Chinese Contribution to Indian Startups

The Startup India initiative, ever since its announcement in 2015, by the new democratic government has garnered populous interest from all across the nation. The scheme has culminated into a monumental increase in the total number of startups in the country and has also catapulted these startups into the spotlight. The startup scenario in India has been gaining traction since the last decade with multiple sectors attracting major investments from around the globe. The sheer innovation and potential carried by many of these startups is being identified and acknowledged worldwide. Proving this feat is the latest deal in the matter – the famous acquisition of the homegrown startup FlipKart by Walmart.

Western venture capital firms have long been involved in the India startup demographic, from offering mentorship to major investments over the past years. Any startup, even though backed with innovation and vision, require cash inflow to function viably over a period of time, and that is when VCs come in to play a role. Until a couple of years of back, the majority of the financial aid offered was from the west, but the trend has significantly declined. The decline is attributed to heavy losses incurred by western firms on wrong deals and the failure to turn profit which they erroneously foresaw. The reluctance grew stronger when Zomato, an online food delivery application, was unable to produce profit and incurred heavy losses within half a year of an investment given by the western firm. This episode resulted in tentativeness from the western investors, who now look only to invest in entities which prove to be more mature and promise results.

On the other hand, while the western investments are declining, there has been a flood of investment coming in from China. In 2016, the total investment from China was approximated to a figure of $668 million, and this same number has now increased to a staggering $5 billion. Among the numerous startups from the sectors of logistics, food tech, artificial intelligence, etc., Fintech has managed to attract large number of investors in the last year itself. Reports suggest that in last year, a total of 23 startups belonging to the tech sector had Chinese investments involved. This figure was a mere 5 startups back in 2015. Ove the last few years, major companies have accepted investments from China and amplified their network and functioning. Ola, the cab booking app, and a staunch Uber rival was invested in by Tencent. The Chinese investment holding conglomerate also decided to invest in FlipKart. Paytm, which received its major Chinese investment in 2015 – by the esteemed Alibaba Group – recently received a major investment from another Chinese entity, SoftBank, which skyrocketed Paytm’s market value to $10 billion. SoftBank is now the biggest individual investor in Paytm.

The figures speak to the fact that while western investment has grown reluctant, the Chinese are offering a great deal of monetary support to not only keep afloat budding companies, but also to promise long term viability. This trend, however, has also opened the gates to various topics of debate. The security and military sectors are nothing short of uncomfortable to open up investment doors to the country with which we have strained demographic ties. Furthermore, various domestic companies owners are worried of being bullied off their own tables by large investors a struggle ensues. Adding to it are other obstacles like language and cultural dissonance that tend to thwart the entrepreneurial processes involved.  The trend, it can be said, is a rapid phenomenon that can augment the domestic startups if kept under the sheets of healthy skepticism and limitations.