Back in India, Tiger Global bets on e-commerce markets

Bangalore: American hedge fund Tiger Global Management LLC spent a couple of years in India before unexpectedly shutting its office at Ceejay House in Mumbai’s Worli area, among the country’s most expensive office spaces, in mid-2009.

It returned after about a year’s absence and, while the investments between then and now have been carefully selective, they reflect a significant shift in the India strategy—a preference for striking deals through co-investments and in e-commerce start-ups.

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In 2007-2009, the reticent New York-headquartered fund, which boasts of game-changing Internet companies such as Facebook Inc. and LinkedIn Corp. in its portfolio, made at least half a dozen investments in India, including in the National Stock Exchange, Future Group and Educomp Solutions Ltd.

Tiger Global had previously invested in travel website MakeMyTrip Ltd and online directory Just Dial Pvt. Ltd, local companies that were pioneers in their respective sectors. It isn’t clear why Tiger Global, an active investor across countries from the US to Russia, exited India in 2009 after striking some significant deals. MakeMyTrip listed successfully on the Nasdaq in the US last year and is a beacon for local websites; Just Dial has set up office in the US.

In response to an email enquiring about Tiger Global’s India plans, managing director Lee Fixel wrote: “We appreciate your interest in Tiger Global, but unfortunately have a firm policy of not speaking with the press.”

Mohan Lakhamraju, who managed Tiger Global’s local office and now heads Beacon Learning in New Delhi, did not give a specific reason for Tiger Global’s exit from India.

He said the fund undertook private equity deals and invested in publicly listed companies across sectors such as education, Internet, real estate, infrastructure and power. “At the time when I left, the fund was holding on to its portfolio, with may be one or two exits.”

India stayed off Tiger Global’s radar for about a year. But since last June, the hedge fund has turned into one of the most prolific investors in Indian start-ups, putting its money into about half a dozen shopping websites and is reportedly scouting for more.

The new deals include bookstore Flipkart.com, designer label retailer Exclusively.in Inc., eTree Marketing Pvt. Ltd, which runs electronics retail site letsbuy.com, online footwear and clothing store Myntra Designs and Mom Supplies, which runs babyoye.com. The last four deals were done this year.

All the investments since Tiger Global shut its India office were executed in partnerships with venture capital firms present in the country, chiefly Accel Partners India and Helion Venture Partners.

For Tiger Global, which manages more than $4.4 billion (19,668 crore) in global assets, partnerships are not a mere function of splitting the investments. Internationally, the firm co-invests with local funds having expertise in Internet businesses, making it unnecessary to have a local head or office. In India, Accel Partners was involved in three of Tiger Global’s four local deals this year.

“Tiger and Accel are co-investors who have a similar perspective on the potential of e-commerce in India and in the larger Internet ecosystem here,” said Prashanth Prakash, partner, Accel Partners India, adding that the two firms do not have a formal arrangement and the co-investments are on a case-to-case basis.

“We share very strong synergies on how we see the Internet business emerging in the country... It’s good to have a co-investor, to ensure that the firm is funded sufficiently for the first two years,” Prakash said.

Globally, Tiger Global functions as a hedge fund making large growth- or late-stage investments. In India, it makes early stage bets that fall in the realm of smaller venture investments.

The fund has been betting strong on emerging markets. Its Brazilian portfolio includes online sports retail company NetShoes, social game developer Vostu and Groupon rival Peixe Urbana. It has invested in online ticket booking site Anywayanyday.com and search portal Yandex in Russia, and in shopping website Trendyol in Turkey.

In China, Tiger Global has invested in E-commerce China Dangdang Inc. and Internet television company Youku.com Inc. Both companies listed on the New York Stock Exchange in December.

Among other emerging markets, India holds an obvious attraction for its e-commerce potential.

India’s e-commerce market is expected to surge 47% to ₹ 46,000 crore (around $10 billion) this year, according to estimates by the Internet and Mobile Association of India.

In comparison, Brazil’s e-commerce market was valued at $7.9 million in 2010 and is expected to expand at 18% annually to about $22 billion by 2016, according to Forrester Research Inc China’s e-commerce market exceeded RMB 4.5 trillion in December, up 22% year-on-year, according to China B2B Research Center of E-commerce’s website Netsun Toocle.

Investors say Tiger Global’s newly acquired preference for Indian e-commerce companies should be seen in the context of the emergence and growth of such business in the past year. “They are choosing their areas of interest. In 2007, travel was interesting, they invested in MakeMyTrip. Now, e-commerce is where they are betting big on,” said Kanwaljit Singh, managing director, Helion Venture Partners.

Another investor who has been closely watching Tiger Global’s India operations said every fund has a sweet spot that may take a while to figure.

“When they (Tiger Global) had come earlier, what they had was a technology agenda (among others). At that time they didn’t see enough companies with scale,” said this investor, who did not want to be identified because he didn’t want to strain his relations with the global fund.

“This time, what they have seen are patterns globally which are being replicated in India. This is giving them the confidence to be back here,” this investor said. “With experience of markets like China and Brazil, they now have a clear picture of what they want to do here.”

Graphic by Yogesh Kumar/Mint

deepti.c@livemint.com