Chinese Funded Startups Becoming The Victims Of FDI
After the crackdown on Chinese apps, restrictions on investment in 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.
According to the statistic from data analytics firm Venture Intelligence, the Chinese investors had invested $166 million in Indian startups between January and July of 2020 compared with $197 million in the year-ago period Chinese investors had put in a total of $641 million in Indian startups during 2019. The massive drop in the investments follows the stricter government rules around foreign investments FDI from neighbouring countries that came into practice in April. The change was mainly targeted at restricting investments from China after the border dispute.
“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 announcement was made, a number of these deals got put on the back burner because of the uncertainty generated by it, 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 Siddarth Pai, founding partner of 3one4 Capital.
It is not only 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 make the rules clarified. The investors from American and European countries who are investing in India are facing hurdles because several of them have raised some amount of money from Chinese firms. This kind of co-investment strategies are following a backlash in the startups and newborn companies in India