Chinese Investments in Indian Start-ups prompts Questions
Industry experts are of the opinion that this will definitely have a major impact on new-fangled Chinese investments in companies such as Paytm, BigBasket, Byju's, and others during the time when they follow-up for funding. This will also affect further rounds of investments in Indian startups by top Chinese investors such as Alibaba and Tencent. As per the new FDI guidelines, the prerequisite for Chinese direct and indirect capital would be a nod from the government over the investments. Given the ambiguity around the authorization, start-ups will have to shied away from a direct challenge of agreeing to yield Chinese capital. Clearly, this will impact the start-ups afterwards. It is likely that those fairly new ventures that have already dealt with a fatal blow given the Covid-19 pandemic will be the vilest sufferers. Some industry insiders witnessing the situation predicts that the impact on early and growth-stage companies will be more profound compared to late-stage bets.
Almost two-thirds of India's startups are accounted for being supported by one Chinese venture capitalist investor, reports stated. Delving deep, it has come across that over 75 companies with Chinese investors have concentrated in e-commerce, fintech, media/social media, aggregation services and logistics
Last year itself, around $3.9 billion dollars of Chinese investments have been pumped in Indian start-ups. The numbers are almost double from 2018. Popular names as Ola, Bigbasket, Flipkart, Snapdeal Swiggy, Paytm, Oyo, Byju's have apparently received good amount of Chinese investments. Recently, BigBasket secured funding of around $50 million from Alibaba during the lockdown period to meet its operational requirements. Paytm too raised $1 billion from Japan's SoftBank and Alibaba's Ant Financial amid the Covid crisis. But with the ongoing rigidity across the nation and nastiness between India & China, the future capital infusions will take a toll on these start-ups; might even stifle their growth. On a bigger picture those Indian companies who have previously bagged funds from Chinese investors under standard guidelines will have to re-route the entire funding process and further seek Government approval to be permitted fresh investments. This will affect mutual benefits and interests and would consume more time to realign the strategies.
The Other Side of the Story
A report by foreign policy think tank Gateway House stated that 18 out of 30 unicorns in India have funding from China, and that a total of 95 startups in the country are funded by Chinese investment. Gateway's report stated that China is most active in India's startup space. In fact, China's rampant funding bustle in Indian start-ups by deep-rooted investors like Sequoia and SoftBank has been one of the principal start-up funding sources. Almost two-thirds of India's startups are accounted for being supported by one Chinese venture capitalist investor, reports stated. Delving deep, it has come across that over 75 companies with Chinese investors have concentrated in e-commerce, fintech, media/social media, aggregation services and logistics. Interestingly, more than half of India's 30 Indian unicorns - with a valuation of over $1 billion) have a Chinese investor. These Chinese investors are reckoned as one of the top five capital investment firms investing in Indian start-ups.
Despite the differences, one cannot deny the value and market knowledge the Chinese investors bring along with them. If industry opinions are to be believed, the investors bring rich experiences and learnings for businesses to scale up too. With money comes value-added experiences and these learnings constitute important chapters in start-ups' rule books. Various excerpts also specify that India to some extent models itself around the Chinese market.
So, the fact that Chinese funds are playing a positive role by helping Indian startups to raise more capital cannot raise eyebrows. Many well-versed business leaders, entrepreneurs and other visionaries from the start-up fraternity trust the need of creating exemptions for start-up funding and more clarity and details in terms of timelines, funding techniques and approvals.
The truth be told if there are innovative ideas, no start-up will be devoid of great investments. Although with the existing pressure it might seem difficult but eventually if venture capital funds flow is restructured in accordance with the new regimes, investments will continue coming in start-ups. Also, to mitigate the current bedlam with China, start-ups should look beyond Chinese investments and determine high-end investments from new areas. While Chinese investors seem optimistic about investing in the Indian market, start-ups will need to diversify their cap tables. What do you think?