With Flipkart deal, Tencent pads up for bigger bets in India

After treading cautiously, the Chinese social media giant is warming up for bigger bets

Just when investors such as Tiger Global or SoftBank have gone slow on India, Chinese social media giant Tencent has sensed an opportunity, and is willing to make bigger bets. It is leading the $1.5-billion funding round in Flipkart, after it led the $175-million round in Hike messenger. 

To put this in context, Tiger Global participated in only three-four deals in 2016, against 38 investments in 2015. Tencent has also invested in health care start-up Practo Technologies and alternate Android operating system Cynogen, helping both these firms raise $100 million in two rounds. Anand Lunia, partner at early stage venture capital firm India Quotient feels Tencent is now in a great position. “It did not show fear of missing out and also did not show greed of getting in early and cheap. Today, the market offers many reasonably valued and mature opportunities. With 24x7 power and broadband in place, India opportunity is much more certain,’’ he said.  

Tencent is increasing its presence in India at a time when most early investors of the 2010-11 eras are at the end of their investment cycle and it will get good valuations for providing exits, Lunia said. The best time to buy is when others are cautious and valuations are sensible.  

Unlike a Tiger Global, which had taken early bets as a financial investor, Tencent is seen as a strategic investor. “When it invests, it is looking for financial returns, but clearly with a strategic hat,’’ said Anand Prasanna, managing partner at venture capital firm Iron Pillar Fund. 

Tencent is able to see the large opportunity in consumer tech, see that India is where China was years ago and is willing to spend time in understanding the market. “It is a long-term investor. Investors have made money in technology; consumer tech would the next area where they would make money,’’ said Prasanna, based in Shanghai.

Despite the recent deals (Hike and Flipkart), sector insiders see Tencent as a cautious investor. “It is a cautious investor, looking at assets which would be valuable in the long term. I don’t think it is an aggressive investor. It has done four deals in four years,’’ said a venture capitalist (VC). 

Tencent has co-invested or invested alone in over 160 companies in China and elsewhere with a cumulative deal value of a $50 billion, according to Bloomberg data. It enjoys a market cap of $278 billion and had net income of $5.8 billion on revenues of $22.8 billion in FY16. “India is not even one per cent of its investment bet," the VC said.

In WeChat, Tencent has built a great social media and online gaming platform, which is used by over a billion people and is one of the most popular messaging apps. With several unique features, it has built stickiness, and built a system with online gaming and e-commerce which has allowed it to monetise the platform far more than anyone else.

There are obvious synergies investee companies like Hike can explore and learn but there are challenges. There are areas where Tencent will have to enter early. Gaming, for example is largely underdeveloped in India whereas worldwide gaming is a story that develops in parallel with broadband, Lunia said.