Majority of Indian unicorns funded by Chinese investors, says report

13, Mar. 2020

Photo by DISRUPTIVO on Unsplash
Photo by DISRUPTIVO on Unsplash

By Atul Ranjan

NEW DELHI, NNA- As India increasingly becomes one of the global entrepreneurial hot spots, foreign investors led by China have been knocking on its door.

A study has found that the majority of Indian startups with unicorn status today have been funded by Chinese tech investors.

As many as 18 of 30 unicorn companies are Chinese-funded, according to the latest report by India-based foreign policy think tank Gateway House.

Confident Chinese investors have pumped an estimated $4 billion into the Indian start-ups over the past five years, nurturing them into unicorns or companies with a valuation of over a $1 billion.

These investments were made by nearly two dozen Chinese tech companies and funds, led by global giants like Alibaba Group Holding Ltd., ByteDance Ltd. and Tencent Holdings Ltd.

Among the unicorn start-ups they are funding are Paytm which offers e-commerce payment system; Byju, an online education firm; OYO hotel chain; and Ola ride sharing company.

The report also identified over 75 startups supported by Chinese investors in sectors ranging from e-commerce and fintech to media/social media and logistics.

According to Amit Bhandari, a Fellow of energy and environment studies at Gateway House, who co-authored the report, Chinese investors are most active in Indian start-ups heavily dependent on foreign venture capital (VC) funding.

“In fact, all startups in India valued over $1 billion have been funded by foreign investors including Japanese,” he told NNA over the phone on Thursday.

A few unicorns like Paytm, for example, have been funded by both Alibaba and Japan’s SoftBank Group Corp.

With Indian investors shying away from making big-ticket investments in local companies, Chinese investors and other global giants like the U.S.-based Sequoia Capital, SoftBank and South Africa-based Naspers Ltd. have pounced on opportunities and backing virtually every large Indian startup, said Bhandari.

His report also noted that Chinese investors tended to provide patient capital to support the long-term growth of a start-up while not anticipating quick returns.

For instance, Paytm incurred a loss of 36.9 billion rupees ($500 million) in the past financial, said the report which noted that most Indian VC financiers could not make the "$100-million commitments needed to finance start-ups through their early losses."

Chinese investors with global experience also shared their expertise and gave valuable advice to startups, according to Prime Ventures, an Indian early-stage venture fund, which has invested in local startups together with China's Tencent Holdings.

“We have found them to be a very supportive investor who try to understand local market dynamics first,” Sanjay Swamy, managing partner of Prime Ventures, who responded to NNA in an email.

“Their expertise in building large mobile-first, data-heavy, internet and fintech businesses is extremely valuable to local startups,” he said.

Both Prime Ventures and Tencent have invested in digital banking startup NiYO and apartment security startup MyGate.

Arun Natarajan, managing director of Venture Intelligence, a local firm that tracks private equity investments, said startups have emerged as an important gateway for Chinese investors seeking to enter the Indian market.

“The government does not consider startups as a sensitive sector, hence giving Chinese investors looking for new markets an opportunity to enter India,” Natarajan said.

He noted that Chinese investors are entering the startup ecosystem in early as well as late-stage phases.

While China’s economic footprint in India seems negligible compared to its huge investments in physical infrastructure in neighboring countries, its funding of Indian tech startups is “making an impact disproportionate to its value, given the deepening penetration of technology across sectors in India,” the Gateway House report concluded.