Quick Take | Why Tiger Global's return to India is good news for startups

Tiger Global, the earliest big backer of India’s Internet story, is investing in India after a gap of about two years. Its picks: Checkmate, which integrates multiple online ordering services for restaurants, for a fee, and Facilio, a facilities management firm.

Tiger’s return to India is good news because it has a knack for spotting opportunities at a very early stage, staying invested for the long term and getting the best possible returns. By backing Flipkart, it created a market for Amazon and Alibaba that fuelled online commerce in India. By backing Ola, it created the market for Uber. In a sense, it was instrumental in drawing more money into these sectors.

Yes, the firm had to stop investing in India for a couple of years after it picked a series of duds in 2014 and 2015. Zo Rooms, Zopper and Localoye shut down while others such as Culture Machine, Little, Cube26 have struggled. Tiger had invested $5-10 million in each of these firms, but it couldn’t do much to change their fortunes, probably because it was focussed on Flipkart, its biggest bet in India.

Now, after Walmart’s acquisition of 77 percent in Flipkart for $16 billion earlier this year, Tiger has earned $3.3 billion (after retaining a stake on 5 percent) on an investment of $1 billion. With a war chest of $3.75 billion for India and China, it is back on the prowl for early-stage start-ups.

Tiger’s return cannot be more opportune for the start-up ecosystem because funding has become tough in recent times. According to a report by Bain & Co., private equity investments in India were down 22 percent in terms of value and 29 percent in terms of volume during the first six months in 2018.

This time around Tiger Global is betting on the business-to-business start-ups, a departure from backing companies that are consumer-facing and primarily dependent on the internet. One reason for this could be that the company has probably realised that the internet growth story in India is slower compared to China. Secondly, there is too much competition in the e-commerce and payments space with investments from even Chinese companies like Alibaba.

Both Checkmate and Facilio are in the business to business (B2B) segment. These are new business areas and firms with consumer-facing operations will need such companies to run their businesses in a cost-efficient manner.

Another difference in this round of investments is that Tiger is picking up companies that are backed by technology such as artificial intelligence (AI), machine learning (ML) and Internet of Things (IoT) and not the internet.

Whether Facilio or Checkmate will become another Flipkart, only time will tell. But given Tiger’s track record of being an early investor and trend setter, Indian start-ups, especially in tech-led areas such as AI and ML, can expect a lot more investment to follow.