Chinese Tech Investors Estimate $4 Billion Into Indian Start-ups: Report
Given the vibrant start-up ecosystem in India, new companies will keep emerging and old companies may shut down or be acquired.
Photo Credit : ShutterStock
LambdaTest, a cloud-based testing platform, has announced it has received a Pre-Series A funding of $1 million from Leo Capital, a venture capital firm.
Over the last five years, China has quietly created a significant place for itself in India – in the technology domain. While India has refused to sign on to China's Belt and Road Initiative (BRI), this report shows India's positioning in the virtual BRI to be strategically invaluable for China. Nearly $4 billion in venture investments in start-ups, the online ecosystem and apps have been made by Chinese entities. This is just the beginning; there is more to come.
China quietly has created a significant place for itself in India in the last five years – in the technology domain. Unable to persuade India to sign on to its Belt and Road Initiative (BRI), China has entered the Indian market through venture investments in start-ups and penetrated the online ecosystem with its popular smartphones and their applications (apps).
Chinese tech investors have put an estimated $4 billion into Indian start-ups. Such is their success that over the five years ending March 2020, 18 of India’s 30 unicorns are now Chinese-funded. TikTok, the video app, has 200 million subscribers and has overtaken YouTube in India. Alibaba, Tencent and ByteDance rival the US penetration of Facebook, Amazon and Google in India. Chinese smartphones like Oppo and Xiaomi lead the Indian market with an estimated 72%1 share, leaving Samsung and Apple behind.
Chinese investments in India
Given the vibrant start-up ecosystem in India, new companies will keep emerging and old companies may shut down or be acquired. A database of this has begun to be compiled and will require regular updates. More research is needed to understand and detail the shareholding structure and investors in Indian startups, especially the unicorns.
Preliminary research indicated that the focus of Chinese investments in India is in the start-up space. Primary research involved interviews with experts in venture capital and private equity, including fund managers, investors, and lawyers. This helped them understand the nature of the investments and the issues that could arise. Secondary research involved desk research to create lists of venture capital and private equity deals and their value.
The core challenges faced are – Information that is easily available for publicly listed companies is difficult to access for start-ups and unlisted companies in both India and China.
1. India in the virtual Belt and Road by Amit Bhandari & Aashna Agarwal
China quietly has created a significant place for itself in India in the last five years – in the technology domain. Chinese tech investors have put an estimated $4 billion into Indian start-ups.
There are three reasons for China’s tech depth in India –
First, there are no major Indian venture investors for Indian start-ups. China has taken early advantage of this gap.
Second, China provides the patient capital needed to support the Indian start-ups, which like any other, are loss-making. The trade-off for market share is worthwhile.
Third, for China, the huge Indian market has both retail and strategic value. Therefore, companies like Alibaba and Tencent have different considerations and horizons for their investments.
2. China’s strategic tech depth in India by Amit Bhandari & Aashna Agarwal
In India, China’s tech giant companies and venture capital funds have become the primary vehicle for investments in the country – largely in tech start-ups. This is different from other emerging markets where Chinese investments are mostly in physical infrastructure.
Chinese companies such as Alibaba and Tencent have their own ecosystems, which include online stores, payment gateways, messaging services, etc. Western companies have access to private data too – but there are national and global oversight and more transparency in their systems.
The Chinese government keeps tight control over its media at home. Most of the Western social media apps (Facebook, Twitter) and many of the leading news outlets are banned in China.
The Internet is split into two major camps: the ‘traditional’ open internet dominated by Western companies, Facebook, Amazon, Net ix and Google (FANGS) and the ‘closed’ Chinese internet – almost an intranet – which restricts outsiders and is closely monitored and controlled by the state.
3. Chinese app enticements in India by Blaise Fernandes
While the BJP government focuses on governing border states through a democratic process on its own or through coalitions, the Chinese are blanketing the whole of India, including the border states, through their investments in multiple projects. The last decade has seen heavy investments from Chinese companies into India, over $5 billion in 2018. China’s strategic investments in data-oriented services in India raise concerns, making it critical for India’s security agencies to pay attention to these soft power projects in India. They are prevalent at various levels, particularly in the digital sector in India. The following offer a few examples:
Apps: A substantial 50% of top app downloads (combined iOS and Google Play Downloads) in India in 2018 included apps with Chinese investments, such as Universal Control Browser (UC Browser), SHAREit, TikTok, Vigo Video, etc.
Browsers: UC Browser, owned by Alibaba, has penetrated the Indian market through a series of significant investments, including via Paytm and its parent company; One97 Communications Limited; and Snapdeal, owned by Jasper Infotech Pvt. Ltd.
Streaming services: In 2018, China’s internet behemoth, Tencent, made an investment of $115 million in India-based music streaming service, Gaana, founded in 2010 by Times Media/Times Internet.
India is one of the largest and fastest-growing markets for digital consumers, with 560 million internet subscribers in 2018: this is second only to China. As with the global controversy generated by China’s 5G investments, Chinese investment in India’s digital sector also has data security implications in the following ways:
Data: Chinese apps represent a challenge to the user’s data security as they require vast amounts of personal data; this is usually a bare minimum to provide users access to their interface.
Malware: Chinese apps have always raised suspicions about cyber-espionage attempts and security risks in India.
Search services: UC Browser is the second most utilised browser in India after Chrome, with an estimated market share of 17.09% and a user base of more than 300 million. According to a 2015 report by the University of Toronto, Alibaba’s UC Browser has “several major privacy and security vulnerabilities that would seriously expose users of UC Browser to surveillance and other privacy violations”.