The News

Big U.S. tech investors like Sequoia, Tiger Global, and Y Combinator have touted their ties to India and its young and rapidly digitizing population — but instead fundraising has fallen, valuations have dropped, and IPOs have dried up in the world’s third-largest startup market.

Five Indian VCs who spoke to Semafor say the ecosystem still lacks the capital and infrastructure they thought would come with global tech investors, who had transformed China 10 years ago. One founder said he is relocating to Singapore to tap into a more developed funding scene.

Sequoia India has diversified its purview to include Southeast Asian companies, which now make up a third of the portfolio, while Sequoia China stays in the mainland and Hong Kong.

Y Combinator closed its China office in 2019, and hasn’t opened one in India so far. Its most recent class of companies it’s backing had 12 from India, compared to 21 a year prior. Tiger Global’s overall dealmaking has slowed considerably, and a top partner told investors in February that returns from India have “sucked historically.”

Know More

PitchBook data says $69.5 billion and $136.2 billion were invested in Chinese venture deals in 2022 and 2021, respectively. India recorded $27.5 billion and $38.5 billion in those same years, according to Bain.

Sequoia India pointed to its different partnerships with the Indian government, local programs for young startups and founders, and its PitStop conference as proof of its integration into the scene. Y Combinator said its free online school for entrepreneurs on how to run a startup has nearly 70,000 profiles in India, while Tiger Global did not immediately respond to a request for comment.

Bradley's view

The state of the startup scene in India may reflect a wariness from Western investors, who have faced political challenges when investing overseas. These firms pumped billions into Chinese startups, but then faced Chinese regulators shutting down Alibaba’s first attempt at an IPO, and now are dealing with U.S. lawmakers and lobbyists pushing to ban companies like TikTok and Shein.

In India, that may be why most Western investors have pumped money into well-known, later-stage local startups that already have access to capital, like Sequoia and Tiger Global-backed educational tech firm BYJU or SoftBank investment Oyo, a hotel chain.

“There needs to be more support in the early stages,” said Ruchira Shukla, an India-based investor in startups and venture capital firms for the World Bank’s International Finance Corporation.

Room for Disagreement

Nandan Nilekani, the billionaire co-founder of Infosys, told Semafor that Western investors helped develop the country to the point where local founders could build “business models that are organic to India” instead of recreating e-commerce and ride-hailing companies that were already successful in other markets.

“I believe India now has a well-developed ecosystem of finance and resources for all stages of funding, from angel to IPO,” he said.

The View From Washington

Later this month, U.S. President Joe Biden may announce limits on American investment in Chinese tech companies at the G7 meeting, further isolating mainland founders and pushing venture capitalists desperate for growth elsewhere. India could benefit.

Notable

• While not a Western firm, SoftBank has also pulled back from India, according to Moneycontrol, which found that the firm cut its investment in the country by 84% in 2022 compared to 2021.