Lee Fixel of Tiger Global Management.
Lee Fixel of Tiger Global Management.

How Lee Fixel, Flipkart’s godfather in New York, changed India’s start-up ecosystem

Tiger Global Management's Lee Fixel will be remembered for his audacious bets backing start-ups at a time big investors were unconvinced about the potential of the Indian e-commerce

Bengaluru/New Delhi: In late 2015, as Flipkart Ltd was floundering in the market share battle with Amazon, Tiger Global partner Lee Fixel was looking for solutions. Flipkart’s biggest backer and board member approached some former senior Flipkart executives who had either left the company or been pushed out by co-founder Sachin Bansal.

These executives urged Fixel to remove Bansal from the CEO position, bring back Kalyan Krishnamurthy and clear out Flipkart’s senior leadership team that had driven the company to the brink of collapse.

But the New York-based Fixel had developed a close bond with the Bansals of Flipkart so he settled for a change in CEO, replacing Sachin — Fixel calls him “Saa-chin" — with co-founder Binny Bansal in January 2016. But that didn’t quite work.

Finally, in June, with Flipkart still struggling, Fixel gave Krishnamurthy, his right hand man at Tiger, a vague but all-powerful role at the company to prevent it from being overrun by Amazon.

That was one of the very few times in the past decade that Fixel had been found wanting for speed.

Since joining Tiger Global in 2006, Fixel has become one of the most important start-up investors across the world. Striking deals at a heady pace—often after brief meetings with entrepreneurs over Skype—Fixel offered more money and higher valuations than entrepreneurs dreamt of. His aggressive investment approach confounded other investors, sometimes even those of companies he backed. At the age of 38, he’s already worked as a venture capitalist for 12 years and appeared six times on The Midas List, an annual list of the top tech investors in the world ranked by the Forbes magazine.

German tech firm Rocket Internet is the best-known proponent of the this-of-that investment strategy, which comprises backing start-ups in emerging markets that are copycat models of Amazon, Uber and other American tech companies. But Fixel has pulled off that strategy at a far bigger scale and more successfully—apart from India, he has investments in Latin America, China, South-East Asia and the Middle East. He has also been an opportunistic investor in US start-ups, making lucrative investments in tech giants such as Facebook Inc. and Linkedin, as well as smaller ones like music streaming service Spotify. In emerging markets, he has moved beyond the this-of-that approach, investing in software start-ups, content companies and fintech firms. And while Rocket’s fortunes have declined since it listed its shares in Germany in 2014, the investment manager has just pulled off his biggest success ever. Flipkart, the Indian start-up champion and the career-defining bet for Fixel, has sold a majority stake to Walmart Inc. in a $16 billion deal that was spearheaded by Fixel.

Depending on the final details, Fixel could make more than $3.5 billion on an investment of less than $1 billion, and still retain a 4-5% stake in Flipkart. That’s a stunning return by any measure. For the exit-starved Indian market, it’s almost beyond belief.

What makes the achievement more impressive is that, from Fixel’s point of view, it can only be described as The Great Escape. Barely 18 months ago, Flipkart was written off by most investors and analysts after a series of missteps. Amazon was in the ascendancy and it looked like the giant American online retailer was going to overtake its Indian rival for good. Additionally, Fixel’s bet that India’s e-commerce market would surge ahead for many years to come had turned to be way off as online retail expansion nearly came to a halt in 2016 and increased by only 25% in 2017. These numbers are embarrassing for a market as tiny as India’s and especially for bulls like Fixel.

Yet, after a chain of events that were triggered by Fixel, Amazon is firmly in the No.2 spot behind Flipkart, so much so that it considered making a rival bid last month to buy the Indian company. And, despite the sluggish growth in e-commerce, Fixel has hit his biggest payday ever.

“You can say that he got lucky—there’s no way anyone could’ve predicted this event happening so soon. But it’s not a coincidence that he’s been the most successful investor in India in terms of getting exits. His ability to strike deals is unparalleled," said a partner at a VC firm.

In the Indian start-up ecosystem, Fixel divides opinion like no other investor. Some top entrepreneurs such as Deep Kalra, Mukesh Bansal and many former senior leaders at Flipkart, Myntra and Ola who have worked with him swear by his knowledge of the consumer internet business and his global network of investors, start-ups and internet experts. They say that as long as portfolio companies deliver, there is no better backer than Fixel with his speed in writing big cheques and clarity in thinking. He doesn’t ask for onerous shareholder rights like some other investors and has a transparent, if ruthless, approach toward entrepreneurs.

