The Chinese are establishing a foothold in the India startup story. Just last week, ride-sharing unicorn Ola received $ 50 million from Hong Kong-based Sailing Capital and China Eurasian Economic Co-operation Fund. A year ago, Ola had raised $1.1 billion in a round led by China's Tencent Holdings, Japanese Softbank and others.
Ola is not alone. Other unicorns like Flipkart and PayTM, as well as a budding startup such as micro-lending platform KrazyBee, are all recipients of Chinese largesse. Investments from Chinese funds stretch across e-commerce, fintech, transportation, healthcare, logistics and travel. Electronics giant Xiaomi is planning to invest Rs.6,000 – 7,000 crore across 100 Indian start-ups over the next five years. While Tencent has spoken of investing $5-15 million in early-stage Indian startups.
"An influx of Chinese funding and entrepreneurial skills can boost the ecosystem in India," says Apurva Damani, managing director, Artha India Ventures.
Although interest from Chinese investors started roughly from 2015 onwards, with Alibaba participating in funds raised by SnapDeal and PayTM, Chinese investments have gathered momentum off late. Tracxn data points out that in 2017, $5.2 billion was invested by Chinese companies like Xiaomi, Fosun, Baidu, Tencent, Alibaba into Indian startups. This marks a huge jump from the $930 million that Indian ventures received from China-based firms in 2016.
Debanshu Khettry from law firm Leslie & Khettry says Chinese firms are scouting for growth opportunities in India for primarily three reasons. "Firstly, India is the fastest growing economy. Second, there is a growth slump in China and lastly, there is excess capital in China."
According to angel investor Sidharth Rao, co-founder and CEO, Dentsu Webchutney, most Indian VC funds do not have excess capital to make deep follow-on investments.
"The Chinese in that sense are very large in size. Which is why in most late-stage fundraising, when cheque sizes are upwards of $100 million, Chinese funds step in."
Experts believe Indian startups have a lot to gain from investments from across the border, as Chinese investors would bring in knowledge, expertise and the vision of building startups that impact millions of people.
Khettry says China and India have a lot in common in terms of consumer spending, market behaviour, income levels and demographics; and thus Chinese investors are better-placed to help with the dynamics of the India market than, say, investors from the US or Europe.
Moreover, Chinese investors are more patient and bullish and do not have much exit pressure; all of which is beneficial to Indian startups, feels Harsh Shah, co-founder, Fynd. Agrees Damani, who thinks that the Chinese are focused on building sustainable businesses with a long-term outlook and invest "patient capital'', providing startups with "greater visibility for follow-on rounds and potentially large exits."
Also, Chinese investors can provide technology access and best practices from their unicorns. "Both countries have large populations with first-time mobile users. But only 25 percent of Indians are mobile internet users, compared to 50% of the Chinese. Indian startups can learn a lot from Chinese start-ups' vision for scale and their fast speed of implementation,'' says Damani.
For instance, Tencent can provide valuable experience from running WeChat to Hike Messenger in India, says Khettry.
But political tensions do exist with China. And this could have an impact, feel experts. Khettry says any startup would want a stable partnership with its investors. "Political and economic stability within the investor's country, friendly ties between nations, etc. play a role in determining the attractiveness of the investor. But other considerations like tax and policy incentives being offered, etc. may also play a role in determining the benefits a startup may ultimately receive on a long-term basis. Foreign funding also vexes issues stemming from angel tax faced by domestic investors in India, and helps plug any tax leakage upfront."
DRAGON RISES
$5-15m
Tencent has said it would invest in early-stage Indian start-ups
Rs 7K cr
Xiaomi is planning to invest across 100 new-age firms over the next five years
$100mn
Minimum Chinese funds are putting in late-stage fund rounds
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