Bleak future for Indian start-ups funded by Chinese investors

According to experts, this will have major impact on new investments by Chinese players in companies, such as Paytm, Ola, BigBasket, Byju’s, Dream11, MakeMyTrip, and Swiggy, when they go for follow-up funding.

Chinese investors, such as Alibaba, Tencent, and Xiaomi, are active in the Indian start-up space, and have collectively invested billions of dollars.

Chinese investment in Indian start-ups is expected to face major hurdles as Sino-India tension escalates.

With both countries locked in a stand-off, India is expected to increase the level of scrutiny of investments coming from China – both directly and indirectly.

 

According to experts and industry insiders, this will have major impact on new investments by Chinese players in companies, such as Paytm, Ola, BigBasket, Byju’s, Dream11, MakeMyTrip, and Swiggy, when they go for follow-up funding.

Chinese investors, such as Alibaba, Tencent, and Xiaomi, are active in the Indian start-up space, and have collectively invested billions of dollars.

“My apprehension is that investments in sensitive sectors may be subject to deeper inspection by the government,” said Atul Pandey, partner at law firm Khaitan & Co.

Analysts said firms and start-ups looking to raise further funding from Chinese investors – both existing and newer ones – may be well advised to look into other alternative sources.

The government had recently made changes to its FDI policy and introduced strict measures to curb opportunistic takeover due to the COVID-19 crises.

It had introduced a pre-clearance mechanism on investments from China.

The government is keenly scrutinising all existing applications involving investments from China (and potentially Hong Kong), said Pandey, who has been regularly interacting with private equity funds and investors from China affected by this move.

Pandey said he has assisted clients in filing necessary applications with the government seeking its approval and has been advising them to adopt a wait-and-watch approach.

Officially, there hasn’t been any change in the Indian stance since Press Note 3 came out in April.

There is no dividing line between the government and private business in China.

If there is Chinese investment in sectors such as media, social media or fintech, they will be in a position to spread disinformation or misuse sensitive data for other purposes.

Therefore, monitoring of such investments is needed, said Amit Bhandari, Fellow, energy and environment studies at foreign…

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