Indian startup scene decoded: Hedge funds are fleeing India

Hedge funds were all over the Indian startup scene last year. Look around now and it will be hard to spot one. They have simply fallen off the cliff in 2016.

There have been only 10 deals involving hedge funds in the first three quarters of 2016, compared to 50 deals in the same period last year, shows a study by tech industry think tank iSPIRT and advisory firm Signal Hill.

Hedge funds typically manage billions of dollars and find alternative investment avenues for high returns. Traditionally, they invested in listed companies, but later moved into growth stage startups just like big VCs. The hyperactive one in the startup space is Tiger Global, which has US$20 billion under management.

Last year, Tiger Global was the most active hedge fund in India with 24 investments amounting to US$1.2 billion in the first three quarters, including follow-up rounds in Flipkart and Ola. This year in the same period, it made only three investments, worth $305 million in total. Some other hedge funds which were active last year, like Falcon Edge and Steadview, disappeared altogether. Overall there has been an 87 percent drop in hedge fund investments this year.

The subsequent mobile internet boom, with the advent of affordable smartphones, made the India story sexy. So the hedge fund went on the rampage investing in ecommerce startups big and small, even encroaching on the usual VC territory of early growth stage investments. But its experience has been tepid to say the least, since the MakeMyTrip and JustDial days.

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