Ahmedabad Stock：But experts suggest that investments from across the border could be subdued this year

Notwithstanding the geo-political tension between India and China and despite India banning over 100 Chinese apps, investments from China into the Indian startup ecosystem picked up in 2021 after hitting a slump in 2020. Investments from Chinese venture capital, private equity, accelerators and incubators  was at $14.13 billion across 268 rounds in 2021, up from $3.95 billion across 225 rounds in 2020, according to data sourced from TracxnAhmedabad Stock. In 2019, Chinese investors had invested $6.68 billion in Indian start-ups across 232 deals.

“Chinese investors cannot afford to stay out of India entirely since the latter is the biggest market outside China for investmentsAhmedabad Investment. Though there is this geopolitical situation, eventually there will be co-existence. For instance, in smartphones there has been similar fluctuations but today 65-70 per cent smartphones sold in India are from China,” Faisal Kawoosa, Founder and Chief Analyst, techARC, told BusinessLine.

This comes even as Indian authorities have been scrutinising companies with Chinese investments. Last year several popular apps including TikTok were banned citing security concerns. Some of the cryptocurrency exchanges with Chinese investors, including WazirX are also being investigated for alleged money laundering activities.

Analysts suggested that the fresh investments coming in are “soft investments” where the control is retained by Indian promoters. The big ticket deals are now being done with investors in the US and UKPune Investment.  Start-up investments from the US grew 264.64 per cent from 2020 to 2021.  Investments from US hit $21.55 billion across 825 rounds in PE-VC deals, up from $5.91 billion in 2020 across 622 rounds. The US had invested around $8.55 billion in 2019 across 577 rounds.

Ashish Sharma, MD & CEO, InnoVen Capital, told BusinessLine, “Until 2019, Chinese investors were very prominent especially in late-stage start-ups. Tencent, Alibaba, Xiaomi were very active. Last year, the amount of funding was almost 3X of what was the run rate in India but Chinese investors were pretty much a side show. There were only a few investments that happened like deals done by Tencent through some other structure outside China. Overall, there weren’t many new investments from Chinese investors. They had only participated in rounds of some of their existing portfolio companies, may be even in the form of convertible debt.”

Investors reckon that funding from China is likely to be subdued in the coming year, while more funding from other geographies would get re-allocated to India.

“Given the geopolitical and macroeconomic factors, we expect fund inflows to increase from almost every foreign region where investors were earlier primarily focused on China. Given the US-China tensions as well as the pending India-China issues, it is possible that the declines from last year continue for some time, creating more of an opening for other foreign investors to reallocate to India,” Nitin Sharma, Partner, Antler India and Global Blockchain Lead, Antler, told BusinessLine.