Tech-sharing deals put Indian start-ups in fix with China's new controls

There are several Indian companies especially in the edtech, food tech and fintech space such as Paytm, Zomato, Swiggy, BYJU’s, Doubtnut which have backing from Chinese investors
China's new rules governing technology exports might put the spotlight further on Indian start-ups which have significant investments coming in from that country. Many of these deals involve co-sharing of intellectual property (IP) or technology as part of the funding tie-up.

China has now added 23 technologies, including personal information push services based on data analysis, artificial intelligence (AI)-interactive interface, voice recogmition and content recommendation analysis to its list of regulated exports. While it is being seen as a knee-jerk reaction coming from Beijing to safeguard its key IPs from companies such as Bytedance, Huawei and WeChat, experts say the move could affect Indian start-ups that have IP co-creation as part of the investment deal with Chinese venture capital (VC) investors.

“If IP sharing and IP co-creation was part of the deal that came in alongside the investment from China for an Indian start-up, it could become an area of clear dispute. Even though most of the technology development is happening locally in India, if in certain cases Chinese investors come in from a technology prowess perspective, it could affect the company in the long-run,” explains Sanchit Vir Gogia, Founder & CEO, Greyhound Research.

There are several Indian companies especially in the edtech, food tech and fintech space such as Paytm, Zomato, Swiggy, BYJU’s, Doubtnut which have backing from Chinese investors. According to reports, Chinese investors have put in $4 billion in Indian startups over the years which includes over half of the 30 unicorns in the country.

“The new Chinese technology rules might not have a day to day operational effect but the investors might come up with unique ways to control their interests in Indian companies,” says Mahendra Swarup, Founder & Managing Partner at Venture Gurukool Capability Fund, which has three Chinese VCs as co-investors.

As Chinese technology giants such as Tencent, Xiaomi and Alibaba have diversified investments across the world, when you pull one particular string, another yarn ball might unravel somewhere, according to top VCs.

Based on the new regulations, any Chinese company that maybe in discussions with Indian business for a possible takeover and plans to export the technologies covered by the restricted list would have to seek prior approval of the government and go through the licencing procedures, explains Salman Waris, managing partner at TechLegis Advocates and Solicitors.

However, there are very few Indian companies which have or are actually going to acquire Chinese companies. “We haven’t seen many M&A activities between India and China in the past. This move, however, complicates cross border deals to a much larger extent,” says Siddarth Pai, founding partner of early stage VC fund 3one4 Capital.


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