New Chinese investors make their way in to India to fund 150 startups

4th May 2016
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India is dominated by the presence of European and US-based funds. In the last quarter alone, Indian companies raised $1.4 billion in 274 deals and yet there was no noise from Chinese funds, apart from Alibaba’s investment arm garnering all the news about a possible investment in Flipkart. Now the Chinese want to bury the notion that they have not missed the investment boom in India. In fact, they say that it has only just begun. This week a group of 16 Chinese investors met around 150 startups – focussed on consumer, data analytics, e-commerce and technology services – in a closed door session in Bengaluru to seed these companies with growth capital. Some of the well-known startups in the list were Wooplr, the fashion app, and Senseforth – automated data tech – who were in talks with these Chinese investors to raise money. These closed door sessions were organised by Mobile-10X and Onionfans - the Chinese investment and research firm.

These lesser known Chinese VC firms such as Incapital, Harmony Capital, and Grand View Capital are big investors in South Asia. They did not participate in India because they thought startups did not possess significant growth potential. “We should not ignore India now. Especially with the growth it is witnessing. Back in China, investors have been misinformed about the country's potential and India is not in the radar of investment. This why we are here to find out in person about Indian startups and want to be proved wrong,” says Jinbao Xiang, Founder of Incapital, the $ 1.2 billion dollar fund. Incapital invests in several areas ranging from consumer to deep technology businesses.

Sources say that Incapital, Harmony Capital, and Grand View Capital are financed by Shimai Finance and the Open Steel Structure – both large Chinese Investment Corporations – to fund Indian startups in the seed stage and in the stages Series A and B.

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Get rid of the complexities

“India has very completed tax structures and judicial systems. Although I warn many Chinese investors on the risks of contracts not being enforced in India, I also tell them that they cannot ignore the growth in India,” says Yixing Liu, Founder of Denton's, a Chinese law firm. India ranks 174th in the World Bank index for enforcing contracts and China stands ninth in the list. The World Bank numbers also indicate that court arbitration takes less than 500 days in China, whereas in India it takes more than 1,200 days.

"We are confident that there will be easier exit options and protection here from the government," says Yixing of Denton's.

According to KPMG, the Chinese VCs have invested more than $100 billion globally last year in 6,000 deals. In 2014, they invested $88.7 billion in over 7,000 deals. For some odd reason, India began to be taken seriously only last year when Chinese firm Cheetah Mobile began scouting for startups. They began by backing GOQii, the fitness and lifestyle technology company. Sources say they have invested in a few startups since last year.

Opportunities

Today another Chinese company called YeahMobi, the ad network technology platform, has already scouted four startups deals in the country and is inking those deals as we speak.

"It is my mission to convince Chinese investors that there are tech companies in India that can benefit from Chinese Capital," says Jessica Wong, VP of Investments in YeahMobi.

However, the challenges are enormous. Most of these companies will have to operate through their Singapore holdings. The problem at hand is more in the realm of public diplomacy and politics between the two nations. The Chinese investors who YourStory spoke to suggest that they have no idea about India and that they are often misled by state-owned media back home.

Nevertheless, at least 10 of the 150 odd startups will walk off with cheques for growth capital. This meeting of Chinese investors was in closed doors. But they want a streamlined approach to finding their way into India. It was about time they came in because their arrival meant Indian students could benefit from more funding, jobs, and an opportunity to create large companies. Let the "Red Dragon" show you the way.

 

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