China’s tech crackdown could be a short term gain for Indian startups

The Chinese Communist Party-led government has been imposing stringent restrictions on the tech companies in the country for the last few months. As a part of its antitrust crackdown, the government is going hard on influential tech firms in China to break the monopolies. The severe restrictions are related to floating an IPO, marketing practices, and data security among others. The crackdown in China on tech giants could be a silver lining for the Indian tech startups and domestic private equity funds, according to a report in the Business Standard.

However, the PEs are not much optimistic about the shift in the allocation of money by their institutional investors and high net worth individuals (HNIs) from China to India, the report added.

Ed-tech start-ups rejoice

As far as the Indian ed-tech start-ups are concerned, they have been key beneficiaries as global funds that once made big bets on Chinese ed-tech firms now want to curtail their investments. The main reason behind this is the recent Government crackdown on China’s $100 billion ed-tech sectors where firms offering private tutoring and online education were barred from going public, raising foreign investments or making a profit if they offer online school curricula. This could jeopardise the large investments made by Tiger Global and Temasek in the sector and hence, they are looking at increasing their exposure in India, the second most growing ed-tech market in the world.

Tiger Global, Temasek and SoftBank have been upping their game in India in recent times. Just a fortnight ago, all three of them pumped money into Unacademy, in a round led by Temasek to raise $440 million at over $3.4 billion valuations. SoftBank and its partners invested $650 million in Eruditus, leading to the company’s valuation growing from $700 million to $3.2 billion in one year. Temasek also parked $120 million in upGrad, pushing the company closer to the unicorn mark.

Private Equity players are still sceptical

According to home-grown PE players, this surge is temporary and in the long term, it will only benefit foreign investment in China. One instance is that big institutional investors or HNIs who invest in PE funds are not abandoning China and are simply taking a break until the air is cleared, the report said. The returns in China cannot be compared with India, both in terms of cash delivered to investors and absolute returns are 5 times higher in China.

A senior executive at a domestic PE firm has said that they have not seen instances where Chinese investors are being replaced by global players except for companies that have reached the size for going public.