Like other investors, Tiger Global, one of the most aggressive and powerful venture capital (VC) firms operating in India, is reducing the number of start-up deals and is pushing for consolidation, the three people said.
Tiger, which is unusually media-shy, didn’t respond to emails requesting comment.
Tiger will not just be conservative in leading new funding rounds but it is also rethinking its strategy of investing enough to retain its stake in portfolio companies raising a new round of funding, the three people said on condition of anonymity.
Apart from a handful of its portfolio companies, including Flipkart, Ola and Quikr (the three unicorns, or $1 billion-plus valued start-ups, in its portfolio), Tiger is pushing many of its portfolio companies to find new backers, the people added.
For instance, Tiger did not lead the funding round in hyper-local delivery company Grofers, which recently closed a $120 million round led by SoftBank Corp.
“Tiger wants new investors to set the valuation in the next rounds; it doesn’t want to act as the lead investor in most cases," said one of the three people cited above. “It is also pushing for a strategic stake sale wherever possible."
Tiger, known for pushing through mergers among start-ups, is again trying to lead consolidation.
Oyo Rooms, run by Oravel Stays Pvt. Ltd, is in early talks with peer Zo Rooms (promoted by Zostel Hospitality Pvt. Ltd) for a potential buyout, another three people familiar with the matter said.
Zo, which is backed by Tiger and Orios Ventures, is trying to raise money from new investors after Tiger declined to lead a new round of funding, these people said.
Earlier this month, Mint reported that online classifieds start-up Quikr is close to buying real estate site CommonFloor. Both are funded by Tiger. According to the three people cited above, Tiger had declined to lead a new funding round for CommonFloor and encouraged the real estate portal to explore a sale to Quikr.
Tiger has also alerted its portfolio companies about a slowing global market and is urging them to slash costs.
Its actions indicate Tiger is worried about some of its India investments.
Industry experts say that Tiger has globally shown exits in 5-7 years time in most markets. India has panned out differently.
“Even if you take the China argument (that it takes time)—the gestation period in China was five to six years from the time a company gets funded," said Kashyap Deorah, author of The Golden Tap, a story of hyperfunded start-ups in India.
Tiger funded China’s JD.com three-six months before it invested in Flipkart and while Flipkart is yet to show any signs of providing an exit, JD got listed on Nasdaq in May 2014.
On Tuesday, Tiger Global said in US regulatory filings that it had raised a new fund of $2.5 billion. Tiger, which picks up stakes in both public and private companies, is one of the most prolific e-commerce and tech investors around the world, having held stakes in companies such as China’s Alibaba Group Holdings and Facebook Inc.
Its private equity investments, including those in India, are spearheaded by 35-year-old Lee Fixel.
It is unclear how the new fund will be deployed.
If Tiger cuts funding for its smaller start-ups, this will be the second time it does so.
Tiger followed a similar strategy from 2012 through the early part of 2014, during which time it put a majority of its cash into online retailer Flipkart Ltd, its biggest bet ever. Tiger pumped in more than $1 billion into Flipkart over eight funding rounds in roughly five years even as new investors were leery of putting money into any Indian start-up, even a clear market leader such as Flipkart.
Tiger was the most eager backer of consumer Internet businesses in 2010 and 2011. From the following year, however, Tiger cut funding and drove consolidation among its portfolio companies as actual sales growth didn’t match initial expectations.
Tiger facilitated the sale of Letsbuy to Flipkart and Exclusively.in to Myntra in 2013. While another VC firm, Accel Partners, was also a common investor in these four companies, it is well known that Tiger was the driving force behind these deals. Another Tiger-funded start-up, women’s products retailer Urbantouch, was sold to Smile Group in 2013. In May 2014, Tiger and Accel helped arrange another marriage, Flipkart’s $330 million-plus buyout of Myntra.
Some of Tiger’s other investments fell by the wayside after it declined to fund them further. Online kidswear retailer BabyOye was struggling for years to raise money until its distress sale to Mahindra Retail in February.
A similar scenario is now starting to play out again.
For a year starting May 2014, Tiger was the most aggressive investor in India, striking more than 15 new deals, according to Mint research. It also continued to put large amounts of money into some of its existing companies such as Flipkart, Quikr and Ola.
In all, Tiger has invested more than $1.5 billion into Indian start-ups over the past 18 months, according to Mint research.
Now the firm is indicating it will pull back.
The so-called signalling risk that Tiger carries is unrivalled in India’s start-up business; this risk is being exacerbated as the formerly aggressive investor is now urging its portfolio companies to find new backers.
If a firm, especially a deep-pocketed one such as Tiger, declines to back one of its early-stage start-ups in a later round of fundraising, potential new investors become wary of putting up money. Such a situation can become worse in times like these when capital isn’t easily available.
“It is inevitable that some of Tiger’s companies will fail. That is true with any investor. But the risk for a start-up is much higher when Tiger decides not to fund it anymore because it has such deep pockets and is hardly risk-averse," one venture capitalist said on condition of anonymity.
This time around, one big difference compared with 2012-13 is that Tiger isn’t the only investor with deep pockets.
With the entry of Japan’s SoftBank Group and Russia’s DST Global, Tiger’s influence isn’t as outsized as it was in 2012-13, indicating that it may not be able to push through deals as easily as it did earlier.
For instance, Tiger and SoftBank are on opposite sides in three large businesses. SoftBank is the largest investor in Snapdeal, Flipkart’s arch rival; SoftBank-funded Oyo Rooms is the early market leader in budget hotels, ahead of Zo Rooms; and SoftBank-funded Housing competes with CommonFloor.