s return on capital has historically been low. If you look at market-leading Internet companies such as Google, Facebook, Alibaba and Tencent, revenues exceeded costs more than a decade ago. For 18 years, there has been a great legacy of Internet companies that have been substantially profitable, which has resulted in very high returns for stocks in the Internet and very high returns for investors. That didn’t happen in India,” he said on a conference call that was also attended by Alpha Wave Global co-founder and partner Navroz Udwadia and attended by about 200 entrepreneurs, investors and bankers.
According to Schleifer, until the last couple of years there were almost no profitable Internet startups in India, even though banks and other industries were thriving. “As a result, the return on capital for investors like us is below average… far below. Our earnings in India have been around 20% since inception. ‘s mid-30s is comparable to China’s early 50s.But that’s a thing of the past,” he said.
Schleifer, the company that suffered the biggest loss in venture history last year, took a sympathetic view of India’s meager earnings, arguing that it could not deliver a ton in a $3 trillion economy. “Increase in profit margins for market leaders is fantastic. So there is a big risk of becoming a great country to grab a share of GDP, but an excess profit pool that can have a lasting competitive advantage. We believe that not only does it exist, but its potential has fallen off a cliff.”
He argued that India’s historically low returns had allowed India to enter the recession in a better position than the United States.
Indian start-up funding, like elsewhere in the world, has shrunk over the past year as investors became wary of broader market conditions. It was around 2015 and 2016 that the country faced a sharp decline in investment, as the country grappled with the aftermath of overfunding a number of internet startups.
“I think it was very helpful that India’s internet went through a bubble in 2015. I contributed to the bubble with Tiger Global, so I’m not throwing stones. It was the internet in India in 2015 and the reason I bring it up is because I think it has served us very well today and in the last few years. Year-to-date, it performed much closer to budget compared to our companies in the region.”
“Founders weren’t called founders in India 15 years ago. They were called promoters. There was something different about promoter culture. You don’t hear that word anymore. We have certainly seen improvement, as evidenced by even one of our own portfolio companies. The truth will always come out.”
Slides from Tiger Global’s presentation: