Startup Street: Ban Won’t Stop TikTok Parent’s Spending Spree In India

This week on Startup Street, the world’s most valuable startup ByteDance said it will keep investing in the Indian market even as its video sharing app TikTok has been banned for improper content. Private equity and venture capital funding may double in India in a few years time, said an EY report. And India’s startup ecosystem jumped 20 spots to rank 17th worldwide, with Bengaluru just a step away from breaking into the top 10 cities.

Here’s what went on...

ByteDance Plans Big Investment In India

Video sharing app TikTok, which is taking over the world in a storm, has been banned in India. Does that mean the Chinese startup which founded the platform will shift focus from a country which turned its growth engine?

The answer is no.

“We remain committed to our Indian users. As a company, we are looking to invest $1 billion over the next three years in India,” ByteDance Director (international public policy) Helena Lersch told PTI. “We are obviously disappointed by the current developments, but we are also very optimistic that we will resolve this issue.”

From dancing to popular numbers or lip-syncing dialogues from Bollywood movies, Indians are getting on TikTok faster than any other social media platform. The app has seen unprecedented growth in India with more than 120 million users—about 30 million of which use it daily.

But it ran into trouble when the Madras High Court directed the central government to ban TikTok, saying the app exposed children to inappropriate content, including pornography. Regulators then asked Google and Apple Inc. to remove TikTok from their stores. They complied.

While new downloads of the app are no longer available in India, existing users can continue to use it.

ByteDance, the world’s most valuable startup, knows that to lose out on new users in one of its key geographies is a setback. And they are open to rectifying the content on app.

Lersch outlined a two-step approach for content moderation. “First is a tech approach —a machine learning tool that filters content and then it goes to a content moderation team. In India, the team speaks 14 languages,” She said. “I think, it is fundamentally important that the team is based in the country and speaks local languages to make culturally relevant decisions.”

She said about 6 million videos have already been taken off the platform for violating community guidelines.

The second approach involves expanding the team in India and dedicating more resources towards content moderation. The company plans to ramp up headcount to 1,000 employees from 250 by the end of this year. “(About) 25 percent of that will be just content moderation, which means there is full-time moderation staff based in India,” she said.

Lersch declined to comment on court proceedings as the matter is subjudice. The hearing is scheduled for April 22 in the Supreme Court and for April 24 in the Madras High Court.

ByteDance is one of the most successful startups outside China. It boasts of investors such as SoftBank, General Atlantic, KKR, and Sequoia. It has raised about $4.3 billion in funding, the most recent being the $1.3-billion debt financing in April led by Goldman Sachs and Morgan Stanley, according to Crunchbase.

The PE, VC Boom

Private equity and venture capital investments in India’s startup ecosystem can nearly double from the current level by 2025, according to a new EY report.

“This translates to a compounded annual growth rate of 9.2 percent per annum for Indian PE/VC investments during the period 2019-2025,” EY said in its PE/VC Agenda India Trend Book 2019. “As the Indian economy grows, the PE/VC ecosystem will grow faster.”

India received a record $35.8 billion through private equity and venture capital funding, a 37 percent rise. At the same time, their exits also doubled in value to $26 billion in 2018, EY said.

“Exits are expected to remain buoyant, backed by strong capital markets and good M&A interest from both domestic as well as overseas strategic investors,” the report said. “The continuation of this strong exits trend is vital for keeping the limited partners’ enthusiasm about India intact.”

India’s Startup Ecosystem Ranking Jumps 20 Spots

India’s startup economy jumped 20 places, ranking 17th worldwide in 2018, compared to 37th the previous year, according to StartupBlink — a platform that tracks startup ecosystems.

The platform uses an algorithm which tracks several factors such as startup funding, new startups, rules and regulations, accelerators and co-working spaces, among others. It also receives data from Crunchbase SimilarWeb—its global partners. It ranked 100 countries and 1,000 cities in this report.

While there was no change in ranking of the first four countries —the U.S., the U.K., Canada and Israel—India was one of this report’s “happiest surprises”.

“The country is now ranked 17th, a staggering 20-spot increase, as the World Bank dramatically upgrades its ‘Doing Business’ score, supported by a growing entrepreneurial spirit throughout the country,” the report said.

India’s ease of doing business ranking with the World Bank has improved for two straight years now as the government focuses on promoting self-employment, innovation and simplifying the process of setting up new businesses. India now ranks 77th in the list, jumping 23 places last year. Other programmes such as Startup India, Standup India, along with growing global interest in Indian startups, has led to a spur of growth in Indian startups.

City-wise, Bengaluru ranked 11th, New Delhi ranked 18th and Mumbai stood at 29. Chennai jumped 143 spots to 74th, Hyderabad jumped 115 spots to 75th and Pune rose 136 spots to 82nd.

In comparison, China dropped out of the top 20 rankings, falling to the 27th position. The report, however, said its algorithm might not have accurately captured China’s real startup activity.

About the challenges facing India’s ecosytem and the room for improvement, it said India needs to improve the “overall quality of startups, and increase the number of unicorns”.