Venture capital: After the tech attack in China: Investors are now betting on the big business in India

Bangkok, New York At his first meeting with Softbank boss Masayoshi Son, India’s Prime Minister Narendra Modi didn’t know what to expect: “He didn’t know me well then,” recalls the powerful Japanese technology investor of the encounter in late summer 2014 during Modi’s first Tokyo- Travel as head of government.

But Son apparently quickly made it clear to the guest from India that he would hear from him more often: “I told him that I believe in India’s future and that I want to invest,” said the Softbank founder at an online event earlier this month India’s booming technology sector. “I promised him to invest five billion dollars in India.”

Seven years after Son and Modi first met, Softbank’s investments in the country are not five but 14 billion dollars. In the current year alone, three billion dollars were added.

Softbank managers are forecasting five to ten billion dollars for Indian technology startups in 2022. “I believe in India’s future. I believe in the passion of young entrepreneurs in India, “said Son.” India is going to be great. The country has a bright future. “

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The euphoric words about Asia’s third largest economy are in clear contrast to Softbank’s view of China: “I’m a little worried about what’s going on there,” said Son at the announcement of the latest Softbank quarterly figures with a view to the wave of regulation in China. This has been decimating the value of long-term investments such as the e-commerce group Alibaba since last year. Sons’ Chief Operating Officer Marcelo Claure had already announced in September: “We are becoming more cautious in China.”

150 percent more venture capital than a year ago

Softbank is not the only investor whose focus is shifting to Asia in view of the tough crackdown by the Beijing government: venture capitalists who are looking for new growth hopes in the emerging markets of the continent are increasingly turning to India. With almost 1.4 billion inhabitants, the country is likely to replace China as the most populous country in the world in the coming years.

The co-founder of the Indian IT group Infosys, Nandan Nilekani, said a few weeks ago: “The regulatory changes in China have proven to be an advantage for India, as more and more capital for young companies is now flowing in our direction.”

Investor interest is growing rapidly: By the end of the third quarter, the volume of venture capital deals in India had increased by 150 percent compared to the same period last year – from eight to almost 20 billion dollars, according to data from the analysis service CB Insights. The investment volume grew significantly faster than in China, where there was an increase of 97 percent in the same period.

In absolute terms, China is still well ahead of the competition among the emerging Asian countries – with venture capital inflows of $ 67 billion in the first nine months of the year.

But the Chinese economy is also more than five times the size of India’s. China is also well ahead in terms of the number of Internet users – with more than a billion people online.

In India the number is around 800 million. From the perspective of investors, however, this also shows the greater potential for growth on the subcontinent: After Data from market researcher eMarketer the number of consumers who spend money online in India will increase by eight percent in the next two years. In China, on the other hand, the growth rate will fall to two percent over the same period.

35 new unicorns in India

From the investors’ point of view, the potential is particularly great in the area of ​​fintechs. Venture capitalist Sequoia Capital expects the value of Indian startups in this segment to increase tenfold to $ 500 billion by 2030. “That is really exciting,” said Ishaan Mittal, who is responsible for the investment company’s India business, at a press conference of his portfolio company Razorpay earlier this month.

The payment service provider from the Indian technology metropolis Bangalore became a so-called unicorn last year – a start-up with a valuation of more than one billion dollars.

In the current year India experienced a record increase in this category: According to data from the service provider Tracxn, 35 Indian tech companies have passed the billion mark since the beginning of the year. In China, only 21 new unicorns were added during the same period.

The boom is being driven by numerous venture capitalists who so far have only observed the growth of the Indian technology sector from a distance: more than 200 of them made their first investment on the subcontinent in 2021, reports Tracxn.

US venture capitalist Bessemer Trust announced a new $ 220 million fund in late November to invest specifically in India. The Californian investment company Andreessen Horowitz got involved in India for the first time in October with a stake in the CoinSwitch Kuber crypto exchange.

Indian Parliament in New Delhi

Prime Minister Narendra Modi considers cryptocurrencies to be a danger.

(Foto: imago images/Hindustan Times)

The company, which is also valued at more than one billion dollars, is an example of the fact that lenders are also threatened with regulatory headwinds in India: The government in New Delhi recently shocked Indian crypto investors with the announcement that it would ban all private crypto currencies. A final decision has not yet been made.

IPOs under pressure

Investors also received a warning of being too optimistic about the widely publicized IPO of the payment service provider Paytm, which made India’s largest IPO to date. The price of the company, in which Alibaba and Warren Buffett’s Berkshire Hathaway are involved, slipped at times by more than 25 percent at the start of trading – a sign that the high valuations of Indian start-ups are met with skepticism among investors.

Nevertheless, it is expected that the nine start-up IPOs in India from this year are only the beginning of the IPO wave on the subcontinent: For 2022, observers expect 16 more initial listings – among them heavyweights like the online education provider Byju’s and the Amazon competitor Flipkart, both of which are arguably aiming for a valuation of around 50 billion dollars.

With a successful implementation of the stock exchange plans, the attractiveness of the Indian tech industry could increase even further compared to the Chinese competition: The dispute between the USA and China had recently massively disrupted the IPOs of tech companies from the People’s Republic.

The transport service provider Didi Chuxing announced after less than half a year that it would withdraw from the US stock exchange. The Chinese start-up SenseTime, which specializes in artificial intelligence, recently had to postpone a planned IPO in Hong Kong – after the US imposed an investment ban.

More: A new unicorn every week – that’s how fast India’s start-up scene is rushing away from the competition.

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