Boycott China? Dragon now angel for Indian startups
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‘Boycott China’ messages may have become routine on WhatsApp in India. But in the startup world, India and China are drawing closer.
Chinese firms and funds have become big investors in Indian startups , and they are becoming particularly useful now as US funds slow down. Beijing Miteno Communication Technology, a Chinese tech conglomerate, made this year’s biggest acquisition in the technology startup space — the $900 million buyout of Media.net, a subsidiary of Mumbai-based Directi, founded by brothers Bhavin and Divyank Turakhia.
Ecommerce giant Alibaba has made large investments in Paytm and Snapdeal. Didi Chuxing, the equivalent of Uber in China, has invested in Ola. Internet giant Tencent recently led a $175 million funding in messaging app Hike; prior to that, it led a $90 million round in healthcare solutions firm Practo and, through its joint venture with South Africa’s Naspers, invested in online travel firm Ibibo Group.
“There are demographic similarities and both countries are seeing consumer growth for digital firms. Also, Chinese players have experience in market creation and running successful digital companies, so they can play a bigger role than being just financial investors,” says Ashish Kashyap, founder of Ibibo, which last month merged with rival MakeMyTrip. Alibaba, for instance, is seen to be actively helping Paytm in various aspects.
Bhavin Turakhia says the Chinese understand the Indian market better than US companies do as the Indian market is on the same evolution path as that of China, but about 5 to 10 years behind.
Chinese companies and funds have become big investors in Indian startups . Cheetah Mobile, which owns products like Clean Master, invested in fitness app GOQii late last year.
Ctrip, one of China’s largest online travel companies, invested $180 million in MakeMyTrip in January. China-based investment firm Hillhouse Capital has invested in CarDekho. Smartphone maker Xiaomi led a $25-million funding round in content provider Hungama Digital Media Entertainment in April.
Web services company Baidu has said it is scouting for investment opportunities in Indian startups.
Even other Asian companies are nowhere close to investing as much as the Chinese in Indian startups. Japan’s SoftBank and Singapore’s Temasek are among the few non-Chinese ones that have made investments. Taiwan’s Foxconn has also made several investments, like in Qikpod, Hike and Snapdeal, but some see Foxconn as practically a Chinese company, given that much of its operations is in China.
“Ctrip, one of China’s largest online travel companies, invested $180 million in MakeMyTrip in January.”
What’s pushing the Chinese tech companies to make large investments are two things: one, many of them are making big profits in their home market, thanks partly to the restrictions on foreign competition; and two, the Chinese economy is slowing down.
So they want to use their surpluses to expand into what is potentially the world’s third largest digital market.
“There are only two big growing markets where they can invest: India and the United States. Silicon Valley does not respect Chinese capital. So the Indian tech sector becomes attractive to them,” says Mohan Kumar, executive director at Norwest Ventures, a US-based venture fund that has operations in India. Kumar also notes that Chinese investors often value Indian startups at three to five times more than what other seasoned investors do. “So entrepreneurs naturally prefer them,” he says.
Higher valuations mean the Chinese investors take lower stakes for the same amount of investment, and founders can hope for an even higher valuation in their next round of fund raising.
Language and politics are a challenge. May be for that reason, the Chinese are for now preferring partnerships and not outright buys. Even investment firms are building partnerships. Chinese VC fund Incapital has tied up with Indian fund IvyCap Ventures to enable its partner investors to have a closer look at potential investment opportunities in Indian startups.
China is showing interest in traditional industries too. In July, Chinese pharma company Shanghai Fosun Pharmaceutical Co acquired Indian injectables manufacturer Gland Pharma for $1.27 billion, and in August, Chinese conglomerate Jiangsu Longzhe Technology and Trade Development Co acquired Diamond Power Infrastructure, Vadodara-based manufacturer of cables, conductors, transformers and other power sector equipment, for $125 million. But digital technology looks to be where the biggest action is.
Questions & Answers
Q.Why are Chinese companies and funds increasingly investing in Indian startups?
Why are Chinese companies and funds increasingly investing in Indian startups?
Chinese tech companies are making big profits at home due to foreign competition restrictions and their own economy is slowing. They wish to use their surpluses to expand into potentially the world's third largest digital market, as Silicon Valley doesn't respect Chinese capital.
Q.How do Chinese investors' valuations of Indian startups compare to other investors?
How do Chinese investors' valuations of Indian startups compare to other investors?
Chinese investors often value Indian startups at three to five times more than what other seasoned investors do. This higher valuation means they take lower stakes for the same investment amount.
Q.What advantages do Chinese investors bring to Indian startups beyond just capital?
What advantages do Chinese investors bring to Indian startups beyond just capital?
Chinese players have experience in market creation and running successful digital companies. They can offer insights because the Indian market's evolution path is similar to China's, albeit a few years behind.
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