Indian start-ups see huge inflows from Xiaomi, Shunwei Capital

Illustration by Ajay Mohanty
Amid a growing start-up system and information technology (IT)-based service offerings, Chinese firms Shunwei Capital, Morningside Ventures, Sailing Capital, China-Eurasian Economic Cooperation Fund and Xiaomi are fast emerging as the most active investors in the Indian subcontinent.

Analysts say a fair valuation of Indian start-ups as compared to peers in America and Europe, along with the possibility of larger return on investment, are prompting these entities to infuse multi-billion dollars into Indian start-ups. 

This new interest from Asia’s largest economy in its smaller peer has translated into a higher number of deals, apart from multi-fold rise in investment amounts. Last year, Chinese private equity (PE) players had invested $2.95 billion (Rs215 billion) in various Indian enterprises, more than five times the $579 million (Rs42 billion) invested in 2016. This year, PE entities from China have already put $1.01 billion (Rs73 billion) in various start-ups, according to data from Venture Intelligence. The number of deals closed by Chinese investors has also seen a rising graph over the years. The total number signed in 2017 was 20, from nine the previous year. In the current year, they have already closed 15 deals. 

Among sectors, IT and IT-enabled services have seen the largest amount of inflow, of around $5 billion in the past five years, with 43 deals. The financial services segment was a distant second, with $206 mn from two deals. Other sectors which saw investment from Chinese players have been telecom, education and food & beverages, among others. “Compared to valuations of firms in the US and European region, Indian start-ups are valued at lower levels. Also, the start-up eco-system in India is slowly maturing, which gives the Chinese investors confidence to invest,” said Rajat Tandon, president of the Indian Private Equity and Venture Capital Association.

In the past five years, Shunwei Capital was the most active investor among all Chinese entities, with portfolio companies that include Clip App, KrazyBee, LoanTap, Mech Mocha and Sharechat.  A venture capital (VC) entity started by smartphone maker Xiaomi's founder, Lei Jun, it has been the most active Chinese early-stage investor in Indian start-ups. With a corpus of around $2 billion, it has remained an early-stage investor in India, though it is considered an active growth-stage capital fund house in China.

Morningside Ventures is another active VC firm in India. It invested in online used-phone seller Cashify as a lead investor in June this year, in the latter's $12-million fund raising round. It has also participated in a funding round of $102 million that was put into regional language messaging platform Sharechat last month. Sailing Capital and China-Eurasian Economic Cooperation Fund had infused $50 million last month into Ola, this country's largest cab-hailing service. 

Xiaomi has also been active in Indian  start-ups. Its current portfolio includes  Hungama Digital Media Entertainment, KrazyBee, Samosa Labs, Sharechat and Zest Money. It was lead investor in Mumbai-based digital media entertainment company Hungama, in a $25-million round in 2016 and led a $13.7-million round in Bengaluru-based digital lending platform ZestMoney this August. 

Hyderabad-based social media and chat entertainment platform Samosa Labs has also seen investment from the Chinese smartphone maker this year.

"The trend is likely to sustain in the coming quarters. I think the environment of suspicion with regard to Chinese investment is now over and more of a company-specific thing than a country-specific matter," said an official of a Bengaluru-based VC company.

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