Asian VC funds looking for firm Indian footing

Venture capital funds from China, Korea and Japan have been making multiple visits to India in the last few years to meet potential startups to invest in and understand the tech ecosystem in the country.

At least half a dozen such Asian funds are looking to give this constant traveling a rest, as they look to on board Indian VCs to help them lock and manage deals. While a few have already hired at least one Indian VC, many are still looking for the right fit.

One of the early movers to on-board a local VC was the Shanghai-based venture capital fund Fosun RZ, which in 2017 hired Tej Kapoor, who was earlier heading M&A at South African tech conglomerate Naspers Private Ltd.

Japanese fund Rebright Partners, Korean fund Mirae Asset Global and Shunwei Capital too have hired Brij Bhasin, Ashish Dave and Arpit Beri, respectively, in a VC role.

“All of these people are here only because they want to make a commitment to India. This is their way of saying that it is worth someone's full time to look at investments in India,” said Arpit Agarwal, partner at Blume Ventures.

Fosun RZ started to look at Indian startups seriously only after it got Kapoor into its fold. “They wanted someone on the ground before they could start investing here,” Kapoor told The Passage.

To be sure, Asian funds continue to invest in Indian technology startups without having an Indian VC in their team. However, analysts, entrepreneurs and VCs The Passage spoke to said the situation is going to change soon.

According to a Hindu report, Chinese VC funds pumped in over USD 5 billion in 2018, surpassing investments coming into the country from the US and Japan. According to research and analytics platform Tracxn, China’s VC investments in the Indian startup ecosystem have increased to USD 5.6 billion in 2018 compared to USD 3 billion in 2017 and USD 668 million in 2016.

Funds such as CDH, Morningside Ventures and Korean VC fund KIP are actively looking to hire people in the country. While CDH will get an Indian VC on board this year, Morningside Ventures, which has invested in multiple Indian companies, is looking to work with interns for now. Korean Investment Partners is actively looking for a senior Indian investor.

“We are likely to recruit a senior investor locally to head our India operations. We expect the person to be very experienced. If we hire someone with less experience, then the person is going to be trained in China or Korea for at least a year,"said Ping Wang, associate partner at KIP.

Training an investment manager, Wang said, is expensive. "We expect to burn USD 1-2 million to train an investor."

No more one-arm distance

Ashish Sharma, founder and CEO of venture debt fund Innoven Capital, believes though final investment decision might be made outside India, Asian funds do have people on ground to be closer to the market.

“A lot of them are visiting India just to meet some companies and investors to get a feel of the market, and then maybe make one investment. If India becomes a part of their overall strategy, most funds would consider putting somebody on the ground,” Sharma said.

Sharma said these funds might look at either hiring a local resource or transferring someone from their Beijing or Shanghai office to India.

Hanson Hu from Morningside Ventures, who has been visiting India often for the last one year, finally moved to Bengaluru three months ago and works out of WeWork, the co-working space in Bengaluru.

“We are looking at hiring young interns to serve our long-term interest in the India market,” Hanson said.

CDH, Qiming Ventures, KIP, and many others visit India two to three times a year to scout for deals.

Helen Wong, partner at Shanghai-based Qiming Venture Partners, was in New Delhi and Bengaluru last month to meet Indian entrepreneurs. She said most of the meetups happen with the help of other funds who have already invested in a company. Qiming recently invested an undisclosed amount in Bengaluru-based Pratilipi, a portfolio company of Shunwei Capital.

“When we first started coming to India, we visited many of Shunwei’s portfolio companies. We wanted to leverage the network they have in India. Another good source of knowing deal flow in India is getting to know local VCs. Some of our partners have good relationship with VCs working here,” Wong said.

According to Sharma, one has to be closer to the ground to get quality deal flow. “The ones who have already made their investments in India will have to get a local VC anyway for portfolio management, providing guidance and board-level engagement,” he said.

More than deal hunting

Blume’s Agarwal said since most of the Chinese funds invest in Series A, B and C round, they will be able to meet everyone even if they spend a week every month in India.

“No one is going to be able to generate new deal flow or exceptionally new deal flow just by the virtue of being in India. But if you have someone on ground, you can take the time out to meet people and engage with the ecosystem,” Agarwal said.

He believes a lot more things are done when people are not on schedule. “By having a person here, you can go and show your face at multiple places, which otherwise would not have been possible if you are on schedule," he said. According to him, such meetings on an average lead to additional 10-20% deal flow.

Kapoor from Fosun RZ said the fund expected him to help them grow faster in India. “They wanted to take their Indian portfolios to unicorn status. With Delhivery, we were able to do that. The idea was not only to put money, but also help them put more resources into the company,” Kapoor said.

A Bengaluru-based investor who did not wish to reveal his identity said over the next one or two quarters, Asian funds will be extremely active in India.

“It's a good sign for the ecosystem that there are more and more investors backing tech-led solutions. And obviously a couple of them have seen hyper growth, so to speak. It could be seen as a potential win-win collaboration,” the investor said.