These FDI changes such as prior approval from the government for investments coming from the countries that India shares a land border with are stricter rules around the concerning foreign investments coming from China.
The data from deals analysis firm Venture intelligence conveyed that Investments from Chinese investors for the period between January to July of this year amounted to $166 million in Indian startups. Compared to $197 million invested last year in the same period. The Chinese investments totalled a whopping $641 million in the Indian startup space in 2019.
Zomato India's homegrown food delivery giant had in January of this year, raised a whopping $150 million from Ant Financial - Affiliate of Alibaba. But at that instance, Zomato received a fraction of the investment - $50 million in the first Trance. However, due to the new FDI norms as well as the current border tension between the countries, the Second Tranche of the equity capital raised was unable to go through.
Siddharth Pai, the founding partner of 3one4 Capital said “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. After the Press Note, 3 announcements was made, a number of these deals got put on the back burner because of the uncertainty generated by it”.
Despite this, there seems to be no slowing down of the excitement about the Indian startup opportunity, the level of eagerness continues to remain high. “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," Siddhart Pai stated.
This halt in the new investments is not just from the Chinese investors, there are startups now who are refraining from Chinese funds, due to the level of regulatory uncertainty. Varun Saxena, the founder of Bolo Indya, an Indian Short-video app, decided to refuse any investment from China until the regulatory situations have clarity on the topic.
“Merely as a result of minority participation from certain Chinese limited partners whose interests in these pooled investment funds are simply passive with no ability to control or direct the operations of the funds, such private equity funds despite not having their origin under any land border country, are also being required to needlessly seek prior government approval before investing in India. In fact, several applications from various private equity and VC funds for seeking clarifications/approval are currently pending with the government,” Varun Kakkar, partner at law firm L&L Partners said.
The threshold for determination of which investments need to go through the approval process has not been clarified due to which several investments have seen a setback, as these investments played a major role in Indian startup funding space over the last few years.