India Has Historically Generated Below Average Returns For Us: Tiger Global Executive

A senior Tiger Global executive has said that India is poised to produce the highest equity returns globally for the venture capital firm in the future.

Speaking at an investor call, partner at Tiger Global Scott Schleifer was, however, quoted by Techcrunch as saying that the country has ‘historically’ generated below average returns for the VC firm.

“Returns on capital in India have sucked historically. If you look at the market leading internet companies whether it is Google, Facebook, Alibaba or Tencent, revenue for them got bigger than cost more than a decade ago. You had a great legacy of (the) last 17-18 years of materially profitable internet companies. So, returns on equity in the internet got really high and the returns for investors have been really high. But that did not happen in India,” said Shleifer.

Elaborating on sub-par returns, he noted that India could not have delivered a lot with its $3 Tn economy. These low returns allowed India to enter the downturn in a better position than the US, Shleifer argued, citing the absence of excess capital in India compared to other nations.

The Tiger Global executive also flagged concerns around corporate governance and unit economics ailing the homegrown startup ecosystem. 

Touting the VC firms’ high-return investments in India, Shelifer said that Tiger Global was able to purchase ‘16 or 17%’ of ecommerce major Flipkart for $8 Mn in 2010, while it bought 10% of B2B marketplace Infra.Market for $8 Mn.

Flipkart has since grown to become India’s biggest player in the ecommerce space and was last valued at more than $37 Bn. On the other hand, Infra.Market last raised $125 Mn in 2021 at a valuation of more than $2.5 Bn.

Shleifer said that the country has moved on from the promoter culture prevalent in the country 15 years ago, adding that founder culture is currently the norm. 

“… We have certainly seen improvements, as evidenced by even one of our own portfolio companies (referring to GoMechanic)… It was reported that a bunch of numbers that they reported were fictitious. The truth is always going to come out,” the Partner at the VC firm said. 

Shliefer’s statements come at a time when the Indian startup ecosystem is plagued by a slew of challenges – from corporate governance issues to mounting losses. Be it Flipkart or the listed fintech major Paytm, almost all major new-age tech Indian startups are in the red. 

What has not helped is the purported funding crunch, which has dried funding and forced many companies to cut corners. As a result, 2022 turned out to be disastrous for many Indian startups, as they collectively sacked more than 21,500 employees, while many shut shops. 

Piling losses have only complicated matters while instances of financial irregularities and lax corporate governance norms at VC funded companies such BharatPe, GoMechanic and Trell have raised questions on the entire ecosystem. 

Schleifer’s comments were reported on the same day as the Indian government announced a slew of sops for startups, including extension of tax holiday, among other announcements in Budget 2023-24. 

As per Inc42, funding raised by Indian startups in 2022 declined 40% to around the $25 Bn mark, down from $42 Bn in 2021. This has largely been attributed to volatile global macroeconomic conditions and market sentiment.

The sentiment was especially emblematic of Tiger Global which saw its investments plummet more than 70% YoY in 2022. The VC fund participated in just 7 deals in 2022 compared to 26 deals in 2021. Meanwhile, there seems to be no clarity on the New York-headquartered firm’s targeted $6 Bn prospective venture fund. The VC firm has pumped in $6.5 Bn in Indian startups since its inception.