Tech investing in India, circa 2009

In 2009, when Tiger first backed Flipkart, there was only a handful of institutional VCs in India. Most of these firms were small outposts of reputed US VC firms and had funds in the range of $100m to $200m to deploy in India. These firms traditionally made very few investments—10 to 15 per fund and all those fundings followed the same pattern.

Professional Qualifications

The startups getting funding were inevitably founded by experienced founders with blue-chip academic and professional qualifications. The first rounds typically were of around $5m at a pre-money valuation of $10m to $12m and would be made after months of deliberation.

Follow-on rounds typically were of the same size or slightly higher at a valuation that was not considerably higher than the previous round. There were a few firms which had just started making smaller bets in the range of $500,000 to $1 million—rounds that were previously the exclusive preserve of angel investors and groups.

Flipkart was one of the startups which had raised such around—$1 million at a pre-money valuation of less than $3 million. And as was common at that time, even this round was split into two tranches of $500,000 each. When the Tiger conversation was on, only the first tranche had actually hit Flipkart’s bank account. Fixel offered to invest $10m at a rumored pre-money valuation of $30m! Nearly 10X of the previous round, whose ink was barely dry.

Of course, Flipkart subsequently went on to become the first privately-held Indian startup which was valued at over a billion dollars and for good measure, became the first Indian startup which has raised over a billion dollars in funding. So how did this change funding in India?

Tiger, Tiger burning bright

Starting with Flipkart, Tiger made nearly 50 more early-stage bets in India and irrevocably changed the three Vs of venture investing:

VALUE: Prior to Flipkart, pre-money valuations for early-stage companies rarely crossed $10m and even this was for companies that were raising $5m+ rounds. After Flipkart, valuations of $20-30m were common. What this meant was that for firms raising $5m, dilution was in the 15-20% range. This left founders with substantial stakes and an appetite to raise multiple follow-on rounds.

VOLUME: Prior to 2009, no VC in India invested in more than 15 companies across a fund. The idea was that each investment was carefully curated and each General Partner (GP) had to provide a significant portion of her time hand-holding her portfolio bets. While the intent might have been ostensibly good, it limited the total number of startups in India who could get funded leaving the vast majority with existential challenges and a reluctance to take on big problems and markets.

VELOCITY: Earlier, VCs took their own sweet time to pull the trigger when it came to investing in a startup. The process could easily take months as there was little competition and low risk that the VC would miss out on getting a deal. Tiger came in and made offers to companies within 24 hours of a meeting.

There were also instances where Fixel stopped founders mid-way in their well-rehearsed pitches and made an offer. Also, Fixel rarely issued a term sheet and instead made verbal offers outlining broad terms such as funding amount and valuation with an implicit gentleman’s agreement that he would invest in the company subsequent to due diligence.

Beyond the investment terms, Fixel’s bets in India had a profound secondary impact in other ways.

For one thing, Fixel believed in the Indian consumer story a lot more strongly and fervently than any other VC. Until the Flipkart investment, most VCs believed that startups that targeted India and specifically Indian consumers were not fundable as the market was too small and there were myriad systemic challenges that prevented big companies from emerging in these domains.