Can Indian investors create the next global Unicorn?

Last week the Indian government tweaked the existing FDI rules and restricted the amount of investments coming from China. Reason? To prevent any hostile takeover of the Indian start-ups or by Chinese companies even as the COVID19 has suppressed valuations of most of the companies not only in India, but globally. 

 While the move taken by the Indian government could be debated as a good or bad, let's look at the impact the Chinese investments have had on the Indian start-up ecosystem and whether the Indian or domestic LPs could have done anything better? Do you think Indian LPs are good enough to create the next Unicorn in the country? Do they even have that risk appetite or ability to create a Unicorn? 

 According to industry data, there are about 30 Unicorns in the country and of that 18 are backed by Chinese investors--Ant Financial, Tencent, Baidu, Wanda, Xiaomi, Fosun, and SAIC among several others. Bigbasket, Paytm, Zomato, Byjus, Swiggy, Oyo, and Ola are some of the Chinese backed Unicorns. The rest is by the US. Not a single start-up so far has been able to become a billion-dollar company solely backed by Indian investors. 

 India today is the third-largest start-up ecosystem in the world, and this has been possible primarily because of the billions of dollars of investments pouring in from China and the US since 2013. These investors are also late-stage investors in the companies at times. Many of these investors have written cheques worth a billion-dollar in a single round. However, compared to that, I do not remember any Indian investor making those massive investments. 

 One of the primary reasons why Indian investors have failed to create Unicorns is their low-risk appetite. Indian investors believe in writing small seed and pre-Series cheques for considerable equity with the sole motive of taking a lucrative exit in the next rounds. They are very rarely involved in the growth of the start-up. Besides, the domestic investors do not have that kind of bandwidth compared to that of investors from the US, China, Japan, and Russia. 

Chinese investors in 2014-15 invested around $10 billion in India. To put things into perspective, the total fund size of all the Indian VC firms and accelerators would not even touch half of that investment.  

 Besides, Indian VCs would not bet heavily on any start-up with an innovative idea fearing to write-offs. Compared to this, a Chinese or a Japanese investor is more likely to bet on ideas and future potentials.

The curb of Chinese investments into India also comes in at a time, when COVID19 has created mayhem in the start-up ecosystem with many start-ups laying off their employees to stay afloat. Many of them do not have a runway of more than three months from now. It has also prompted over six dozen start-up founders, venture capitalists and lobby groups in India requesting Prime Minister Narendra Modi to grant them a "robust relief package" to help them fight disruptions caused due to the pandemic. 

One of the ask from India's Prime Minister is to bankroll 50% of their workforce's salaries for six months, provide interest-free loans from banks, waive rent for three months and offer tax benefits among other things.

Please do let me know in the comment section if Indian investors have a low-risk appetite and what could be done to create a robust VC network in India. What kind of risk would you like to take as a VC or an angel investor?