Chinese investments in Indian startups have fallen this year following changes in foreign direct investment (FDI) rules that made prior government approval mandatory for investments from countries that share a land border with India.
Chinese investors had invested $166 million in Indian startups between January and July, compared with $197 million in the year-ago period, data from deals analysis firm Venture Intelligence showed. Chinese investors had put in a total of $641 million in Indian startups last year.
The drop in investments follows the stricter government rules around foreign investments from neighbouring countries that came into force in April. The change was mainly aimed at restricting investments from China.
The investment head of a large Chinese investor said he will not invest further in India until there is more clarity. He declined to be identified.
“Chinese investors who had been looking at companies in the consumer internet space, as well as some elements of deep tech, wanted to close those deals as soon as possible,” said Siddarth Pai, founding partner of 3one4 Capital. “After the Press Note 3 announcement was made, a number of these deals got put on the backburner because of the uncertainty generated by it,” he said.
However, Pai added that Chinese investors continue to remain excited about the India startup opportunity. “I don’t foresee their enthusiasm going away anytime in the future unless, of course, there are political considerations that come into the picture from either side,” said Pai.
It is not just Chinese investors who have paused new investments. Given the regulatory uncertainty, some startups are saying no to Chinese funds. Varun Saxena, the founder of homegrown short-video app Bolo Indya, said his firm has decided not to take any Chinese investments till the regulatory scenario becomes clearer.
That may, however, not be an easy solution for the startups either. Even American and European investors who are investing in India are facing hurdles because several of them have raised some amount of money from Chinese firms.