From Paytm To Swiggy: Chinese Money Is Powering These Indian Startups

20 jawans were martyred on June 15 in the Galwan Valley in the bloodiest clash in almost 50 years with Chinese troops during a disengagement exercise to end a prolonged standoff along the Line of Actual Control. The first India casualties in a border conflict with China since 1975 have tensed the already tense ties between the two countries. 

With Indo-China border tensions surging and an anti-China sentiment brewing amongst Indians, a boycott of Chinese products will grow in the coming days. Although, China’s roots have a firm grip over the Indian startup ecosystem. 

Chinese companies are big investors in the Indian startup space, which has not only created a new class of entrepreneurs but also given India the much-needed technological push, generating employment on the side.

Read to find out which chinese investors are backing which startups…

Xiaomi

The smartphone maker Xiaomi has been an active investor in the Indian startup ecosystem. 

It has led rounds in Sharechat, lending startup Krazybee and few others. Back in 2018, Manu Kumar Jain, its top India executive, said the company was looking to pump in Rs 6,000 crore across 100 Indian startups. As of now, it has around $61 million invested in 8 companies.

Ant Financial/Alibaba

One of the most prolific Chinese investors in India, Ant Financial, the fintech arm of the Jack Ma-owned tech conglomerate Alibaba Group, has pumped millions of dollars in Paytm and Snapdeal. 

It has invested close to $2.7 billion in India across 7 companies. Within Paytm, it has separately funded its ecommerce arm, Paytm Mall. In November 2019, Ant Financial said it was trying to raise a billion dollar for fresh investments in startups in India and Southeast Asia.

Tencent

In China, Tencent runs an instant messaging platform WeChat, which is an equivalent of WhatsApp, and a host of gaming apps and ecommerce businesses.

Tencent is another aggressive investor that has backed unicorns like Flipkart, Swiggy and Ola.  It has close to $2 billion of exposure to India across around 15 startups. It has backed growth-stage players like Khatabook, MyGate, Niyo Solutions and other established players like PolicyBazaar, and Udaan. Tencent is reportedly in talks with multiple new startups looking for rounds in the range of $10 to $15 million.

Shunwei Capital

Shunwei Capital has led multiple rounds in Indian startups like food delivery giant Zomato, social commerce startup Meesho, messaging app Sharechat and lending platforms Krazybee and Loantap. It has invested $129 million across 17 companies.

Fosun Group

Founded in 2013, Fosun RZ Capital is a quick-paced emerging Chinese investor in India. It has invested around $85 million in 12 Indian startups, with some late stage investments like in Ixigo and Delhivery and some early-stage ones like LetsTransport, Mylo and others. 

The Tej Kapoor-run firm is known to cut smaller cheques and does not directly compete with the likes of Tencent and Alibaba. The only fintech investment Fosun has done in India is in digital lending startup Kissht.

Hillhouse Capital

Hillhouse Capital, an investor in Baidu, Tencent, Grab Airbnb and others, has put in more than $165 million in India already. It has stakes in 7 companies including Swiggy, Udaan and Cred. Started in 2005, Hillhouse has been active in the mobility segment. In 2014, it invested $50 million in online automobile comparison platform CarDekho.

TR Capital

Popularly known as the secondary specialists, TR Capital is an active secondary investor in India and even set up an office in Mumbai in 2018. Flipkart, Lenskart, Urban Ladder and BigBasket are among the nine companies it has invested in. Its India investments are to the tune of $111 million.

What Does Indian Startups’ Future Look Like?

India’s top startups, including Paytm, Zomato, Swiggy, Udaan, BigBasket, LensKart, CarDekho and many prominent startups that count Chinese investors among their largest backers, are likely to face further hurdles in raising capital, as the anti-China sentiments escalate following the ongoing military standoff between the two countries.

As per reports, Chinese investors have pumped in $3.9 billion in 2019, up from $2 billion in 2018. In the process, they have emerged as the biggest backers of the country’s fast-growing digital economy, superseding the US investors. 

Siddarth Pai, founding partner of 3one4 Capital, told ET said, “The conversation that is going to take place among startups is going to be about the quality of the capital that is going to come aboard, and not just the adequacy of it…The conversation of quality over quantity has reached a chorus amongst investors across all and we see this becoming a mainstay of investing.” The Bengaluru-headquartered VC firm, which manages assets of about Rs 800 crore across 4 funds, does not count Chinese or Chinese-origin investors in its list of Limited Partners.

When all entrepreneurs and enterprises refused to comment on the topic when questioned by ET amidst the border tensions some prominent risk capital investors are asking their respective portfolios to diversify cap tables. 

Some industry insiders also feel that the impact on early and growth-stage companies will be more prominent compared to late-stage bets.

A founder of a unicorn pointed out that while his company’s exposure to China may be large, that bet is now too big to fail. He added, “The risk is for early and growth-stage companies where these cheques are still an option-value,” he said. “Businesses that already have investors deeply invested cannot and will not back out at this point.”

“The entire sentiment is leaning anti-China right now. It is becoming a moral hazard for a company to accept any capital from China in this environment…The current standoff at the border does little to mitigate that,” Pai of 3one4 Capital said.

If Not China Ray Of Hope From the US, Middle East, UK?

Although, as per last month’s reports, Chinese venture capital investors have turned increasingly wary about India’s new foreign direct investment policy, after the government mandated that all investments from countries sharing a land border with India will require its prior approval.

However, another startup founder said even as investments from China began to slow after notification of the government’s Press Note 3 in April, more avenues have opened up — from the US, UK, and Middle East.

On condition of anonymity, as he has received a small cheque from a Chinese fund but also counts a set of 10 diversified investors he told ET, “Capital from China always comes with riders and isn’t preferred beyond a certain level in high-quality companies. Founders are equally wary of raising beyond, say, 15-20% capital pool from Chinese investors and their affiliates.” 

A second investor who counts at least 2 unicorns in his portfolio said, “Chinese capital is expected to stay away, at least in the medium term, and we will step up and pump in more money if the situation requires us to do so. We have to align to these new geo-political scenarios.”

A founder of a unicorn that has raised money from Chinese investors said, “The sentiment has been impacted.” He added, “It’s becoming clearer that China would now prefer allocating capital to markets outside India, if all other factors remain the same.”

The worrisome matter however remains that the country’s startup ecosystem continues to be dependent on large swathes of foreign funding given the ongoing absence of home-grown pools of capital. It will face significant near-to-medium term cash constraints if investors from the world’s second-largest economy walk away.