Indian tech startups are eyeing the Chinese to save them by James Crabtree on Feb 28, 2016, 9:58 AM Advertisement
 For anxious Indian startups seeking to raise capital as their country's tech bubble deflates, the investment plans of companies such as China's Cheetah Mobile could hardly come at a better time. "The consensus in China seems to be that India will be the next growth engine for the entire global internet market, because of its population, economic growth and rising internet penetration," says Alex Yao, senior vice president at the Beijing-based group, which makes utility software for Android smartphones. To tap that opportunity, Cheetah is planning a flurry of Indian investments, a process it began last November by leading a Rs880m ($12m) round for GOQii, the wearable fitness device maker founded by Indian entrepreneur Vishal Gondal. Yao says he plans at least 20 more deals over the next two years, as part of efforts to tie-up with local companies that can help the New York-listed Cheetah's wider expansion plans in India. Such statements would have drawn little attention in India for most of last year, as the country's tech scene boomed and record capital flooded in, both from Silicon Valley venture groups and technology investors including SoftBank, the Japanese telecoms company. Yet following a sharp drop-off in Indian deals in the final quarter of last year, industry figures say finding fresh funds has become even tougher in 2016, against the backdrop of a global correction in start-up valuations. For entrepreneurs and investors gathered last week at Surge, a conference for start-up entrepreneurs in the Indian technology capital of Bangalore, the prominence of companies like Cheetah raised a tantalizing prospect: might Chinese companies step in, just as others were drawing back? "It is getting harder to raise funds, that is true, but we have seen new sources of funds before," says Vani Kola, managing director at Kalaari Capital, an India-focused venture group, referring to recent moves by global pension funds and investment managers to begin backing local start-ups. "There are a good number of big Chinese tech players with billions on their balance sheets . . . we know many are looking to India." The idea that China's internet giants could play a larger roll in India took hold last year with the arrival of Alibaba, the ecommerce group. Founder Jack Ma unveiled an aggressive investment strategy, putting $680m into payments group PayTM while also funding the likes of Snapdeal, India's second-largest ecommerce site. 
Alibaba's model of first backing local start-ups rather than launching its own services is one that others have since followed, notably Chinese internet group Tencent, which led a $90m funding round for health technology group Practo last August. More are now weighing deals. Beijing-based search engine Baidu said last month that it was examining investments in three Indian start-ups including restaurant portal Zomato. Chinese smartphone makers such as Xiaomi have also said they plan to take stakes in local companies, as they target growth in India's fast-growing mobile market. "More and more Chinese companies seem to see India as a second China. It isn't something we are planning, but many will want to invest," says Peter Lau, co-founder of OnePlus, a Shenzhen-based manufacturer of high-end mobile handsets looking to expand its own operations in India rather than investing in local start-ups. The hope that Indian start-ups struggling to raise funds could find a Chinese savior may well prove illusory. Chinese companies have so far been choosy over potential deals, with many wary of India's complex business climate and unfamiliar culture. Others face growing problems at home as China's economy slows, potentially limiting plans for big overseas expansion. Even Ma is understood to have cooled on some deals of late, for instance putting on ice long-rumoured plans to buy a stake in Micromax, India's largest domestic smartphone maker by sales. Equally, the Indian start-ups struggling to raise money from other sources are also likely to prove least attractive to Chinese investors as well. "The idea that Chinese companies will swoop in and save bad businesses - that isn't going to happen," says Kola. Still, Yao of Cheetah Mobile says India continues to appeal to Chinese tech groups seeking new international opportunities, attracted both by the market's potential size and its likely rapid growth as the country's online population surpasses 500m in a few years' time. "This is an under-developed market, at least three to five years behind China," he says. "So Chinese companies think we can potentially replicate our successes by investing here, by playing for the long term." This article was written by James Crabtree from The Financial Times and was legally licensed through the NewsCred publisher network. SEE ALSO: Q&A: Why Facebook and Asana's cofounder thinks startups should invest in culture in a downturn, and why Slack isn't a threat
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