ShareChat Explores Raising $200 Mn Debt From Chinese Firm Tencent

Indian vernacular social media platform ShareChat is reportedly in talks to raise $200 Mn from Chinese tech giant Tencent through optionally convertible debentures (OCDs). 

According to ET, which first reported the development, the investment is likely to come from a Europe-based entity, in order to circumvent India’s foreign direct investment (FDI) rules. 

Last year, India had amended its FDI rules, stating that investments from companies based in countries that share a land border with India would require prior approval from the Indian government. 

Founded in 2015 by Ankush Sachdeva, Bhanu Pratap Singh and Farid Ahsan, ShareChat also counts China-based companies Shunwei Capital and Xiaomi as investors. Shunwei Capital led ShareChat’s Series C round worth $99.2 Mn in September 2018 while both Shunwei and Xiaomi were lead investors in the company’s Series B round worth $18.2 Mn in January that year. 

The debt investment from Tencent could at a later stage, entail a change in the management structure of ShareChat, since OCDs after a certain period of time, can be converted into equity. 

Notably, Tencent counts several Indian startups such as Flipkart, Ola, Swiggy and BYJU’S in its portfolio.

The company’s financial performance for the fiscal year ended March 31, 2020 (FY20), offers an insight into the high cost of making a social media platform for Bharat. 

While the company’s total revenue increased by 49% year-on-year (YoY) to INR 38.12 Cr, expenses also grew 23%, from INR 581.45 Cr in FY19 to INR 714.13 Cr in FY20. Thus, the company’s net loss also grew 22%, from INR 556 Cr in FY19 to INR 676 Cr in FY20, evidencing the tricky nature of building a new-age social media platform geared towards users from tier 2 and 3 cities and rural areas. 

Last year, ShareChat also launched a short video sharing platform Moj to tap into the demand in the segment after the Chinese app TikTok’s exit.

According to data on Crunchbase, to date, ShareChat has raised $322.8 Mn in nine funding rounds from 15 investors. Its last funding round was a debt financing round worth $60 Mn led by Twitter in December last year. 

Since last year, Indian startups have had to stay clear of raising investments from Chinese firms, after a border-related dispute led to clashes between the armies of both countries in Ladakh’s Galwan Valley in June 2020. 

Indian foodtech unicorn Zomato was looking to raise $150 Mn from Alibaba’s ANT Financial last year, but only received $50 Mn before the Indian government changed its FDI rules in April 2020. The company has since raised funds from Tiger Global and other investors. 

Indian startup unicorns such as Zomato, Swiggy and Dream11 also faced protests from traders’ associations last year, who complained about these companies’ Chinese investors. 

The Indian government also banned over 200 Chinese mobile applications over concerns of data privacy of Indian users.