Due to the uncertainty over Indian regulators’ outlook towards investment from China, VC/PE investment from both Mainland China and Hong Kong, put together, into Indian companies declined to a third in 2020, compared to 2019.
In contrast, US investment doubled in 2020 as Indian companies preferred investment from the US over Chinese, especially post the Doklam stand-off between India and China.
In 2020, Chinese VC/PE investors invested $952 million into Indian companies as against $3,423 million in 2019 — a drop of nearly 72 per cent. In contrast, investment from the US doubled to $18,421 million in 2020 as against $9,287 million in the previous year, according to Venture Intelligence data.
The number of deals from both China and the US declined in 2020 but in terms of value the investment from the US was much higher, especially due to big-ticket investment in Reliance group companies.
PE-VC investments fell by 8% in January-November
Geopolitical issues
Some of the major VC/PE investments from China in 2020 included companies like Swiggy, Zomato, Flipkart, Khatabook, BigBasket, ECL Finance, Edelweiss Wealth Management, RBL Bank, Anjan Drugs and Chaayos. From the US, the investment was in companies like Jio Platforms, Reliance Retail Ventures, Piramal Glass and Zomato, according to Venture Intelligence.
In 2019, Chinese investors’ dominance was increasing, and a lot of Unicorns were dominated by Chinese investors. “However, this trend changed completely in 2020 — even though they were showing interest to invest — due to the geo-political issues that derailed Chinese VC/PE investment into India,” said Arun Natarajan, Founder, Venture Intelligence.
“We have now become very close to the US. It looks like Chinese investors want to dilute their investment in India and push off, and with the inter-government dynamics, we see this happening in 2021,” he said. Many of the companies that were eyeing Chinese investment would be forced to look at the US, he added.
Morphing consumption patterns
Agreeing with Natarajan, Skanda Jayaraman, Managing Director & Head - Investment Banking, Spark Capital Advisors (India) Pvt Ltd, said 2020 was a year of uncertainty on the regulatory position for minority Chinese investments, with mixed experiences of allowances/disallowances witnessed. This created a window for new investors to India, especially from the US. With Jio also morphing into a farm-to-tech to home player, US investors have taken note of consolidation options for themselves.
The year 2021 is likely to see a similar trend since Covid-19 has actually morphed consumption patterns from physical to digital across categories like education to entertainment, and some of these changes are here to stay. One can hope for a deep PE market emanating from the US to dig its heels deeper into emerging markets (therefore India), thanks to the surplus liquidity that continues to dominate the global capital markets, he said.