Even his critics admit that Fixel deserves a lot of credit for his unwavering and audacious backing of Indian start-ups in the nascent period of 2010-2013 when most global investors, including SoftBank Group, thought the internet market here was too small. At that time even the big Silicon Valley venture funds like Sequoia Capital lacked conviction in the potential of the consumer internet market. But Fixel consistently kept pumping large amounts of cash into companies like Flipkart, Myntra, Ola and others in that period and convinced others to participate. He also brought new investment firms like DST Global, Sofina Capital and Iconiq Capital to India.

“Without Lee’s support of entrepreneurs, it’s hard to see how the start-up ecosystem would have grown so quickly. In those years most other investors were very stingy with their money and just didn’t have Lee’s conviction," said an entrepreneur who is close to Fixel.

But others criticise Fixel for what they describe as a go-for-broke, all-in approach. He pushes portfolio companies to achieve growth at all costs, making entrepreneurs believe that they have to be No.1 in their market — everyone else is a loser. But suddenly, he can push the same companies to slash costs — and make the switch overnight.

Just as he deserves credit for helping create the start-up ecosystem, he is also partly at fault for many of the problems associated with it: inflated valuations; entrepreneurs chasing excessive capital; a general lack of concern for creating a positive working culture within companies; giving financial rewards to entrepreneurs who haven’t delivered exits. 

Some investors say that Fixel pushed companies that were once well-run into rashness. These people also say that it is unhealthy for an ecosystem that its most influential investor is as remote a presence as the New York-based fund manager, who travels to India only a few times every year. Imagine a Sequoia Capital or an Andreessen Horowitz with headquarters in Europe rather than the Silicon Valley.

“Till (he stopped making new investments) two years ago, Lee was making mostly early-stage investments. At that stage entrepreneurs need hand-holding and constant guidance. When you have someone like Lee sitting in New York and calling the shots, it’s a big disadvantage," a partner at a seed fund said.

Mint spoke to 30 people including investors, entrepreneurs, start-up executives and consultants who have directly worked with Fixel to learn about the man and his methods. Through a spokeswoman he declined to comment for the story.

Despite having invested in so many high-profile companies including Facebook, Linkedin and Flipkart, not much is known about Fixel. He hasn’t given any interviews or spoken publicly at length. He’s such a private person that most of the people Mint spoke with had no idea about his personal life.

Fixel was born in 1980 in Florida. His father was a lawyer and mother a fashion designer. He has two younger sisters.

After school, Fixel studied business administration, accounting and finance at Washington University in St Louis and is a chartered financial analyst (CFA). He also completed a course at the London School of Economics. His first job was with the investment firm Alkeon Capital Management where he covered internet companies as an analyst. Executives at Tiger Global, which was looking to expand its internet investments especially in emerging markets, spotted his potential and lured him to the company.

For a man who is so averse to publicity, it’s striking that two of his family members are closely linked to journalism. One of Fixel’s sisters worked as a journalist and documentary producer. His wife Lauren Fixel is also a journalism graduate. They are both philanthropists and have a foundation called the Laurel and Lee Fixel Family Foundation. The Fixels are one of the biggest contributors to The Michael J Fox Foundation for Parkinson’s Research, a non-profit organisation dedicated toward finding a cure for Parkinson’s disease. Public records show that the Tiger Global partner is a registered Democrat.

Fixel’s career looks like a dream.

He joined Tiger Global, a hedge fund that invests in public and private companies, in 2006.

In less than five years, Fixel had invested in companies in India, China, Latin America and Africa. He also made late-stage investments in Facebook and Linkedin. These bets yielded immediate, lucrative gains as the stocks bounced when they went public. Fixel had become an important, opportunistic, behind-the-scenes figure in the mecca of the tech world. At the same time, he was the leading investor in emerging markets like India and Latin America that were considered too risky or too small by most start-up investors.

Until then, prominent start-up investors were mostly based in Silicon Valley. Fixel’s unconventional style and the fact that he was based in New York helped him stay under-the-radar or be ignored by the larger tech world but his self-belief was as strong as that of any top entrepreneur.

Tiger Global is a hedge fund but its private investments practice is run separately from its public business. It greatly annoys Fixel when Tiger is described as a hedge fund in relation to its start-up investments. It matters. Hedge fund people aren’t taken seriously by tech entrepreneurs. They are seen as fly-by-night operators who have no idea about the tech world but are just throwing money at whatever is the flavour of the day.

