Moreover, the majority of investments by Chinese investors were in startups that had already figured out product-to-market fit, had raised significant funding, and had often already become market leaders, suggesting that they would have grown with or without Chinese hand-holding.

Going forward, between government clampdowns and calls to #BoycottChina from the public, Indian startups will hesitate to embrace Chinese funding.

“When you combine increased regulatory scrutiny, longer timelines for investment, and in some cases, optics with respect to their own customer base, I think it’s fair to say Indian startups will tread more cautiously for some time,” Rakesh Mohan Joshi, professor and chairperson at the Indian Institute of Foreign Trade, told Entrepreneur magazine.

Even without Chinese money, total funding for Indian startups has had a record-breaking year, thanks to foreign VCs and a small but growing local industry.

Some of the credit for the recent boom goes to the tumult in the Chinese tech landscape. Foreign investors are tapering down China commitments and diverting funds to India—now seen as a more stable investing environment, of the two countries.

China’s funding loss is India’s gain

Since November 2020, the Chinese Communist Party (CCP) has made several moves that have crippled the country’s tech ecosystem, including quashing Ant Group’s $37 billion IPO and instructing the conglomerate to restructure; forcing Alipay to break up; announcing a probe into ride-hailing giant Didi Chuxing two days after its IPO, which caused its share price to plummet 40%; cracking down on gaming, which shaved $60 billion off Tencent’s value; and dealing several blows to the ed-tech industry.

That regulatory blowout cost China’s digital economy—the sector that makes up 40% of the country’s GDP—$1.5 trillion. An inflated real estate sector and a burgeoning energy crisis aren’t helping either.

Indian startups are gaining. For every dollar invested in Chinese tech in the quarter ending in September, $1.50 went into India, according to the Asian Venture Capital Journal.

Japanese investing giant SoftBank’s CEO Masayoshi Son turned “cautious” on China while building the India portofolio, funneling funds into social e-commercy firm Meesho, food-delivery company Swiggy, and others. New York-based Tiger Global, which has been investing in Chinese internet stocks since 2002, has amped up Indian investment activity, too. It backed 25 Indian startups in the first eight months of 2021, up from 11 in 2019 and 2020.

To sustain this momentum, India may need to fix flaws like knee-jerk policy reactions, weak data privacy laws, and overvalued startups, among other things. There is no room for complacency.

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