Chinese Investors’ $1.4B Into Indian Startups Prompts Questions

Venture capitalists in China are putting record levels of money into tech startups in India, raising questions about the ability of the geopolitical rivals to work cooperatively, the Financial Times (FT) reported on Monday (Feb. 17). The geopolitical rivalry and “frosty relations” between the two countries have made India cautious about financial input from China.

Indian startups can also be stigmatized for taking funds from Chinese venture capitalists. In 2016, for example, Paytm Founder Vijay Shekhar Sharma had to “explicitly reassure users” that the company was still Indian, even though China’s Alibaba became its biggest investor.

In the final quarter of the year, tech startup deals in India that involved China totaled a record $1.4 billion, according to data from research firm Refinitiv .

China participated in its largest number of funding rounds last year: 54, doubling the number in 2017. In 2013, China invested in only three Indian startups, said data provider Tracxn.

Furthermore, China now joins the ranks of well-established investors like Sequoia and SoftBank in being among the biggest funding sources for startups in India. Two-thirds of India’s startups that are valued at more than $1 billion have at least one Chinese venture capitalist investor.

Tracxn Co-founder Neha Singh said that the “less-developed Indian scene” gives Chinese funds a chance to stand out.

“India is a large market, where a lot of the models have yet to pan out to create large dominant players,” said Singh. “In China, a lot of those patterns have been taken. It’s a very well-capitalized economy.”

Think tank Observer Research Foundation said that China’s proficiency in finance and technology puts India in the position of being “the only country that has the market and the strength to absorb China’s excess capacity.”

Chinese smartphone maker Xiaomi and car manufacturer SAIC Motor have both expanded into India as well.

“Chinese funds are playing a positive role by helping Indian startups to raise more capital,” said Amit Bhandari, a fellow at think tank Gateway House. He warned, however, that “China is the rival. … [It’s] influence has not always been very positive.”

Tracxn said last month that India-based tech startups attracted a record amount of funding from investors — $14.5 billion last year, better than the $10.6 billion seen previously.