Chinese investors wary of hyped-up Indian startups, look for hidden gems

In a mature ecosystem like China, there are lots of third-party service providers who can help to identify good early-stage startups based on data monitoring and more. Photo credit: Maxpixel.

Chinese investors are finding different ways to discover India. Take the case of ZDream Ventures based in Beijing and Gurgaon.

It was founded in 2015 by two Chinese entrepreneurs, Li Jian and Jason Wang. Li Jian is an experienced hand in India where he was the public affairs manager for Huawei. From negotiating with Indian telecom authorities to resolve security concerns to easing visas for Chinese visitors, he was at the center of building new business relations between the giant neighbors. Later, he headed the Chindia chamber of commerce and set up consultancy firm Draphant to help Chinese enterprises enter the Indian market. ZDream is his latest venture.

His co-founder at ZDream Ventures, Jason Wang, had a different, but equally insightful grounding on the scene in India as chief correspondent in Delhi for China Radio between 2010 and 2013. He later co-founded tech media site GI Gadgets in Beijing.

Compared to China, the startup culture in India is still in a junior status.

Their first investment in India was Gurgaon-based Milkbasket, an interesting play in the grocery delivery space which saw some big flameouts last year, such as the closure of PepperTap. Milkbasket, on the other hand, claimed to have achieved positive unit economics within nine months by choosing to limit itself initially to a few products and growing from one locality to another instead of mass scaling.

“We deliver in clusters of households, so we can deliver a large number of orders at a low cost like a newspaper vendor,” Milkbasket CEO and co-founder Anant Goel had explained to Tech in Asia. It seems like a made-for-India model.

See: 45 hot software product startups from India and their cool ideas

Chinese jugaad for Indian startups

If Milkbasket has been prudent in scaling up by giving itself time to understand the market, so has its investor. ZDream has made only two other investments in India so far. Interestingly, they’re both aimed at gaining insights into the Indian startup scene.

Well-qualified startups are scarce in the Indian market, and most of them are over-funded from our point of view.

One of them is an investment in tech media site Iamwire, while the next one is a deeper play: last week’s acquisition of Gurgaon-based startup data analytics firm Xeler8, which is in the same space as Bangalore-based Tracxn and US-based CB Insights and Mattermark.

Xeler8, founded in 2015, has a database of Indian startups and uses machine learning and a team of analysts to derive insights – such as this one on startup failures in India. The team of 12 Xeler8 analysts will now be part of ZDream.

Wang explains to Tech in Asia the logic behind the acquisition. “To verify the claims made by new founders is a challenge to investors everywhere around the world. But in a mature ecosystem like China, besides founders and investors, there are lots of third-party service providers who can help to identify good early-stage startups based on data monitoring and more,” says Wang. “This is the reason behind our purchase of Xeler8. Besides people’s network and experience, we believe data and artificial intelligence are going to play a much more important role for discovery and decision-making.”

See: Half the work people do can be automated: McKinsey