Fewer Chinese startups going public, uncertainty after trade spat with US & sobering of valuations post We Work.
Over a dozen new China-domiciled corporations, venture funds and family offices are aggressively stepping up investment conversations with Indian startups as they look to move beyond the slowing market for technology investment in Asia’s largest economy.
The heightened interest in early-to-growth-stage Indian firms coincides with fewer Chinese startups going public, uncertainty caused by the country’s ongoing trade war with the US and overall sobering of valuations after the We Work debacle, said multiple founders and startup investors.
Boyu Capital, Horizons China, Sinovation Ventures, Legend Capital, ZhenFund, XVC Capital and Integrated Capital are among the new funds scouting for deals, people who have engaged with these firms.
Corporate venture capitalists such as “Jingdong, Kuaishou, Kunlun, Ping An and YY.com, which have been evaluating India from the sidelines, are also looking at the country as a top investment market beyond China”, said one of the persons.
To be sure, India is not a fresh hunting ground for Chinese investors. Mega corporations, from Alibaba’s Alipay to Didi Chuxing, Xiaomi and Tencent, are well-entrenched in the Indian startup ecosystem, having backed the likes of Paytm, Swiggy and Ola.
But now these tech giants and other early entrants such as CDH Investments, BAce Capital, Qiming Venture Partners, Morningside Ventures, Fosun, Hillhouse Capital, GGV Capital and Meituan are also accelerating investment activity. This has led to a near-doubling of Chinese investments in Indian startups to $3.9 billion in 2019 up from $2 billion in the previous year.
“These investors have seen a similar bull cycle play out in China 5-8 years ago, and believe that India is now at an inflection point with enormous potential for technology and consumer investing,” said Pratik Poddar, principal at Nexus Venture Partners, an early-stage fund.
India-based investors believe slowing returns from venture and private equity deals in China over past five years is also a big reason why Chinese firms are looking away from their home country. In the fourth quarter of 2019, venture investments in tech startups in China dropped 51.5% over the previous year, according to the China Academy of Information and Communications Technology, a government-backed research institute.
“At the same time, early investors such as Shunwei Capital, Xiaomi, Fosun, Ant Financial and their large investments in (India’s) Zomato, Delhivery, ShareChat and Paytm have spurred interest in the Indian ecosystem,” said Anup Jain, managing partner, Orios Venture Partners.
Though India is also seeing some rationalisation in valuations, political stability and positive macro indicators like smartphone penetration, implementation of GST as well as the network created by Aadhaar have boosted investor confidence, said experts.
MOVING FASTER ON DEALS
Indian entrepreneurs are of the view that Chinese investors are now moving faster on deals, matching up valuations and are open to striking more flexible investment rights. This is especially true in sectors such as fintech, social commerce and content, said a founder who recently raised money from Tencent. The tech major, which operates messaging app WeChat, is one of the most active strategic investors in India, having taken fresh wagers on insurance marketplace Policy +Bazaar, business-to-business ecommerce portal Udaan and video streaming platform MX Player, aside from writing smaller cheques.
MX Player is owned by Times Internet, a part of The Times Group, which publishes ET. With a portfolio of more than a dozen companies, Tencent is in talks to back education technology startup Doubtnut and online self-publishing platform Pratilipi. “Most of these funds already have a small exposure to India, and the intent is to accelerate their presence wherever they see parallels with China,” said a fund manager.
While Qiming made its first bet in India last year with Pratilipi, GGV backed KhataBook and Udaan, and CDH invested in startups such as Cashify and GlowRoad.
“Some funds and corporate VCs have tasted success in fintech, social commerce, gaming and content businesses in China, and want to leverage those learnings and take a similar path in India,” said Ashish Sharma, CEO at venture debt fund InnoVen Capital India. “However, even with this exposure, their India allocation is quite small compared with the overall corpus,” he added.
HIRING PROS
Over the past few months, Chinese venture funds like Shunwei Capital, CDH Investments, Hillhouse, GGV, Mount Judi Ventures, Morningside Ventures, Tencent and Fosun have hired investment professionals in India as they look to step up deals.
Others are relying on investment banks and networks to reach out to entrepreneurs. In October, reported that China’s investment banking majors, including TH Capital, China International Capital Corporation and Industrial & Commercial Bank of China, are on the lookout for deals in India. Also keen on investing are emerging investment banks such as Fanzhou Capital and Fusion Capital.