“He hates being called a hedge fund manager. He’s worked really hard to establish himself as a VC and he can’t accept that some people don’t bother to know that he’s not a hedge fund guy," said a consultant who works with start-ups.

At least in India, Fixel has worked more as a venture capitalist than a hedge fund operator. He risked capital on internet ventures that few others would touch in an industry that is still regarded suspiciously by most domestic investors.

For instance, when Fixel first invested in Flipkart in late 2009, the company was only selling books and operating out of a small house in Koramangala. At that time, finding someone who bought stuff online in India was as common as coming across someone with a Blackberry phone in 2018. Yet Fixel invested $10 million in Flipkart when all of online retail was less than $40 million.

That was just a sign of things to come. Over the next four years, Fixel kept pumping cash into e-commerce start-ups. Despite setbacks — the market didn’t always grow as per his expectations and companies required far more cash than he anticipated — he funded more than a dozen start-ups including electronics retailer LetsBuy, fashion retailers Myntra and Exclusively and cab hailing site Ola.

Then in the first five months in 2014, the e-commerce market exploded. Flipkart’s introduction of cheap, high quality smartphones made by Motorola and Xiaomi attracted millions of new customers to e-commerce. It was clear that Indians wouldn’t need cables to use the internet; through mobile internet connections, potentially hundreds of millions of people could come online. That year the online retail market tripled to nearly $6 billion. With the election of the Bharatiya Janata Party government, foreign investors in general became more bullish on India.

Suddenly, Fixel’s risky bets of the past four years looked like gold. He doubled down. He merged Myntra into Flipkart for more than $330 million. He put $20 million into Limeroad, a little-known woman’s fashion retailer then. Then, he led an eye-popping $1 billion financing round into Flipkart.

That changed things for everyone.

Around the same time, China’s e-commerce giant Alibaba went public in one of the world’s biggest-ever listing at a valuation of more than $200 billion. Japan’s SoftBank Group and others who were enriched by the Alibaba IPO as well as those who missed out on it, rushed toward India, believing that it was the next big internet market.

The giant American online retailer Amazon, which had entered India in 2013, promised to invest $2 billion into expanding its operations here.

Over a few months’ time, SoftBank invested more than $1.5 billion into five companies. Three of these were rivals of Tiger companies and two were funded by Tiger. Tens of other new investors like Qatar Investment Authority and Alibaba wrote big cheques.

Prominent venture capital firms such as Sequoia Capital and SAIF Partners, which had passed up on backing e-commerce companies, went overboard trying to find the next big winners.

But Fixel was the most aggressive of them all. In the two-year period leading to early 2016, he invested some $1.5 billion in 29 start-ups, pumping up valuations to unprecedented levels. He visited India often in that time. Invariably, he would wear blue jeans and a white shirt. Even after having come here so many years, he only ate a plain pizza for fear of suffering an upset stomach.

The antagonists

While Fixel enjoyed a great relationship with some top entrepreneurs like the Bansals of Flipkart and Mukesh Bansal of Myntra, he rubbed off some other entrepreneurs the wrong way.

In 2011, electronics retailer Letsbuy, a Tiger portfolio company, was riding high. In some months, the company was pulling in more sales than Flipkart’s electronics business and it had become one of the largest start-ups in the country. A business weekly had decided to profile the company as its cover story.

Since the company had burned a lot of cash, its founders needed their next round of capital to expand further. Fixel told them he would continue to back them. After talks with Fixel, the Letsbuy founders Amanpreet Bajaj and Hitesh Dhingra pulled out of discussions with other investors.

But suddenly in January, they were told by the Tiger Global man that he had changed his mind. He nudged them to sell their company to Flipkart. With no cash left, Bajaj and Dhingra had to take up Fixel’s suggestion. Flipkart bought Letsbuy in a distress sale in February 2013 and shut the website. The business weekly had to pull its cover on deadline day.

“Lee is ruthless when it comes to making decisions about portfolio companies — he’s not going to be emotional. He thought that Flipkart was a far better-run and promising company than Letsbuy so he orchestrated the merger," a former Letsbuy investor said.

In 2015, Fixel asked Ola CEO Bhavish Aggarwal for some data on the company’s performance. To his shock, Aggarwal refused. The hard-charging Aggarwal had a tough relationship with many entrepreneurs but Fixel wasn’t used to such treatment. Aggarwal believed that information about the company was leaking to other start-ups. And given Tiger’s large portfolio, he suspected it was probably because of Tiger.

