Venture capital funding in Indian tech startups has reached record levels in 2021 on the heels of a pandemic that has accelerated the nation’s transition to a digital economy. In the last year, India has birthed over 35 unicorns and the stellar performance of IPOs like Zomato’s and Nykaa’s are a clear indication of the global allure that Indian startups now have.
However, while India’s funding fortunes have thrived, the same can’t be said of China’s. Chinese regulators’ scuppering of Ant Group’s $37 billion IPO signalled the beginning of a wider regulatory crackdown on tech companies involved in a range of sectors from education to delivery services, shaving off billions from the Chinese stock market and spooking investors.
Tech behemoths like Alibaba and Tencent have increasingly fallen on the radar of authorities, and according to some reports, Chinese firms have shed over $1 trillion in valuations over the last few months. Tencent itself lost $388 billion in market value while ride-hailing company Didi’s fortunes also remain unclear despite a blockbuster IPO on the New York Stock Exchange in June.
The divergent paths of Indian and Chinese equities have, as per a report in The Financial Times, been reflected in the level of capital pouring into either country. While so far in the year, Chinese tech firms have raised $14 billion compared to India’s $5 billion, the growth trajectories of fundraising are clearly in India’s favour.
In fact, for every $1 invested in China, Indian tech stocks have absorbed $1.5 this year. Fundraising in Chinese tech startups is expected to drop for the first time in seven years all while that of India’s has spiked to 550%.
Broader investor appreciation of India as a stable market compared to China has now positioned the former as a real alternative funding destination to the mainland. Strong investor appetite for low profit but high growth stocks like Zomato, Ola, Oyo, Nykaa and others have led some analysts to conclude that India’s startup ecosystem may finally be approaching maturity.
What makes India such an attractive investment destination is its population. The country has roughly 375 million born between 1996 and 2010 compared to China’s 250 million. In recent years, internet penetration rates have risen exponentially but there remains ample room for growth. These factors have boosted confidence that richly valued yet loss-making startups like Zomato and PayTM may, ultimately, turn into jewels in India’s crown.
However, others have taken a more cautious approach. There are emerging concerns that huge valuations of these companies could also mean that the market is overheating and heading toward a correction in the coming months and years. The latest flurry of IPOs has also been construed as exit plays by venture capitalist funds.
It also bears mentioning that the average Indian does not have close to the spending power as the average Chinese. A population of 1.4 billion, ultimately, cannot disguise the fact that India’s GDP per capita still lies below $2000 – under a fifth of China’s.
Ultimately, time will tell whether the meteoric rise of Indian startups is sustainable or not. But as it stands, India’s reputation as an investment destination is reaping the rewards of the hard work put in by its growing cohort of tech entrepreneurs.
