VC funding in China drops 26.8 pc in Jan-Oct as India sees surge

Context: As India sees a surge in venture capital (VC)
funding, China saw a steep 26.8 per cent decline in VC funding (by value) in
the January-October period this year. A total of 2,116 venture capital (VC)
funding deals worth $28.2 billion were announced in China during
January-October which represents a year-on-year (YoY) decline of 22.5 per cent
in VC deal volume, whereas the total disclosed funding value fell by 26.8 per
cent. An analysis revealed that from January to October 2023, China witnessed
the announcement of a total of 2,731 VC deals with disclosed funding value of $38.5
billion. The number of VC deals valued more than or equal to $100 million
announced in China decreased from 70 during January-October 2023 to 50 during January-October
2024.

Key points

·      
Overview: The Union Cabinet’s approval of the Rs 1,000 crore
fund marks a decisive step towards positioning India as a leader in the global
space economy.

·      
Venture
capital (VC): Is a type
of private equity financing that provides funds to startups and emerging
businesses in exchange for equity. VC is a key source of funding for new
ventures, and investors are called venture capitalists.

·      
Features of
Venture Capital: Finance
New Ventures - Venture capital is a convenient source of raising finance
for startup and early-stage businesses.

High Risk - These types of investments are very risky in nature. Venture capital
investments involve putting funds by individuals into new ventures who are in
their early stage and carry a lot of uncertainty of succeeding in their
objectives. The return of investments is totally dependent upon the growth rate
of companies. 

Long-Term Investments - Venture capital investments are illiquid in nature. These types of
investment cannot be encashed by investors in the short term. Venture capital
investments are long term investments which can be either in the form of loan
or convertible securities.

Equity Participation - It involves financing of ventures through equity participation. Venture
capitalists make investments in startups by buying their equity capital. These
investors aim at making a large amount of capital gain by selling all the
shares held by them once they become profitable.

Participation In Management - Venture capitalists by doing investment in equity
capital of a company take part in management of the business. They do not
merely provide finance to startup companies, but also provide management
expertise.

·      
Economic
impact: Direct jobs -
Engineering, data analytics, software development, and space manufacturing
sectors.

Indirect jobs - Component manufacturing, logistics, supply chain management, and
professional services.

Bridging the Digital Divide - Satellite internet ensures access to education,
healthcare, and economic opportunities in underserved areas. Promotes social
inclusion by enabling remote regions to participate in the digital economy.

·      
Conclusion: VC investors in India are focused on more traditional
sectors for investment, including fintech, electric vehicles, and consumer
technologies. Strong demographics, a robust economy and a vibrant capital
market are the real drivers behind this optimism.