Why are Chinese Moguls Investing in Indian Start-ups?

A lag in start-up deals in China has encouraged the country’s investors to branch out, most of them landing on India as their go-to option for investing their capital. Chinese investors have invested almost US$1 billion in Indian start-ups this year only. Since India’s labor market is easy on the pocket, and the country’s solid economic growth makes it perfect for investment opportunities.

Chinese venture capitalists (VC) such as Shunwei Capital, Tencent Holdings and technology company Xiaomi  have been funding a number of growing Indian enterprises like digital payment provider Paytm, online travel firm MakeMyTrip, health tech start-up Practo and news collector Dailyhunt.

Not only is India the world’s third biggest start-up hub in terms of the number of companies, but it also ranks third in terms of having the most start-ups that are valued at over US$1 billion, making it the perfect playground for venture capitalists. The country is currently housing 32 such companies, with the addition of 15 last year and around 6 so far this year.

Last Year Xiaomi committed to fund 100 Indian start-ups with US$1 billion over a period of five years. Most of these Indian firms deal with businesses that are supplementary to Xiaomi’s main operations. Capitalizing on this important factor it is rapidly expanding its business in the country.

Looking at India’s rapid technological development and the earnings ratio of its substantial younger residents, Ctrip, China’s largest online travel agency, took a 49 per cent stake in MakeMyTrip in April.

Chinese companies’ strategy of opting to fund companies that target rural sectors of the country, which far outnumber the urban areas, has also propelled these investments towards profitable outcomes.

The Start-up India initiative, launched in 2015, also played a role in further encouraging already interested Chinese VCs to claim their stake in the burgeoning Indian start-up ecosystem. It was aimed at applying measures like tax exemption and easy paperwork.

Taking Chinese firms’ insistence on entering the Indian start-up sphere into account, the state-run Industrial and Commercial Bank of China (ICBC) launched an India-specific venture fund for these investors.

This collaboration between Chinese moguls and Indian start-ups has been beneficial for both parties. On the one hand it has given the investors an opportunity to diversify their investments on a global scale and on the other a lot of these start-ups have banked on the technology and no-how of their Chinese investors and built on that with their own knowledge of the Indian market.