Tiger Global believes India will generate the highest return on equity globally going forward, partner Scott Shleifer said in an investor call on Tuesday, though the investor giant acknowledged that it has more money in China and the US and is a local resident. The startup ecosystem is struggling with management and unit economics challenges.
“We think it’s going to be a very good place to invest,” said India’s Shleifer. “In 2010, we were able to buy 16 or 17% of Flipkart for $8 million,” 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 largest investors in India and backs more than a third of the unicorn startups in the country. The New York-headquartered firm, which counts India among its top three markets globally, has invested more than $6.5 billion in India since its inception, TechCrunch reported last year.
India has attracted more than $75 billion in investment over the past decade from tech giants Google, Meta, Amazon and investors like Sequoia, Tiger Global, Accel and Lightspeed. But the country’s burgeoning startup ecosystem has seen very few exits, with many consumer internet startups listed in the past two years trading well below their listing prices.
Shleifer admits that his return to India has been nothing to write home about so far.
“Returns on capital in India have historically been low. If you look at market-leading Internet companies like Google, Facebook, Alibaba, and Tencent, their earnings exceeded their value a decade ago. Over the last 17-18 years, you’ve had a huge legacy of materially profitable internet companies. So the return on equity in the Internet was very high and very high for investors. But that has not happened in India,” he said on the call, which was also attended by Navroz Udwadia, co-founder and partner, Alpha Wave Global, and around 200 entrepreneurs, investors and bankers.
Until the last two or three years, India had almost zero profitable Internet startups while banks and firms in other industries were growing, Shleifer said. “As a result, the return on capital for investors like us was below average…below. Our returns in India have been something like 20% gross since inception. This compares to the mid-30s on the private side in the United States and the low 50s in China. But that is in the past,” he said.
Shleifer said that India’s low income is no one’s fault, adding that the country’s GDP of $3 trillion is itself small. In recent years, he says, “We’ve seen an impressive increase in profit margins across market leaders. So this is a big risk to have a great country that gets a share of GDP, but not only do we have pools of surplus that can have a sustainable competitive advantage, but we think that falls off the cliff.
Historically low returns in India allowed the country to weather the recession better than the US, he said.
Slides from Tiger Global’s presentation:
This is a developing story. More to follow.
