Chinese investors betting big on India ‘s Web & mobile. Is that a good news for start-ups?

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Updated: May 29, 2016 10:11:48 AM

Chinese investors are betting big on India’s Web and mobile markets. Will it spell good news for anxious Indian start-ups, seeking to raise fresh capital following a funding slowdown primarily from the West?

 Baidu, China’s largest search engine, also unveiled discussions with Indian e-commerce start-ups, including Zomato, BookMyShow and BigBasket, for investments.(PTI)Baidu, China’s largest search engine, also unveiled discussions with Indian e-commerce start-ups, including Zomato, BookMyShow and BigBasket, for investments.(PTI)

THE PAST one year has been a watershed moment for the start-up ecosystem in India. The country’s online tech space, which has so far been restricted to seeing capital flooding in primarily from the West, is witnessing some aggressive and widespread investments from Chinese companies.

The year 2016 began with China’s online travel company Ctrip buying a stake in homegrown travel portal MakeMyTrip for $180 million. Baidu, China’s largest search engine, also unveiled discussions with Indian e-commerce start-ups, including  Zomato, BookMyShow and BigBasket, for investments.

This comes in the backdrop of Jack Ma-led Alibaba reportedly acquiring a 20% stake in One97 Communications, the parent company of Indian e-tailer Paytm, and announcing heavy funding in India’s leading online marketplace Snapdeal in 2015. Another Chinese Internet giant, Tencent Holdings, led a $90-million funding round for Bengaluru-based healthcare information provider Practo in August last year. India’s largest cab-hailing service Ola, too, reportedly raised about $500 million in a fresh round of funding led by China’s largest taxi-hailing service company, Didi Kuaidi, in September last year.

More recently, the already crowded Indian e-commerce market has been abuzz with Chinese major Alibaba’s plans to enter India and what it would mean for existing entities and the sector. If it does, it could compete head on with Jeff Bezos’ Amazon. The country’s top e-commerce player Flipkart would also need to strategise to stay in the leadership position once Alibaba comes in as an active player. In fact, after investing in Snapdeal and Paytm, Alibaba is now reportedly planning to acquire a stake in Flipkart to further strengthen its foothold in India’s Internet market.
Paytm is also reportedly considering a plan to spin off its online marketplace to allow Alibaba, whose market cap is about $212 billion (at the end of December 2015), to establish a direct presence in the world’s fastest-growing e-commerce market.

Investment by Chinese firms, which was a trickle till not so long ago, is suddenly turning into a deluge. Are Chinese investors finally recognising the huge potential in India’s Web and mobile markets? “India is an important emerging market with strong e-commerce potential and we look forward to partnering with Paytm to deliver innovative products and services to consumers,” Daniel Zhang, chief executive officer of Alibaba Group, was quoted as saying in a statement after announcing its tie-up with Paytm last year.

“We believe both India and China are rapidly developing countries with enormous market potential,” Chinese company Didi Kuaidi had said in a statement about its investment plans in Ola, adding, “Didi Kuaidi looks to engage local industry champions like Ola to share technology and best practices in product development and operational expertise—all honed from deep market-data-driven operations.”

Chinese chequers

For anxious Indian start-ups seeking to raise capital following a funding slowdown, primarily from the West, the investment plans of these companies could have hardly come at a better time.

As per Shashank ND, founder and CEO of Practo, investors around the world, including from China, have been quite bullish about India. “The year 2015 has been a landmark one for investments; 2016 will be the year when the industry will have to deliver on the confidence shown by investors. This is great for the ecosystem, as it is a sign of maturity and a time where real business models will shine through once the dust settles,” he explains.

For Anurag Jain, co-founder of GirnarSoft, which owns and operates auto portal CarDekho, the recent funding spree has also been a lesson in management. “The Indian Internet industry is about seven-eight years behind China. There have been multi-billion-dollar companies in China that have gained momentum in the past decade. Besides access to capital, we got plenty of learning from similar portfolio companies globally,” says Jain.

Jaipur-based GirnarSoft was one of the early risers when Hillhouse Capital, one of China’s largest investment funds, picked up a strategic stake in the company in January last year and took positions in the domestic public markets. “Having Hillhouse onboard helps us draw parallels between both the markets and learn from them. Through Hillhouse, we can connect with many Chinese Internet companies and auto portal counterparts, which helps us in applying insights in the Indian market,” says Jain.

Launched in 2007, GirnarSoft has grown from 650 employees in 2014 to over 2,500 in 2016. “It has attracted talent from large consulting firms and premier institutions like the IIMs and IITs, among others. Together, our portals draw close to 33 million visits per month, with 22 million unique visitors. The group’s vision is to be a multi-billion-dollar company by 2020 with a global footprint,” explains Jain, an IIT-Delhi alumnus.

GirnarSoft resisted offers of buyouts and funding for more than five years after it started. It finally accepted funding from Sequoia Capital in December 2013. “Much of it was pumped into growth—both product development and for building a high-class team. With the addition of marketing and introduction of mobile apps in 2014, traffic trebled and CarDekho became a household word,” says Jain.

A year later, GirnarSoft received $50 million as funding, the largest in the space, and valuation soared to $300 million. Along the way, it also acquired leading competitors, Gaadi.com and Zigwheels, to become the outright leader in the new and used car discovery space. Acquisitions of smaller tech start-ups like Buying IQ and Drishya360 helped beef up technology capabilities of the company. GirnarSoft made further waves when it raised funding from Ratan Tata, chairman emeritus of the Tata Sons conglomerate, and HDFC Bank in February last year.

Rajesh Magow, co-founder and CEO-India of MakeMyTrip, believes there are many similarities in the Indian and Chinese online travel markets and “we expect this strategic relationship between the two market leaders to be mutually beneficial”, he says. “We believe a relationship with Ctrip could offer multiple operational synergies such as expanded international inventory, improved SEM (search engine marketing) and SEO (search engine optimisation), mobile app development and supplier technology. Ctrip has thrived in a hyper-competitive market and, given the similarities between Indian and Chinese markets, this association provides us the opportunity to learn from them,” adds Magow.

The collaboration of the two online travel agency (OTA) leaders from the two fastest-growing economies in the world does speak of great developments in the online travel arena in the future. As far as points of similarities go, both India and China are mobile-first—unlike Europe and the US—and the consumer’s psyches are also similar: the focus is on spending on products offering them ‘value for money’, among other things.

“The online hotel booking category is witnessing great customer traction and is being propelled by smartphone penetration, affordability and choice. We have been making aggressive efforts to strengthen our presence in the hotel booking segment and it is heartening to see that, of the 18% market share contributed by OTAs in this segment, we have emerged as clear leaders, commanding a quarter of the market share. The strategic investment from Ctrip will further enable us to move to the next stage of hyper growth, as we seek to unlock new opportunities in the online travel category,” says Magow.

MakeMyTrip is a dominant leader in online travel, with 47% market share (as per an independent study conducted by travel industry research firm PhocusWright in 2013). It has over 15 million downloads till date.

What next?

Shashank of Practo says the biggest part of its $90-million investment (which it received in September last year) will go towards building the best products that will transform healthcare for consumers around the world. “We plan to add more features and several more categories, including hospitals, diagnostic centres, spas, salons, wellness and fitness centres, among others. We also continue to add top-notch talent to our world-class team of over 2,300 employees. We will recruit a lot of engineers, grow our technology and product teams, and add many more ‘Practeons’, who can help us bring groundbreaking products for a global audience,” he adds.

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