Zomato cut off from Chinese funding in wake of India-China tensions

Zomato cut off from Chinese funding in wake of India-China tensions

The $3bn Indian food delivery start-up Zomato has been cut off from its biggest Chinese investor in the first major example of how Delhi’s new foreign investment laws have hit funding.

In January, Zomato announced it had secured $150m in fresh funding from Ant Financial, the Chinese digital payments giant. But it has been unable to access $100m of that total, according to two people with direct knowledge of the situation.

In April, the Indian government announced that it would block “opportunistic takeovers” by requiring official approval for any investment from a country that shares a land border with India.

In recent years, Indian start-ups have depended on significant funding from Chinese investors, including Tencent and Alibaba, which is Ant Financial’s sister company.

But a wave of anti-China sentiment, particularly following a deadly clash between soldiers from the two countries in the Himalayas, has hurt both Chinese companies operating in India and Indian start-ups with Chinese backers.

Zomato employees in Kolkata made headlines this week when they burnt their T-shirts to protest the violence and Chinese investment in the company.

Ant Financial has invested close to $560m in Zomato, giving it a stake of more than 25 per cent in the company. The investment has been critical as Zomato fights for market share with Swiggy, its main competitor, which is backed by Tencent and Meituan-Dianping, China’s largest food delivery group.

In January, Zomato agreed to buy Uber’s India food delivery business, giving the San Francisco company a 9.99 per cent stake in the combined group.

Close to $100m of the latest tranche of financing from Ant Financial is now going through the government’s approval process. Zomato is “confident” the funds will come through, the people familiar with the situation said. The shortfall has not changed the company’s overall business plan, one person at Zomato said, including a planned initial public offering in 2021. 

But the uncertainty caused by the new regulation comes as Indian start-ups struggle with the economic fallout of the coronavirus pandemic.

Zomato laid off 13 per cent of its workforce in May and Deepinder Goyal, its chief executive, said he expected the number of restaurants to shrink 25 per cent to 40 per cent over the next six to 12 months. Swiggy also laid off more than 1,000 employees. 

Other measures India has taken against China include stalling Chinese imports in customs and banning 59 Chinese mobile phone apps, including TikTok and WeChat.

More than 60 per cent of India’s 30 unicorns — private companies valued at more than $1bn — are funded either by big Chinese technology groups or venture capital funds, according to a March report by Gateway House, a Mumbai-based think-tank. Chinese investors are behind companies including Paytm and Ola.

“There is a lot of sabre-rattling and posturing going on,” said Arvind Singhal, managing director of consultancy Technopak, in New Delhi.

“It is next to impossible for India to disengage with China economically at this time,” said Mr Singhal. “But you have to think like a politician, they have a much bigger constituency to cater to.”

* This article has been amended since original publication to reflect that Meituan-Dianping is an investor in Swiggy

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