Indian technology startups, which are mopping up record inflows of venture capital this year, will gain further as global capital moves away from Chinese tech companies that are weathering a regulatory onslaught, according to multiple founders and investors.
The Xi Jinping-led government’s continued crackdown on Big Tech firms could also trigger long-term changes in the way large internet companies are regulated globally, they told ET.
“China gets more venture capital than India. Now, if the Chinese funnel is getting choked, it will go somewhere and with so much liquidity, emerging markets like India will get that allocation,” said Ashwin Damera, cofounder and chief executive officer of online executive education platform Eruditus. The startup saw its valuation jump four-fold to $3.2 billion after raising $650 million from SoftBank, Accel US and others, earlier this month.
Half-a-trillion dollars wiped off
India is the third biggest startup market—after the US and China—for investors to park their capital in, at a time when there is increased liquidity in the market.
So far this year, the country has already seen 25 new unicorns—startups valued over $1 billion—and nearly $20.76 billion has been raised across 583 deals as of August 20, according to data provided by industry tracker Venture Intelligence. In comparison, $11.1 billion was invested in Indian startups in 2020, with 12 companies turning unicorns.
China’s crackdown to boost desi startups
With China’s tech crackdown forcing global risk investors to look elsewhere, it seems the funding tap for Indian startups isn’t going to run dry anytime soon.
“There is no question that the US and China are the biggest tech markets in the world but increasingly people are paying attention to India and feel that it would take the right lessons from China to grow faster and, at the same time, also provide opportunities for innovations that will happen locally,” Hans Tung of GGV Capital, a Silicon-Valley based venture firm, told ET in a recent conversation.
Tung, whose firm has backed startups like Udaan, Vedantu and Rupeek, said, “Whenever there are areas of uncertainty, it’s both an interesting opportunity to be in it and also look at what’s happening around the world.”
The ongoing China tech crackdown has resulted in over half a trillion dollars being wiped out from Chinese tech stocks in a week, including from Alibaba Group, Kuaishou Technology and Tencent Holdings. Last week, the Chinese government introduced tougher data protection laws mandating how technology companies handle user data, in a move that has alarmed investors. The tough regulatory oversight deepened last month when China, in a surprise move, banned private investments in the $100-billion education sector by stating that platforms teaching school subjects cannot receive foreign investments.
Earlier this month, SoftBank CEO Masayoshi Son said he was being ‘cautious’ on China investments and it may take 1-2 years before it stabilises. Son is adopting a ‘wait-and-see’ approach, for now.
The technology-focused SoftBank Vision Fund has a sizable India portfolio and has made large investments this year including in Meesho, Swiggy, Mindtickle and OfBusiness. Son said he was taking more bets in Asia outside China and the fund doesn’t depend on one geography alone.
Cumulatively, Chinese startups account for 23% of SoftBank Vision Funds’ portfolio in terms of fair value. However, Son has said that since April, only 11% of new investments were in Chinese companies.
Concerns around tech regulations globally
Varun Dua, founder of insurtech startup Acko, said that while more capital seems to be diverted to India, China’s tech clampdown on its domestic technology sector may have a long-term impact, “especially on the gig workforce labour rules, data privacy and usage, corporate structures and more regulations for fintech”.
India and some other parts of the world may adopt parts or versions of these (regulations) as internet companies get large, according to Dua who reckons that “while the underlying reasons might be different, it’s a sign of things to come across the globe. This could have a business model impact which might take years to adjust to”.
Eruditus’ Damera said the developments in China has made everyone take note of the guidelines and more questions may be asked by other governments in the K-12 space.
“There are two sets of investors in China—domestic and global. The global investors will shift focus to India and it will be towards the tech-enabled companies and large unicorns, edtech companies will benefit,” he added.
A founder of another top edtech firm recently told ET that he had been receiving queries from investors following the China developments. “There are definitely more messages from the investor community following the recent events in China. They want to understand if they can invest more in India, which is already a top focus with many IPOs in the pipeline after Zomato’s stellar listing,” he added.
“India has to be in your portfolio for anybody who wants to do world domination. For today’s tech companies, India is a market which they cannot miss,” said Ashish Dave, CEO at Mirae Asset Venture Investments that counts companies like BigBasket, ShareChat, Zomato, Ola and others in its India portfolio. “The effect of not being able to invest in China is investors will double down on the US and India. So, money will flow here,” according to Dave, who estimates this will be a short-term shift.
Even as they gain from the current rush of money, Indian entrepreneurs are of the view that eventually the massive opportunity presented by China is bound to attract investors.
“China will remain China. I am sure there will be more capital coming to India as there are uncertainties now but that won’t be forever,” said a unicorn founder. “It’s still good for India that there will be more capital available for local startups.”