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Indian startups begin to shun Chinese investment

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By Nishant Arora

aying heed to Prime Minister Narendra Modi’s call to build a self-reliant India amid the new normal, Indian tech startups have begun to shun Chinese investment as Indian corporates and wealthy individuals, along with investors from other countries, are funding desi companies more than ever.

In 2019, Chinese investors poured $3.9 billion into India, up from $2 billion in 2018. This investment scenario took a turnaround from May last year amid face-offs and skirmishes between Indian and Chinese troops at locations along the Line of Actual Control (LAC) in eastern Ladakh.

India rolled out a new policy last year to block “opportunistic takeovers”, requiring all foreign direct investment (FDI) from neighbouring countries to be directly approved by the government.

As a result, the investment from China in Indian companies fell down to $263 million across 15 deals in the first half of 2020.

The Indian tech startup base has witnessed a steady growth at a scale of 8-10 per cent (year-on-year) with over 1,600 tech startups and a record number of 12 additional unicorns added in 2020 — the highest ever in a single calendar year, according to the latest Nasscom-Zinnov report.

Sensing the atmosphere, homegrown tech startups have started to look around for investments within the country, and their calls have been answered.

In mid-March, the existing investors, along with a few prominent Indians, bought out Chinese venture capital firm Shunwei Capital’s minority stake in Twitter’s homegrown rival Koo’s parent company Bombinate Technologies.

Former India cricketer Javagal Srinath, BookMyShow founder Ashish Hemrajani, Udaan co-founder Sujeet Kumar, Flipkart CEO Kalyan Krishnamurthy and Zerodha founder Nikhil Kamat participated in the round to buy out shares of Shunwei Capital.

Shunwei Capital had held a bit more than 9 per cent in Bombinate Technologies.

Srinath said that he is happy to be backing Koo. “The fact that they are building a platform to bring the voices of Indian language audiences onto the Internet is commendable, and as an Indian, I extend my support to them wholeheartedly,” the former cricketer had said.

Koo, which positions itself as an ‘Aatmanirbhar’ app for India and the world and has over 40 lakh users, had earlier faced criticism for the company’s links to Chinese funding.

The microblogging platform, however, said that it is one of the first companies in India to be proactive in its actions of cleaning up its cap table and has doubled down on its commitment to build an Aatmanirbhar app.

Founded by Mandeep Manocha, Nakul Kumar and Amit Sethi, Cashify is a re-commerce marketplace, which offers an online platform to sell old, or used electronic gadgets, primarily smartphones.

Cashify, which has Chinese investors on board, raised $15 million from New York-based Olympus Capital Asia, a middle-market private equity firm, earlier in March.

According to Manocha, the CEO of Cashify, “We are looking forward to accelerating our investment in the electronics reuse and recycling sector, thereby enabling OEMs and consumers to materially reduce their carbon footprint.”

Arun Pratap, Vice President (finance and accounts), Cashify, told IANS that they have been lucky to have great investors all over the globe who are not in for the short haul and believe in the power of Indian consumers.

“We are more than happy to welcome Indian investors, but it won’t be correct for us to say that we are shying away from the global ones, as they have played a big part in shaping our journey since the inception of Cashify,” Pratap said.

“What is more important to us is making the best use of the funding, be it from our local players or investors from overseas. In the coming days, we plan to forge ahead with these resources by creating new job opportunities for our fellow nationals and truly contribute to the idea of ‘Make in India’ with homegrown innovation and expansion of our technological know-how,” he elaborated.

According to Vishesh Rajaram, Managing Partner, Speciale Invest, which is a seed-stage venture capital firm, they are seeing a steady increase in founders with technical insights coming with vision to create technologies that make India self-sufficient.

A large part of the portfolio founders (in Fund I) are building products and intellectual property stacks to contribute to India becoming self-sufficient across varied technologies.

“To name a few, Agnikul Cosmos is building India’s private launch vehicle, Astrogate Labs is building India’s first optical communication terminals for making communication more accessible in India, while ePlane Co is building electric planes to make transportation more accessible and cheaper for India,” Rajaram told IANS.

Despite a lower number of total startups deals in 2020, seed-stage investments are recovering at a good pace as investor activities at lower ticket sizes have increased in the country.

Seed-stage funding in 2020 recovered to more than 90 per cent of 2019 levels. Early and late-stage investments are also recovering steadily.

On the other hand, media reports claim that nearly 150 investment proposals from China worth more than $2 billion are still stuck in the pipeline.

In such a scenario, raising money from countries other than China, along with Indian investors, is logical and tech startups have started to chart the new funding route.

(Nishant Arora can be reached at [email protected])

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