Chinese VCs bring what money can’t buy for Startups

Introduction

Chinese investors, particularly those operating in the early- to mid-stage segment, are not only bringing in capital, but have also armed themselves with a suite of services for their portfolio companies in India.

They are connecting portfolio firms to other investors from the world's second-largest economy, making introductions across the board – from manufacturers, design firms, supply chain experts – and exploring go-to-market strategies across geographies.

In short, they are looking to work far more closely than their predecessors have in the past.

“It goes beyond providing just capital to our portfolio companies. The idea is to work with them closely, connect them with the right folks in China, and in other markets…We want to bring our companies here, take portfolio companies from here on informal roadshows, focus on learning on issues of scale, adoption and unit economics, among others,” Benny Chen, managing partner at BAce Capital, told ET.

BAce, which counts Ant Financial as anchor investor in its maiden $120-$150 million fund, has made three investments in India so far — Rapido, Healofy and RoomMe.

The firm, founded by Chen and Kshitij Karundia -- former senior executives at Ant Financial and Alibaba Group, expects to allocate an estimated $80 million in India. The deeper engagement by the venture capital firms come at a time when Chinese strategic investors, such as Alibaba Group or its affiliates, have drastically slowed down their pace of investments in Asia's third-largest economy, having earlier made a string of highprofile bets, such as in Paytm, Snapdeal and Zomato -- often at rich valuations.

China's VC firms have been exploring the Indian startup ecosystem for more than four years now, and while some deals were struck, their initial forays to India were more fact-finding missions, and to understand the nuts-and-bolts, rather than actually committing capital.

“We started looking at emerging markets in 2016, and it took us two years to write our first cheque. If you see the first investment we made in India, it was by bringing in a Chinese strategic investor to invest together. There's a lot more confidence now and we are comfortable leading an investment by ourselves,” a spokesperson of CDH Investments, said.

For investors such as the Beijing-headquartered CDH, India has emerged as a core market.

While its in-country portfolio stands at about four investments, the firm, which manages assets of about $2 billion, is in the process of setting up a $200 million emerging markets fund, of which 80% is likely to be allocated to India.

The past two years has seen a sea change, with VC investors from the Middle Kingdom, pumping in funds into India, and possibly looking to fill the gap left by strategic investors.

According to data collated by Tracxn, Chinese VC firms have poured in $1.31 billion in calendar year 2019 so far, having invested $1.42 billion the year before.

In contrast, in 2017, the same class of investors funnelled in just a shade over $65 million, across 12 transactions.

For BAce Capital, it is about bridging the gap between the ecosystems of both countries.

“We do believe that there are a lot of similarities between the Chinese and Indian startup ecosystems. While China's ecosystem has experienced a different stage of growth, with the internet ecosystem, in particular, more sophisticated, the potential in India is there for all to see. We want to bridge that gap, and grab the opportunities first,” Karundia said.

Source

The Economic Times, 21 November, 2019