The two also had several differences over Ola’s strategy. It finally came to a head late last year when Aggarwal blocked a proposed deal involving Tiger Global selling part of its stake in Ola to SoftBank. Last May, Ola had changed its articles of association (AoA) to include a clause to prevent SoftBank from buying more shares in Ola without approval from the company’s founders and board. However, SoftBank is now in talks to anyway buy Ola shares from Tiger Global. Ola said that such a share sale is not possible legally and that all its shareholders are fully committed to the company.

In recognition of his work in India and other markets, Fixel was promoted by Tiger in May 2015 to head its private investment business, which has more than $10 billion in assets under management.

Recovering

A few months after his promotion, Fixel was faced with the biggest crisis of his career.

His investment thesis — that the Indian internet market was a gold mine — hadn’t played out. More worryingly for Fixel, his biggest Flipkart, on which he had staked his career, was in trouble.

“Lee was found out big time in 2015. Till then, he had been the big daddy in the start-up ecosystem and he had his pick of the deals. But when the venture space became ultra-competitive, his hit rate was far lower. Especially in picking early stage start-ups … it now looks like Lee isn’t cut out for it," said a venture capitalist.

There’s truth in that: even though some of Tiger’s investments from that time like PolicyBazaar, Razorpay and Chargebee look promising, they won’t be multi-baggers like Flipkart or Ola from earlier years.

As stunning as his headlong rush was into Indian start-ups, Fixel’s sudden pull-back toward the end of 2015 was just as striking.

He entirely stopped investing and, instead, shifted his attention toward fixing Flipkart and getting out of some other risky investments.

After several missteps Flipkart had been bleeding market share to Amazon and it had seen its valuation marked down by its own investors. In fact, even Walmart passed up on investing in the company 2016.

But after Fixel returned Krishnamurthy to the company in June 2016 in a desperate attempt to save Flipkart from collapse, it started to see a turnaround. By the end of 2016, the turnaround was complete.

Krishnamurthy brought back agility and a cut-throat competitiveness in a company that had become bloated and directionless after gorging on billions of dollars in capital in 2014-2015.

Krishnamurthy, who had earlier spent an 18-month spell as interim chief financial officer and sales head at Flipkart, was rewarded by Fixel and other Flipkart board members with the CEO job in January 2017. Flipkart founders Binny Bansal and Sachin Bansal were pushed up to mostly ceremonial positions.

Fixel’s equation with Sachin, once his favourite entrepreneur, had obviously changed. People close to both Fixel and Sachin say that the Flipkart founder was one of the very few people in India with whom Fixel had developed a close friendship. They were both young, aggressive and highly ambitious. They were both also unfancied and had a point to prove to the world. Bansal and Flipkart grew on the back of Fixel’s staunch support and Flipkart was to turn out to be Fixel’s biggest success, potentially one of the most lucrative investments ever made in the start-up world. Until 2015, it really did look possible.

But after Flipkart’s near-collapse in late 2015, the relationship between Fixel and Bansal wasn’t the same.

While Flipkart had been saved from disaster by Krishnamurthy, it was clear that Fixel’s dream of a $50-100 billion exit was over. When Walmart reached out to Flipkart for an investment, it was Fixel who led the talks.

He had initially indicated to Flipkart board members and to the Bansals that he wanted Sachin to continue with the company and get more involved in running Flipkart role after the Walmart deal. But Sachin wouldn’t take his word for it — he wanted stronger rights and guarantees that he would have a lot more say in Flipkart’s operations. Krishnamurthy, whom Walmart wanted to retain as CEO, was resisting Sachin. Dealing with Sachin’s demands could delay the deal. Tiger Global’s Fixel sided with Krishnamurthy and, suddenly, Bansal found himself cut out.

“Kalyan has done a fantastic job since coming back and he is the executive who has operational control. You have to do what’s best for the company and it was in Flipkart’s interest for him to continue," the person close to Fixel said.

From Fixel’s point of view, Sachin’s exit was unfortunate. But the deal was far too important for anything to stop it.

Last Wednesday, Walmart said it will buy 77% of Flipkart for $16 billion.

More than nine years after he first invested in Flipkart, Fixel would net a return of more than $3.5 billion and still retain a 4-5% holding and his board seat in the company. It was not the world-beating success he had envisioned but it was still an exceptional return. Fixel's bet and labour had been well-rewarded.

As is his wont, he celebrated the achievement privately, enjoying a steak dinner with his wife.

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