Asian investors are upping the ante in India's startups

The epicentre of foreign investments in Indian startups is slowly moving from North America to Asia. US-based venture capital firms like Tiger Global and Sequoia Capital continue to dominate startup funding, but they are very clearly giving way to Asian heavyweights like SoftBank, Beenext, Alibaba, and Tencent.Data from research firm Venture Intelligence shows that the number of deals involving Chinese investors jumped from 1 in 2013 to 27 in 2018, and deals backed by Japanese investors rose from 3 to 54 in the same period. 68652821 Consulting firm EY India’s data shows Singapore has also emerged as a key player, with the country’s participation in deals rising from 5 to 24 during this period. The number of investments from US firms too grew sharply, from 96 to 222, and the growth is from a significantly higher base. But the pace was slower compared to Asia, and the latter’s share of overall investments now stands at 6-7%, compared to less than 1% in 2013.With mega funds and deep experience of developing digital economies in their home countries, the Chinese and Japanese stand out in backing Indian startups.“Not only is the Indian startup ecosystem the third largest, after the US and China, it also has the third highest concentration of unicorns. So it’s no surprise that global investors are lining up to join the party,” Vivek Soni, partner and national leader for PE services in EY India, says. The frothy startup valuations in China is also making foreign investors to look at India positively, he added.Suresh Kalpathi, chairman and CEO of investment firm Kalpathi Investments, believes India’s ability to provide lucrative returns is also creating interest among these investors, who have large dry powder to deploy. “The quantum of returns made by Tiger Global and others recently in the Flipkart-Walmart deal, for instance, runs into billions of dollars as against their investments, which was in the millions,” Kalpathi says.While it’s difficult to ascertain if the ongoing trade tensions between the US and China has worked in India’s favour, data suggests China’s investments in US tech have fallen during the same time that their stakes in Indian tech have risen.Data from research firm CB Insights shows the number of US tech investments by Chinese investors fell 12% in 2017 from its 2015 peak. Venture Intelligence data shows that China’s investments in Indian startups was at its highest in 2017 at $4.3 billion, a 180% increase in deal count from 2016.However, the Asian investors have not been too adventurous in India, and have restricted themselves to their strengths – the consumer internet space. The biggest investments have come into companies like Swiggy, Oyo and BigBasket, all of which have become unicorns (private companies with a valuation of $1 billion or more).A deep-tech investor, who did not want to be named, said that East Asian VCs are missing in deep-tech projects like electric vehicles and biotech. “The rise of their investments in India has followed the boom in consumerism in our country,” the person said.Other non-American global investors, such as those from Europe, seem to have a more diversified strategy. Pankaj Makkar, MD of Bertelsmann India, the strategic investment arm of Netherlands-based media group Bertelsmann, says the fund started building their portfolio with e-commerce businesses, but over the years has gone on to add other sectors such as fintech, edtech, and logistics. Bertelsmann’s Indian portfolio now includes iNurture, Shiprocket, Lets Transport and Lendingkart.Chinese tech conglomerate Tencent, China’s Shunwei Capital, and Japan’s SoftBank were some of the top active investors in India in 2018, in terms of deal value.Tencent invested over $1.2 billion across three deals, and Masayoshi Son’s SoftBank invested $1.7 billion across five late-stage deals. Shunwei Capital, founded by Lei Jun (Xiaomi’s founder) and Tuck Lye Koh, raised its sixth fund of around $1.2 billion with a specific India focus in 2018.Alibaba has a more ecosystembuilder approach and holds stakes in three top success stories in the Indian consumer internet – Paytm, Zomato, and Bigbasket. “Globalisation is one of the key strategies for Alibaba, and India is a part of it. Before entering any market, the question we ask is how we can help the local market. Even in India, the key aspect of our strategy is to help the local enterprises grow, in line with Alibaba’s vision of making it easy to do business anywhere,” a spokesperson for Alibaba told TOI.Indian ventures are benefiting strategically too from Chinese investors. Harsh Jain, co-founder & CEO of Dream11, a company that raised $100 million in a Series D round led by Tencent in September, can’t wait to leverage the tech giant’s gaming expertise.“Tencent has mastered the art of building high engagement platform businesses, which we would love to learn more about. For us, having a strategic investor, especially a subject matter expert, was important to achieve our aim of hitting 100 million users in 2019,” Jain says.Serial entrepreneur Sandeep Aggarwal, founder of automotive marketplace Droom, says Asian money is “relationship money and comes with empathy and understanding.” They also expect strong ethics and corporate governance from their startups, he says. Droom has six Japanese investors and close to 15 investors from Hong Kong, China and Southeast Asia.Some Asian investors also stand to benefit in other ways from their investments in Indian startups. “For internet companies like Alibaba and Tencent, the investments mean that more Indian ventures will adopt the cloud and other business services they offer,” said an Indian angel investor, who did not wish to be named. Alibaba offers cloud and AI services, fintech platforms, and entertainment and content creation platforms.For the Indian startup ecosystem, the growing diversity of the investor base is helping shorten the time taken for startups to reach unicorn status, and is also helping them go global more easily.“There was a time when a lot of startups in India couldn’t access growth capital to get to scale. It (a diverse mix of investors) is great for entrepreneurship to flourish and it reflects how India is a great macro market for investors,” says Harsha Kumar, partner at Lightspeed India.

from Economic Times https://ift.tt/2uzNmNU