As Relations with China Worsen, VC Funding Targets India
On May 22, 2020, GlobalData revealed that Venture Capital funds for FinTech startups are pouring more in India than in China, throughout Q1 2020. This may be a sign of things to come, as the U.S. forges a stronger relationship with India in a possible attempt to thwart China as a rising global force.
How the India – US Alliance is Impacting FinTech
Coronavirus may have served as a jumping board to exacerbate relations with China and get the public on board, but it was a long time coming. Both the US and India have a vested interest in curbing the growing influence of China in South Asia and the Indian Ocean. Although India’s PM Narendra Modi and President Donald Trump have not yet formalized any new agreements, they seem to be working in unison to elevate their relationship to a new level.
PM Modi recently said, “America loves India, America respects India, and America will always be faithful and loyal friends to the Indian people.”, and called the India-US relationship “the most important partnership of the 21st century.”
For a time, China’s lower wages were paramount for international corporations to take advantage of as China transitioned from the ravages of communism into centrally planned capitalism. However, now that China has sufficiently grown, the combination of its military and economic expansionism sets in on a collision course with Western-aligned interests, further exacerbated by the coronavirus pandemic.
Interestingly enough, China has made numerous headlines involving plans to implement blockchain technology. Nevertheless, China has warned against cryptocurrency use, effectively banning such activity. Now, the Western-aligned global capital is slowly setting its gaze upon India, as venture capitalists for the first time put more money in Indian FinTech startups than in Chinese.
Can India Become the Next China?
Although India has massive structural problems, its substantial 1.3 billion population is also its saving grace. This means that despite having a much lower average IQ than China, such a mass of people contains dozens of millions of high-IQ individuals. This manifests clearly in India’s fintech startup sector, which has overtaken China for Q1 2020 investments.
According to GlobalData Fintech Analyst, Ayushi Tandon, venture capitalists (VC) have picked India as China underwent its COVID-19 crisis:
“The global economic turmoil caused by the COVID-19 pandemic has diminished the investment appetite for fintech startups so far in 2020. In Asia, though there is an overall pullback in VC funding of fintech startups in Q1 2020, India grabbed the top spot as China was hit by the pandemic-induced economic recession.”
In numbers, this translates to:
- Over $330 million in Q1 2020 compared to China’s $270 million.
- 37 Indian deals compared to 26 Chinese deals in the FinTech sector.
Moreover, a large portion of those investments constitutes seed funding in India – payment and lending startups – while China’s investments were mostly centered around scaling of cross-sector startups. For both nations, analytics startups factor the highest number of deals. Nonetheless, when viewing it from a perspective of projected growth, VC funding is more cautious than ever as a predictable outcome of the pandemic.
Do you think India has what it takes to replace China as the next big investment playground? We want to know what you think in the comments section below.