The Chinese have largely been excluded from India’s tech sector, allowing US and European venture capital firms to participate in what looks to be a record-breaking fundraising year for India’s startups. According to data provider Tracxn, Indian start-ups raised a record $7.2 billion across 336 funding rounds in the quarter ended June. Chinese investors participated in only 10 rounds, totaling $745m. US investors, on the other hand, participated in more than 100 rounds worth $5.7bn.
Tech giants such as Alibaba and Tencent were previously among India’s most influential investors in the fast-growing start-up scene, but regulations introduced last year to ease tensions between India and China have largely left them out. Many US investors, including Sequoia, Lightspeed and Tiger Global, have stepped in to fill the void, as ample liquidity and low yields in western markets prompted investors to invest in high-growth Indian tech.
Tiger Global, a New York-based investment firm, has made a record 25 deals this year in India. ‘The playing field is heavily skewed in favour of the Europeans and North Americans now,’ said Karam Daulet-Singh of law firm Touchstone Partners, which advises foreign investors including Tencent. In some ways, a lot of American and European funds that haven’t looked at India yet have a great opportunity. During this time of uncertainty, it is the Tiger Globals of the world that will benefit the most.
Last year, India introduced rules requiring government approval for all Chinese direct investments. Some equity deals have been approved, but the process can take more than six months, according to lawyers and venture capitalists. However, more adventurous Chinese investors are finding ways to circumvent FDI restrictions, such as through debt financing. In April, Tencent invested $225m in social media company ShareChat and $40m in music-streaming platform Gaana.
Yinglan Tan, managing director of Singapore’s Insignia Ventures, a venture capital firm with a large Chinese clientele, said the restrictions do not totally close off investment opportunities for Chinese investors. The tech strategics will continue to make investments they deem ‘worth the effort’, he added, pointing to Tencent’s ShareChat deal as an example.
Tan adds that some mainland investors are considering other options, such as relocating to Singapore or opening an office there. The recent raises have given more power to a lot of players, said Mukul Rustagi, co-founder of Delhi-based Classplus, which raised $65 million in a round led by Tiger Global last month. There is a lot of activity in the market; it is three-four times higher than last year.