Indian Startup Ecosystem: Influence of Chinese investments & Impacts of COVID

The Indian startup ecosystem has taken off in the past few years. The availability of funding, the emergence of new technologies, impending domestic demands are some of the critical drivers of this ecosystem. According to Tracxn, 2019 was a champion year that saw a total investment of $14.5 billion, a jump of 37% as compared to 2018, which saw an investment of $10.6 billion. Key highlights of 2019 are captured in the infographics below:

Unicorns – Companies with a valuation of $1 billion +
Soonicorns – Companies that hold potential to become unicorns shortly

Though the number of startups has been on the decline each year, the increasing investments indicate the Indian startup ecosystem is maturing. Ideas that might have fetched funding a few years back have not been able to do so in the last 2-3 years. Investors have now become prudent while investing in startups learning from their cash-burning investments.

Source – Tracxn
Impact of COVID on Funding

With a blockbuster 2019, industry observers predicted the momentum to carry forward in 2020 as well. But the COVID pandemic stuck, and many industries like travel, food came to a standstill. Startups were plagued with liquidity crunch & weak demand, adding to the drying funding landscape. Even deep-pocketed investment funds have been cautious while investing.

According to Tracxn, the funding in Q2 FY 2020 has been around $0.7 billion, a drop of 200% YoY. Companies like Khatabook, Lendingkart, Daily Hunt, Ola Money have been able to raise money in May.

*FY 20 Q3 includes funding till May
Source – Tracxn
Chinese investment in Startups

The ongoing Indo-China faceoff has fueled the voices of boycotting China’s products. But it is essential to understand the Chinese investments in an Indian startup ecosystem. According to a report by a foreign policy think tank, Gateway House Chinese funds and companies have investments in 18 out of the 30 unicorn startups in India. The trend of Chinese investment started in 2015 when Alibaba Group first invested in Paytm. Over the years, Tencent Holdings, Alibaba Group, Fosun, Didi Chuxing, Steadview Capital, and others have steadily increased their portfolio of Indian investments.

Related: Take a look at effect on Indian economy on boycotting chinese products

The infographic below captures Chinese investment in companies operating in different sectors. We can see in at least some of our day-to-day activities a company with Chinese investment has a crucial role to play. So, boycotting Chinese products is a futile effort when your life is surrounded by services that are catered by companies with Chinese investors.

Source – Chinese Investments in India, Gateway House, Internal Research
What’s Next

The call to boycott Chinese products is an excellent marketing gimmick. Still, we all know how deeply we are dependant on Chinese products and services either directly (Oneplus, Xiaomi, Vivo we see you) or indirectly (OYO, Ola, Big Basket, etc.). The government modified the FDI norms for Chinese companies investing in India, to safeguard companies from hostile takeovers. However, industry observers believe that the rules might end up damaging the startup ecosystem in India with fewer Chinese investment. India’s Electric Vehicle supply chain is also heavily dependent on China for battery cells, so isolating China is not a solution. The onus lies on domestic VC funds to provide support to startups at a much larger scale than before.

The pandemic has altered the way we look at businesses. Startups now have an opportunity to look inwards and reinvent their business models. Anti-China rhetoric is suitable for optics but, the economic repercussions run far deeper than what meets the eye. So next time someone guilt trips you for buying Chinese products, you know how to counter them.


This piece was penned by Prasad Antapurkar, a co-author at CaseReads. If you liked the piece, share it with your best friend on WhatsApp.

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