Through Investors' Lens: What Separates Indian and Chinese Start-up Ecosystem Apart from having more availability of capital and serial BIZ Experiencess starting new businesses, Chinese investors are more casual with founders compared with Indians

China and India not only share borders, but are also similar in many more ways. Both the countries boast of old civilizations, and are also comparable in terms of land mass and population.

However, when it comes to the start-up ecosystem, practices are worlds apart. A minute, one may say, but important difference is investors and founders interact in a more casual way in China compared with India, observed Damien Zhang, vice-president at China-based CDH Capital.

"It is a relationship-driven business and thus making personal connection with each other is important for working together," he said while speaking at the recent TiE Global Summit 2019 organised by non-profit, The IndUS BIZ Experiences.

Despite the geopolitical tensions between both the countries, the Indian start-up ecosystem has attracted several Chinese venture capitalists (VCs). A prime example is Alibaba backing Paytm. According to reports, China-based VCs invested over $5 billion in 2018 in India, much more compared with the US and Japan. However, Indian start-up landscape is far behind that of China.

According to the recent Indian Tech Startup Ecosystem Report 2019 by NASSCOM and Zinnov, China leads the global Unicorn—start-ups valued over $1 billion—race with 206 companies followed by US with 203. India has been placed at the third position with 24 Unicorns. The global start-up ecosystem has developed over the recent years with the Asian market reaching new heights. While India has come a long way since the launch of the government's Startup India initiative in 2015, the market is still yet to catch up with China and the US.

Speaking at the TiE Summit, Benny Chen, managing partner at BAce Capital, explained that the approach has to be very different for both the countries as Indian market is very fragmented. He said in terms of fintech, when it was spreading its wings in China, not much disruption was needed by the founders as the infrastructure was already in place and the banking system in China was robust. However, it is different in the Indian market as one may find lower penetration of Internet and smartphones in tier II and III cities which call for a different approach. "I think that the opportunity (in India) is bigger but you have to do a lot of heavy-lifting to overcome those difficulties," said Chen.

Adding to Chen's point, panel moderator Dev Khare, partner at Lightspeed India Partner Advisers, said a start-up in India will need to focus more on the infra level compared with start-ups in China.

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Differences Between The Two Markets

According to Shirley Mao, executive director of strategic investment department, Xiaomi Inc, said several sectors in China are dominated by government-owned large corporation and not many private companies compete, but the case is different for India. "It has private sector combined with the public. It's also really fragmented and things are different from state to state," Mao explained.

Due to differences in maturity levels of the markets, there may be business models which can work in India but not in China, said Mao. Citing an example, she explained that OYO model has led to increased income because it brought in better efficiency but the same model might only bring about 20 per cent business in China because the market is already efficient.

According to the consensus view of the panel, the fragmented market in India will not allow any single player to gain dominance over a sector unlike China, and so the opportunities are more. Explaining further, Mao added that e-commerce and fintech space has a lot of opportunities in India, especially because the market is extremely fragmented than China.

Differences In Culture

According to Zhang, there is a difference in interactions that happen between investors and founders in China compared with India. According to him, Chinese founders do not discuss company strategies with their investors. However, this is different from India where founders seek investors' guidance and discuss their plans with them. Zhang was part of a separate panel discussion at the Summit.

Raising funds, a critical element for start-ups to grow, is relatively easier in China, said Jeffery Yam, executive director at Integrated Capital. He highlighted that Indian BIZ Experiencess are still young so it takes time for investors to get convinced. "This is different from China and the US where there are mostly serial BIZ Experiencess," Yam said.