India overtakes China in late-stage funding; closing in on early, growth stages: Elevation Capital

India is emerging as the main beneficiary of China’s crackdown on new-age technology with the amount of venture capital investments in the country surpassing or nearly matching its neighbor at times. In terms of absolute funding, India overtook China in late-stage funding in 2021 and is starting to overtake China in early and growth stages, according to a report by venture capital firm Elevation Capital.

“India uses an interesting dichotomy that plays out between the US and China. In the first half of the decade, China took market share from the US, and India remained constant. In the second half of the decade, with China’s percentage of global funding declining, the US has regained market share and the market share for India has also increased,” the report said.

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With ample global liquidity and a riskier outlook on China, India is becoming a lucrative investment for global venture capitalists. In the last four quarters (Q4’21 to Q3’22), venture capital investors put a total of $32 billion in rounds in Indian start-ups compared to $31 billion in China. The decline (in China) is mainly driven by late-stage funding drying up in the country, which fell by as much as 82 percent in the first two quarters of 2022 compared to 50 percent in India. According to the report, companies like Byte Dance and Shein are trading at huge discounts to their previous valuations while the average investment check size has also witnessed a decline across all funding rounds.

On a year-on-year basis, India increased its market share from 2016-2021 by more than 2.5x. India’s share of global late-stage funding has increased to around 10.5 per cent in 2022 from 5.7 per cent in 2019.

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In early stage investments, while the US saw a 44 percent decline from Q2-21 to Q2-22, India and China remained relatively stable. The overall sentiment on India’s early stage ecosystem continues to remain strong.

In 2021, for the first time, India surpassed China in new unicorn creation with 47 companies achieving $1 billion valuation or more against 42 unicorns in China. India has seen the emergence of 21 new unicorns so far in 2022 while China’s number is at 7. At the current rate, India is on a path to overtake China by 2024/2025 in the global unicorn share.

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A total of $120 billion has been invested in India in the last 10 years, 50 percent in the last 2.5 years alone. While the 2-year funding average was in the $1.6 billion range at the start of the decade, it has averaged $26 billion over the past 2 years.

The report predicts that India is strongly positioned to navigate this downturn compared to its peers with inflation at a lower rate than many peers in the G-20 (7 percent in India compared to 81 percent in Argentina, 10 percent in the UK and 8.3 percent in the US as of Nov 30, 2022) and the Indian rupee has outperformed most peers with high forex reserves.

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