US-headquartered internet giants such as Facebook, Twitter and Amazon, among others, are increasingly evincing interest in the burgeoning startup ecosystem in India, a trend that has gathered steam after Walmart completed the acquisition of Flipkart mid last year.
After Jeff Bezos-led Amazon and ride-hailing giant Uber made quick strides in India in 2013, there had been a lull in terms of investments from American companies in India. However, since late last year, there has been a renewed interest from US strategics.
Facebook recently invested as much as $25 million (about Rs 173 crore) in Meesho, a Bangalore-based social commerce startup backed by Sequoia Capital, SAIF Partners, Bain Capital, Shunwei Capital, DST Partners and RPS Ventures.
The social media giant is reportedly eyeing the regional content space in India and is in preliminary talks with several content startups, including women-focused digital community PopXo, for potential investments.
Twitter, meanwhile, has been in news for a proposed investment in local language social networking app ShareChat at a $600-650 million valuation. The deal, if successful, may see the microblogging site lead the investment.
And, these are not the only ones.
Last week, in its latest bet on India, e-commerce giant Amazon made an equity investment of Rs 51 crore in QDigi, an after-sales support company for electronic products. QDigi is a subsidiary of Quess Corp, a Bengaluru-based listed business services firm.
It is understood that Amazon has already made investments in about eight startups in India to date, including Gurugram-based mobility startup Shuttl, online-only insurance policy provider Acko, lending startup Capital Float, and BankBazaar.com, among others.
According to data available with research firm Venture Intelligence, US strategics have pumped in $422 million in Indian startups across 12 deals in the first half of this calendar year. In 2018, the total amount invested by US strategics stood at $245 million across 14 deals.
A further breakdown of the numbers show that the investment amount was even lower in the years before. In 2017, US companies invested as much as $180 million in Indian startups, while in 2016, the amount stood at a measly $95 million.
“It’s true that American companies had been quiet for a while… but after the Walmart-Flipkart deal in 2018, there has been a significant uptake in interest over the past few months…,” said Arun Natarajan, founder, Venture Intelligence.
And, finally, it’s not about the American strategics alone. The landmark Walmart-Flipkart deal is also prompting US-based venture capitalists to shore up their investments in the country. Take Tiger Global for instance.
In the first half of 2019, Tiger funded 13 Indian companies, compared with eight investments in 2018, said a recent Bloomberg report quoting research by Tracxn Technologies. Its portfolio companies in India include MogliLabs, which owns and operates B2B industrial goods marketplace Moglix, neo-banking startup Open, digital credit ledger startup OkCredit, online video platform The Viral Fever (TVF), and home rental startup NestAway Technologies, among others.
Interestingly, the chase for US strategics to gobble up Indian companies has intensified as they are gearing up to strengthen their existing leadership platforms without losing control.
Sample this: India is currently one of Amazon Prime’s fastest growing markets. Its competitor Netflix is leaving no stones unturned to grab a larger share of the streaming services market.
“We’ve been seeing nice steady increases in engagement with our Indian viewers that we think we can keep building on. Growth in that country is a marathon, so we’re in it for the long haul,” Netflix Chief Content Officer Ted Sarandos was recently quoted as saying in a recent investor call.
US-headquartered Airbnb, too, recently invested $175 million in budget hotel startup Oyo Rooms in April 2019, in a bid to bolster its hotel-booking business ahead of a planned IPO.
According to Venture Intelligence, US-based strategic investors who have so far been most active in India include prominent names such as Qualcomm Ventures, CapitalG, Amazon and Amex Ventures.
It has not been uncommon for western strategics to show interest in India.
This has been evident from the fact that the inflow of Chinese venture capital (VC) funds into the country has already witnessed a robust growth over the past few years, specially when the US strategics were silent.
For Chinese companies, it all started in 2015 with Alibaba investing in Paytm and Didi Chuxing backing Ola. For Tencent, too, that has backed Flipkart and Ola, India has always been among its top market outside its home turf China.
Other Chinese strategics who have been consistently writing cheques and assisting Indian startups in their growth by providing them knowledge and expertise include names such as Fosun Group, Shunwei Capital and Xiaomi, among others.
According to a local media that quoted data available with Tracxn, China’s VC investment into the Indian start-up ecosystem witnessed a significant jump from $668 million in 2016 to $5.6 billion in 2018.
“The domination of Chinese investors on the Indian market is also increasingly prompting US strategics to increase their investments in the country,” said Natarajan.
Echoing the same sentiment, Monish Chatrath, Managing Partner of MGC & KNAV Global Risk Advisory LLP, added: “In recognition of the threat of China’s ability to assert its commercial influence over India and to ring fence the impact of the same on its perceived global dominance on the economic platform, the US has stepped up the gas over the recent 6 to 8 months in terms of investing in India.”
Experts point out that there also a shift in investment strategy for US-headquartered firms – earlier, they preferred to adopt a ‘build strategy’ for India for companies such as Uber and Amazon wherein they created a plan and then hired the whole team for testing and launch.
However, with Chinese strategics setting the trend of picking up stakes in Indian startups across sectors over the past few years, US companies are also increasingly focusing on what is called ‘a grab strategy’, that refers to an acquisition of an established business and recreating it.
“Even as the concept of build versus grab has been a debate for a while now, we see unicorns opting for the latter of late. This helps them launch new products, features or have enabling technology that enhances customer experience quicker than taking one year to build the business,” said Sreedhar Prasad, a former partner with KPMG and Kalaari Capital. “Further, this gives them a competitive advantage where larger players are constantly looking for having a differentiator to grab more space in the customer mind,” he added.
Going forward, experts say the momentum for strategic investments – especially in Internet and ecommerce – are expected to continue as India opens up a large opportunity where most of the new online transacting users already have smartphones. Besides, the speed at which they get transformed to Internet transacting users is expected to increase with the digital infrastructure, and maturity and variety in online payment modes.
“This is a unique opportunity, which is not there in any part of the world where over 100 million new users are slated to come into the e-commerce customer base in the near future,” says Prasad.