Is India the new China for start-up investors?

Indian start-ups are on a fundraising roll, driven by venture capitalists spooked by China’s corporate crackdown and seeking an emerging-market alternative

Is this the start of a longer term phenomenon as the Iatent Indian market begins to reach its full potential – or are we entering bubble territory?

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A Zomato delivery rider on a motorcycle in Mumbai, India. Photo: Bloomberg

Published: 12:00pm, 13 Dec 2021

At the start of the Covid-19 pandemic, as India’s case numbers surged, some analysts saw dark days ahead for the country’s booming start-up sector, predicting investor cash would dry up. The doomsters, though, were wrong. Indian start-ups have been on a fundraising roll, helped by venture capitalists scouting for emerging-market alternatives to China where a corporate crackdown has spooked investors.

Investors globally have poured more than US$30 billion into tech start-ups in the first 11 months of 2021, more than double the US$13.1 record set in 2019, according to deal-tracker Venture Capital Intelligence, and there are still December’s numbers to come.

“This year has been a watershed one,” said Pranav Pai, founding partner and chief investment officer at 3one4 Capital, a Bangalore-based early-stage venture-capital firm.

“Globally, investors are very happy, having made serious profits this year,” he said.

India has also seen the birth of 42 unicorns (start-ups valued at over US$1 billion) in 2021. That is close to four a month, compared to the seven that emerged throughout 2020 and six the previous year, market researcher CB Insights pointed out. It brings India’s total unicorn count to 72, the third most after the United States and China.

While India’s tech and finance start-up scene grew rapidly over the past decade, there are several reasons why 2021 has been a breakout fundraising year. India was long a second choice for investors after China. But now it is benefiting from China’s corporate regulatory curbs that are prompting some investors to pivot to different geographies.