India’s curb on Chinese investment will leave ‘void’ in start-up scene, experts say
- Out of India’s 30 unicorns, 18 are funded either by Chinese technology companies or venture capital funds
- The stakes of Chinese firms like Alibaba and Tencent in some of India’s most lucrative start-ups may be threatened because of new investment restrictions
India’s recent move to curb foreign direct investment (FDI) from countries including China may stymie the expansion of Chinese technology giants in the country, leaving start-ups in the world’s second most populous nation scrambling for funding and hi-tech know-how, experts say.
India’s new FDI rules threaten to end much-needed Chinese investments
Due to the new restrictions, Chinese companies whose expansion strategies involve investing in India will find their activities “rather restrained going forward”, said Liuqing Yu, an analyst at The Economist Intelligence Unit (EIU).
This new barrier to entry for Chinese money will also present opportunities for other international investors while dampening those for Chinese companies, said Ben Wootliff, head of the Asia cybersecurity practice at risk consultancy Control Risks.
“It’s not like there is big indigenous venture capitalist money in India … But there are still massive pools of money coming out of the US,” Wootliff said.
Tencent steps up India investment with NiYO
“Any further investments by Tencent in the company would be under scrutiny by the government [which would] potentially provide opportunity to the other stakeholders, such as Kaalari Capital, Think Investments, and Multiples Alternate Asset Management, to acquire more equity and thereby replace Tencent as the majority share holder,” Niko said.
Alibaba, Paytm, Tencent and Dream11 did not immediately respond to requests for comment for this story. Alibaba owns the South China Morning Post.
However, analysts said that Indian tech start-ups will suffer more from the new measures than Chinese tech companies.
“Chinese investment access to India and many other Western markets will be curbed, but their access to Southeast Asia and African markets will still be available going forward,” said Ujas Shah, another analyst at the EIU.
On the other hand, Indian start-ups will struggle to find alternative funding sources as the global economy goes into a recession, Shah said, adding that while India has emergency funds to help start-ups withstand the impact in the short term, he expects the valuation of Indian start-ups to drop as a result.
India’s new FDI rules are discriminatory, China says
“Start-ups require Chinese investors not only because of the money but also because of their technical expertise, and that too will leave a void right now,” Shah added.
“Without Chinese money, we believe that the rest of the world or India itself will not have enough money to fill the void,” Yu said.
Wootliff said that India’s close scrutiny over Chinese investment is likely to persist, even after the outbreak is over.
“This is in line with a global trend that we are seeing that all the countries are looking to get control over the digital infrastructure that they have,” he said. “They are concerned that rival countries may be trying to take advantage of their control of their digital assets.”
But Shah said that the Indian government, as wary as it is, is also acutely aware that it would be impossible to cut off Chinese investment completely. India is working on a fast-track program that can get Chinese investment approved in a week or two, according to a Reuters report last month.
“They do need new Chinese investors to come in and invest in start-ups,” Shah said.
Additional reporting by Iris Deng