Tiger Global Whimpers

Once roaring in India, Tiger Global now whimpers. After pouring millions into Flipkart, Lee Fixel of Tiger Global is now struggling to stabilize his big wager in Indian E-commerce. Lee Fixel heads the private equity side of Tiger Global; the other side is a hedge fund. Trading public equities is simpler than managing private companies, as Mr. Fixel has discovered.

Tiger Global started investing small in Flipkart in 2009 by backing founders Binny and Sachin Bansal. Since then, Mr. Fixel has invested approximately $700 million only to see his investment turn south, in part, due to poor execution by management and competition from Amazon. Then last year, Tiger Global, along with others, effectively took control by replacing the original Flipkart co-founders.

Tiger Global alumnus, Mr. Krishnamurthy took over as Chief Executive Officer while the Flipkart co-founders found other duties. So far, Flipkart has started to turn around, at least, from where it was last year. It’s reported that Flipkart is seeking additional funds from Microsoft, Tencent, Ebay, and Paypal, but raising money is currently difficult; many Indian Unicorns have received lower valuations as seen by Softbank’s write down of its Snapdeal and Ola investments.  

Mr. Fixel needs to wait longer for an exit either through an acquisition or public offering. Until then, he must continue to directly managed his Flipkart investment. As a former stock analyst, Mr. Fixel must be realizing that the private equity world is very different than public stock markets.

 

Buying a Black Swan at Flipkart

Investors take over company and kick out the founders. This happened last week in India and the story was surprising under-reported in the United States. Kalyan Krishnamurthy takes over as chief executive of Flipkart, a company owned in part by Tiger Global. The management shuffle could be seen as Tiger Global exerting more control of over its investment after years of passive investing in the Indian Tech scene.

The story is also important for the potential parallels with the US tech scene. Tiger Global is part of the trend of “outside” venture capital money flowing into Silicon Valley and the other Silicon Valleys of the world. This process has been happening here since DST Global’s initial investment in Facebook back in 2009.

In compressed time, the process has played out in India. Kashyap Deorah wrote about his book, The Golden Tap.  As money flowed, there were boom times. But as the money now recedes, there are markdowns, no new investors, and a funding winter descending upon India. Trouble in India might be what we will see in Silicon Valley. Already there has been no real exits through public offerings, but only paper gains for limited partners.

Silicon Valley lives within a bubble until it bursts. Money flows animate much of what happens in the Valley and surprisingly those flows are so often misunderstood and unnoticed. Most did not take notice of one company until the activist investor Starboard Value exerted influence over Yahoo.

 

Tiger Global, They’re Gr-r-reat?

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In this year’s first quarter, Tiger Global took a new position in Zillow, exited Alibaba, reduced holdings in Apple, Amazon, and JD.com, and increased exposure to Etsy. Tiger Global’s actions are watched for their prowess exhibited, especially in the tech arena.

So when Tiger Global must release its quarterly holdings, it is reported and is read by many. Rather than list the positions and the changes, let’s us put them into perspective to add value.

Tiger Global was started by Julian Robertson protege,  Chase Coleman III. Tiger Global has started many things itself: a private equity fund, a venture capital fund, and a hedge fund.

It’s the hedge fund’s holdings of public domestic equities which must be reported on Form 13-F. The latest was released on May 16, 2016 for the quarter ended March 31, 2016.

As a hedge fund, Tiger Global profits when stocks price goes either up or down. These are long and short position. Long positions make money when a  stock’s price goes up and it’s only long positions that are required to be disclosed on Form 13-F. A hedge fund manager going long or short needs some guide when picking stocks which are either undervalued or overvalued.

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Tiger Global reported investment strategy is based upon a company’s future free cash flows. The “free cash flow” part is the cash generated by a company’s operations and available to shareholders. It also excludes cash needed for capital expenditures.

The “future” part is an estimate of cash flows to come. Tiger Global likes to buy “well-positioned companies” with stock price representing a low multiple to free future cash flows.

Here is the recipe: 1) Buy the company it’s undervalued and  2) Sell the company when it’s overvalued.  Tiger Global’s holdings can be placed on spectrum of those representing purchases to those representing sales.

And in the middle are positions which do not change. In the latest quarter, Tiger Global bought Zillow, so it could be considered undervalued and sold Alibaba so it could be considered overvalued.

Part of Tiger Global strategy means estimating the future cash, which is hard to do with new companies with short operating histories.  So it’s telling that Tiger Global, the hedge fund, trades companies which Tiger Global, the venture fund, took a pre-IPO position, such as Etsy and JD.com. Hedge fund managers at Tiger Global could be benefiting from a better understanding of the Etsy and JD.com gained from by the venture capital unit.

Tiger Global’s trades are difficult to replicate from the Form 13-F. For example, the short positions are not required to be reported.  Short positions work in reverse from long ones.

A short position makes money when the stock prices declines. Tiger Global takes short positions in “poorly – positioned” companies with high multiples to free future cash flows. Translations: companies which are overvalued.

So by following the Form 13-F, one only sees one side of any trade. But Tiger Global could be both short and long in a particular sector. In was disclosed by the Financial Times, that in the 4th quarter of 2012, Tiger Global shorted Nokia.  In the same quarter, Tiger Global also held a position in Apple.

So at the time, Tiger Global was long the best mobile company and short the worst mobile company. In addition, Tiger Global could have been executing trade by betting on the difference between Apple and Nokia, called a pairs or convergence trade.  

May be the best that can be learned from reading Form 13-F is: technology changes very quickly. Winners can become losers very quickly. By understanding  trends through the failures and fortune of  public companies, people in tech, especially founders, angels, and venture capitalists,  gain a better understanding of where they stand, their own positions.

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