Chinese moneybags, anyone?

With the recent slowdown in the number of deals and venture capital in India, our startups are looking to China for capital infusion. Major players, including Alibaba and Tencent, entered the Indian start-up ecosystem with smaller deals. Alibaba and Tencent alone have invested close to $2 Billion in India combined, and other Chinese investors are following suite. They’re now investing heavier than before to take on the Indian market headfirst. Right now, they account for below 10% in the start-up space, but that number is on the rise according to many start-up founders and investment firms.

China’s greatest advantage is its ability to provide access to untapped markets. Travel platform Ixigo, received a 100-crore investment from Fosun Kinzon Capital, and CEO Aloke Bajpai is excited for the future.

“Right from the early discussions with the investor we got to know what kind of business models and product innovations worked in the Chinese market. We have had very interesting discussions with early- and growth-stage entrepreneurs introduced to us by Fosun in the travel domain in terms of monetisation strategies and tones of marketing channels they use. The kind of social products and apps they use for generating commerce is eye-opening,”

Sunil Kalra, a veteran investor in the Indian startup space, is confident about Chinese investors being bullish about India.

"The Chinese are here with deep pockets. It is not uncommon for them to write a million-dollar check for a first stage investment. An Indian angel investor is not going to do that. He will invest one fourth that amount.”

While both China and India are growing markets, it only makes sense for Chinese investors to pump money and leadership into Indian start-ups. These investors bring decades of experience, along with capital and give them insights that Indian investors may not be able to. With the globalization of start-up capital, language barriers are no longer an issue for Indian founders and Chinese investors.

In fact, China has a certain percentage of equity in most major startups that Indian consumers use every day. From Ctrip’s MakeMyTrip and Alibaba’s Snapdeal and PayTm investment, to Didi Kuaidi in Ola and Tencent in Practo. Chances are, that if you use online products and services in India they’re funded in part by Chinese investors.

Zijing Zhou, CEO, Ether Capital, believes that Chinese investors are just scraping the surface at this point. They haven’t really had a deep dive into the Indian markets, as they’re still testing out their investment returns at this time. As and when they begin to create local offices, they will have established India as long-term partner in the start-up space.

“Today, the Chinese market has seen large capital and high development. And we think the same will happen with India at an even better scale. Investors in China are exploring investment opportunities in Indian businesses, but we need a local team to help us in identifying these businesses.”

Arpit Agarwal, Principle at Blume Ventures wants more business to receive funding from China as it opens valuable learning lessons from these international players.

“Broadly, China is far ahead of the curve, considering the billion-dollar exits the companies have received. As an ecosystem, in India, we don’t have much of an understanding of what works with China, hence making the visit a valuable learning experience for Indian entrepreneurs and the venture capital industry to grow their businesses.”

When startup founders start seeing how Indian start-ups are flourishing with Chinese investment, they will become more open to receiving funding from China as well. They would even apply directly or urge their Venture fund to look towards China for capital.

According to Siddharth Talwar, partner at venture capital firm Lightbox, that’s exactly what’s happening in India.

"Alibaba, Tencent and Ctrip from China are already here. When the biggest companies of a country (China) are putting money in another country (India), then the fear factor of that country (China) suddenly diminishes."

The movement in the influx of capital is around the idea that the Chinese are no longer building or investing in companies that are aping the west. They’re interested in local business models that scale up within the country and provide products and services consumed at a sustainable rate. In fact, Indian brands are increasingly trying to build models that emulate their Chinese counterparts. With the creation of behemoths like Alibaba, Indian e-commerce companies want to exceed expectations by taking not only capital, but also inspiration from China.

Tej Kapoor, executive director at Fosun India says it best.

“The huge change now is that a lot of Indian entrepreneurs talk of Chinese examples. They are no longer saying I am building the Amazon of India. They say they are building the Alibaba of India. Often, people point out, ‘O, this happened in China.’ That is an interesting shift.”

FEED THE DRAGON

• They’re now investing heavier than before to take on the Indian market headfirst
   
• Indian brands are increasingly trying to build models that emulate their Chinese counterparts