Indian tech start-ups received 90 per cent more investments so far this year compared to the previous corresponding period. The funds are gushing in, but the window of opportunity is limited. India will have to improve its systems and become more welcoming of foreign investors if it wants this trend to sustain.
This is one zero-sum game that is directly benefiting India – and China’s loss of investment dollars is adding to the funds flowing into Indian tech start-ups.
Consider this: According to Venture Intelligence, which tracks investments in start-ups, Indian new economy companies attracted $20.76 billion investments between January 1 and August 20 this year across 583 transactions. That is an almost 90 per cent increase over the figure of $11.1 billion during the corresponding period last year.
The rising flow of funds is buoying up valuations in the Indian start-up universe. This year, an estimated 25 start-ups attained unicorn status (valuation of $1 billion) compared to 12 such cases last year.
“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,” Ashish Dave, CEO at Mirae Asset Venture Investments told ET, a leading Indian financial daily. The company is an investor in BigBasket, ShareChat, Zomato, Ola and others. “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,” he added.
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This window, however, will not remain open indefinitely. The Chinese tech sector is too big and too powerful for the world to ignore for too long and many experts expect some equilibrium to return to the market within two years at the most.
“That is the opportunity for India. It must immediately take steps to improve its regulatory systems and present itself as more welcoming for large private investments,” said a recently retired CEO of a public sector organisation who accepted that despite tremendous improvements over the last seven years, India still remains a difficult place to do business in.
This trend is expected to gather momentum in the months and quarters ahead as global capital, already wary of Chinese President Xi Jinping’s decision to tighten control over the Chinese tech sector, begins to look for alternative investment vehicles. And India, being the world’s third-largest start-up market after China and the US is expected to draw larger investments from the likes of private equity funds and venture capitalists as the pipeline of potential investment targets in China gets choked due to regulatory overkill.
A month ago, the Chinese government announced new policy guidelines for the country’s online education policy barring them from raising money from the public. It also made it mandatory for those that syllabi followed at schools to register themselves as non-profits. Foreign investments in the sector were banned and these companies also had to stop offering programs that required students to attend online classes on weekends and during school vacations.
Then, last week, the authorities unveiled new laws on data protection that have spooked investors further. This is another area where Indian tech start-ups score heavily over their Chinese counterparts. Despite ongoing tensions between the Indian government and foreign technology companies over demand that they store the data of Indian users within the country’s borders, there is no danger in anyone’s mind over such data being used for unauthorised or espionage-related purposes.
The determined clampdown on the Chinese tech sector, probably as a result of the insecurity of the totalitarian state about having to deal with organisations that can replicate the physical reach of the Chinese Communist Party (CCP) with equivalent virtual reach, has already wiped out $580 billion from the valuations of behemoths such as Alibaba, Tencent Holdings, etc.
Softbank CEO Mayaoshi Son, one of the world’s richest men and among the leading tech investors in the world, has openly declared that he is “cautious” about developments in China and that it may take a year or two to stabilise.
His tech-focused SoftBank Vision Fund, which a 23 per cent exposure to Chinese stocks, but since April, that country has accounted for only 11 per cent of fresh investments. Son said he was investing more in tech stocks in other Asian markets. Of this, India makes up among the single largest blocks of investments.