Cross-border investment

Indian e-commerce startups attract Chinese investors

Chinese private equity investors are taking a growing interest in Indian e-commerce startups. Although valuations are reasonable, questions remain about whether they can turn a profit.

Indian social networking and regional content platform ShareChat raised $100 million Series D funding on Friday from a group of Chinese and US investors.

Twitter and Shanghai-based Trust Bridge Partners led the round. They were joined by Shunwei Capital and Morningside Venture Capital from China, India’s SAIF Partners, India Quotient, and Lightspeed Venture Partners from the US.

This is the second investment in the past week that involves a US social media giant and Chinese private equity capital. On August 12, Indian e-commerce site Meesho attracted $125 million Series D fundraising from Naspers, Facebook, SAIF Partners, Sequoia Capital, RPS, Venture Highway. Shunwei Capital also participated in this investment.

Chinese investors are attracted to Indian startups that do business with retail consumers because they feel that the ecosystem in India is somehow similar to that of China.

ShareChat, for example, is a social media platform that allows people to share posts using local dialects. At the end of last year, ShareChat had about 20 million daily active users and a 20% month-on-month growth rate, according to chief executive Ankush Sachdeva.

After this round of fundraising, ShareChat will work closely with Twitter on business development and communication between the management teams.

“ShareChat can become a unicorn company with help from strategic investors Twitter and Chinese investors who understand the content distribution,” said Guo Ruyi, a partner at TH Capital, financial advisor on this deal.

Chinese investors have shown increasing interest in Indian startups this year. According to data from CVSource, Chinese investors participated in 51 investments in India in the first half of 2019. This is up 18% on the same period last year.

Whether Chinese private equity investors can make a good return in India is a frequently asked question. “It is very hard for Chinese investors to make money in the Indian market,” one China-India research firm chief executive told FinanceAsia. “They need to adjust to the Indian local team,” he added.

Given that pricing is very reasonable at the moment, Chinese investors are hoping to generate a better return. Xu Dalai, a Chinese partner at Shunwei Capital (a repeat investor in Indian startups), says that the current ecosystem in India is similar to that of China in 2011. “There is still a lot of cheap traffic volume to be earned,” Xu said earlier this year.

The number of Indian internet users is expected to grow to 628 million by 2025 and boost the online market to $490 billion, according to a report from research firm Draphant. It is a large market that needs to be served, but Chinese investors still need more time to find out how to make a profit.

 

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