Twitter to lead $100 Mn strategic round in ShareChat with over $50 Mn funds

It's the first time, in its global history, Twitter is in talks with Indian vernacular social media startup to make a capital investment by leading the fresh round.

ShareChat is in talks with Twitter and Hillhouse Capital to onboard them as new investors in the new $100 million round. Twitter is slated to lead the round with over $50 million worth fund infusion in the startup.

Rest of the money is supposed to come from Hillhouse and existing investors Morningside Ventures, Shunwei Capital, and Xiaomi.

This, is one of a kind investment for Twitter, as the micro-blogging website typically uses the acquisition route for expansion, as opposed to strategic investment. It acquired mobile marketing missed call website Zipdial in 2015.

The co-founder, Christopher Isaac Stone invested in Indian healthtech startup Visit, but it was in a personal capacity, and not directly by Twitter.

The reason behind this anomaly taking place is the fact that, in India, the tier I market for social media is mostly saturated. For these large global social media, the next scope for growth lies in the tier - II and III, candidly called, Bharat.

For these next wave of internet users, language and familiarity are as important as getting their hands on the internet.

And ShareChat is already quite popular in that segment. Twitter currently, has a 30-35 million monthly active users and it could leverage the 45 million (claimed) and 20-25 million (reported) monthly active user base of ShareChat that is slated to grow over the coming years for its own penetration in one of the most promising markets in the world. CEO of Twitter, Jack Dorsey, is himself involved in these investment talks, reports ET.

But, one thing that becomes important here is that, for ShareChat to become a worthy investment for Twitter, it will have to overpower the wealthy fast-growing Chinese competitor app Helo that is a mighty ByteDance's product. And it needed a money plant to that.

ShareChat was looking at Tencent for a new round but the last two talks with the Chinese conglomerate fell. The investment by Twitter here hence becomes a sigh of relief. Till now the company has raised $120 million, most of it in last year itself.

One question that still remains to be answered if ShareChat is worthy of strategic investment for Twitter to tap into the largely unrelatable market of tier II and III, why not the regular acquisition route?

The reasons could be multifold. One being the current valuation of ShareChat being around $600-650 million resulting in a huge cost to Twitter. Next, the Bharat market is still in nascent stages and it will take time for Twitter to figure its way through it. Sure, ShareChat will make that process smoother, but not foolproof.

And lastly, the Indian government is bullish on data localisation and India focussed policies, that a lot of times creates hindrances for these foreign investors. Acquiring a majority stake in an Indian company at this high a price while the Bharat strategy still being in nascent stages and being in tight scrutiny of the government makes a little sense. Not to forget, Twitter was also involved in the Cambridge Analytica data breach case.

All in all, while this is a sensible strategic move by Twitter that comes at a crucial time for ShareChat, does it have the potential for growing into the money plant ShareChat needed to fight ByteDance’s Helo?