Chinese investors have so far invested $263 million in Indian startups in the first half of 2020 across 15 deals, which is less than a quarter of the $1.23 billion they raised in 2019 through 47 deals.

The trend reflects a slower pace of funding from Chinese investors, a very important source of capital for Indian startups. The funding has been impacted by the COVID-19 crisis as well as the change in the foreign direct investment (FDI) policy for Chinese capital into the country announced in April.

Given the tense border situation with China, the prospects of Chinese capital into Indian startups look grim.

“The recent escalation of tensions with China will have economic consequences as well. With clarifications on Press Note 3 (the FDI policy change) still pending, the industry expects a tough stance from the government on the same,” said Siddarth Pai of venture capital firm 3one4 Capital.

"Regardless of this, other measures like social boycotts may become pervasive and act as a deterrent to startups looking at raising funds from China. Founders are reconciling to smaller rounds and lower valuations while adjusting burns to cope with the new normal,” he added.

Indian startups, primarily the unicorns, have seen 15 deals from Chinese investors since January this year; 13 of the deals were recorded until April, according to data from Venture Intelligence, suggesting a slower pace after the change in the FDI policy on April 18.

It’s worth noting that much of the Chinese capital raised this year came via just a few deals by existing investors, and before the coronavirus pandemic and the FDI policy change.

Alibaba poured $150 million into Zomato in January, while Tencent invested nearly $20 million as part of Swiggy’s $150 million round in February. Alibaba also participated in BigBasket’s $60 million round in April, while Tencent joined Khatabook’s $60 million round in May.

“It seems to be an impact of the COVID-19 crisis as well as the FDI policy change,” said Arun Natarajan, founder, Venture Intelligence. “I have heard of term sheets being withdrawn post the announcement on FDI.”

In 2019, Chinese investors had pumped $1.2 billion into Indian startups, slightly lower than the $1.34 billion they invested in 2018 and $1.66 billion in 2017, Venture Intelligence data shows.

Overall, in the last five years, Chinese investors have poured in over $5.7billion into the Indian startup ecosystem.

It’s the Indian unicorns that have attracted the largest cheques from Chinese players such as Alibaba, Tencent, Shunwei Capital, among others.

Apart from Swiggy and Zomato, the other unicorns that have attracted Chinese funding over the years include Ola (Tencent, Sailing Capital), Flipkart (Tencent, TR Capital), Paytm (Alibaba), BYJU’S (Tencent), Delhivery (Fosun Group), among others.

According to a February 2020 report by think tank Gateway House, 18 of India’s 30 unicorns are Chinese-funded.

First Published:Jun 17, 2020 9:15 PM IST