India is the new China

Having devoted much time and effort to China, Silicon Valley VCs are beginning to turn their attention to Asia’s other emerging giant. By Andy Thomson.

Several years back a clutch of Silicon Valley-based venture capitalists first set out on the long journey from Sand Hill Road to discover if the streets of Beijing were equally as paved with gold as their homeland. It wasn’t long before that small bunch of cautious but optimistic pioneers became a stampede. China’s venture capital industry was booming, and there was no way that masters of the VC universe such as Sequoia Capital and Kleiner Perkins would fail to muscle their way to the food trough.

While having a China strategy has since become de rigeur for American early-stage investors, there are some signs that their focus on the country is wavering and that India is starting to creep up the agenda. Last week, Sequoia Capital and Battery Ventures invested a combined $15 million into Travelguru, the Indian online travel portal, in what was billed as “the largest investment in one single round in the consumer internet space in India”. Those two US-based VCs, plus the likes of Westbridge Capital and Matrix Partners, appear to have made India a strategic priority recently.

So what explains this development? Talk of a venture bubble in China has grown louder of late as GPs have flocked to the coastal cities, bidding up prices in their enthusiasm to grab a slice of the action. Meanwhile, regulators have sown confusion with announcements that sometimes appear designed to accelerate the inflow of capital and, at other times, appear just as determined to put the brake on it. In other words, life for VCs in China has got tougher and more complex. Who could blame them for wanting to turn the clock back two or three years to when the land grab was still underway?

Such thinking may well have resulted in the burgeoning popularity of India as a VC investment destination. Turn the clock back in China two or three years, a source at a leading Asian gatekeeper recently told PEO, and you will see the India of today. Having been battered by the dotcom crash, India’s venture industry has struggled to keep pace with that of its Asian neighbour, and observers say an equity gap has developed as many of the original venture investors either disappeared off the map or switched their attention to growth capital. Young Indian businesses seeking a few million dollars have had to tap banks, families and the public markets for their sources of capital – not venture capitalists.

Now, things are beginning to change as US VCs with China operations begin to perceive the opportunity to carry out ‘copycat’ deals in India in areas such as consumer, mobile and pharmaceuticals. As a consequence, the rush into China is expected to become a dash to India. Says the gatekeeping source: “A handful of US VCs have put the flag down in India but there’s a long line of others coming close behind them. In six months’ time, the list of players will be much longer.”