Indo-Japan Fund Of Funds Opens Doors For Bigger Japanese Investments In Indian Startups

Japan and India have a decades-long history of friendly trade relations which has also shaped how the two countries startup and investor ecosystems are working together. As we found out in our look at new-age Japanese investors in India, there are many angel investors, VCs and funds that have followed the siren song of Softbank to back startups in India. On the government front too, both countries have courted each other to supplement the unique strengths of each ecosystem.

In May 2018, Japan’s Ministry of Economy, Trade and Industry (METI) and India’s Ministry of Commerce and Industry set up a joint “Japan-India Startup Initiative”, and METI launched the “Japan-India Startup Hub” at the Japan External Trade Organisation (JETRO) Bengaluru, a Japanese public sector company to connect Indian startups and Japanese companies.

And now the initiative is getting a massive investor moment with the “Indo-Japan Emerging Technology & Innovation AIF”, a Fund of VC Funds (FoF), a unique proposition of investing in Indian startups, and managing a portfolio through 15 to 25 dedicated VC funds.

The Indo-Japan Fund of Funds will undertake it first closure around the end of September this year, and is aiming to invest in 200 startups through its massive network of institutional investors, conglomerates and Japanese VCs. The Indo-Japan Fund of Funds will raise monies from both Japanese and Indian investors, with $150 Mn (80%) is being raised from Japan and $37 Mn (20%) from India.

Inc42 has learnt that the targetted Indo-Japan Fund of Funds size is $187 Mn, but the eventual raised amount could be higher. The METI, Reliance Nippon Life Asset Management, TV Mohandas Pai, angel investor and chairman, Aarin Capital Partners and R.K. Mishra (non resident scholar at Carnegie India) have facilitated the participation of investors from both India and Japan.

Combining Japan And India’s Core Strengths

Speaking to Inc42, Keiichi Onozowa, representative of METI for South Asia, said the Indo-Japan Fund of Funds is all about combining the two country’s core strengths. “Japan is strong in hardware and India is strong in software, so we wanted to collaborate and bring more innovation for both markets. The focus of the fund is on emerging technologies, software and hardware to solve manufacturing and enterprise problems, as well as deeptech and automation solutions in IoT and B2B software,” Onozowa added.

RNAM, the Indian asset management company of Nippon Life, will manage the fund. Former Infosys CFO Pai is investing in a personal capacity in the FoF. “India and Japan need to collaborate in high-tech areas. India’s got a young thriving startup ecosystem and Japan is a major industrial power, so there is a lot of opportunity for both countries to work together,” Pai told Inc42.

Onozowa was clear that the primary goal of the Indo-Japan Fund of Funds is to connect investors from Japan to startups in India. But the fund is also looking for investors in India to join the pool.

A METI note about the fund mentions that India Prime Minister Narendra Modi will visit Japan to attend the G20 Osaka Summit on June 28-29, where the fund will be officially welcomed as a symbol of strong bilateral ties between India and Japan. Then in July, five Japanese startups will be visiting India for the Healthtech Startup Delegation Program as part of the “Japan-India Startup Hub”.

The strategic intent of the FoF, is to provide access to large investors to source ideation and technology from startups, as well as to provide a platform for collaboration and strategic investment in startups. While there’s no clear thesis of the Fund of Funds, Onozowa said there are some key sectors that the fund will focus on. “It is not restricted by sector or by B2B or B2C. The primary focus is on fintech, healthcare, consumer, education, IoT, robotics and automation and B2B software.”

“This Fund of Fund will stimulate the Japan-India partnership in digital area, and will expedite participation from Japan to Indian startup ecosystem.” – Keiichi Onozowa, Japan’s METI

Investors In The Indo-Japan Fund of Funds

Onozowa said the Indo-Japan Fund of Funds will sign Letters of Intent with four major Japanese investors, namely, Mizuho Bank, Development Bank of Japan, Nippon Life, and Suzuki, who will participate as lead limited partners in the FoF.

Pai added, “Japan is doing very well in IoT, 3D manufacturing, while India has the engineering talent pool because of its big IT services industry. Today, in the digitisation era, India needs the manufacturing and industrial power that Japan offers, while India has the market in fintech, ecommerce and healthcare to take advantage of this.”

In particular, Suzuki is developing electric mobility and connected car technologies and decided to participate to pursue investment opportunities in this sector. On the other hand, Mizuho Bank is keen to collaborate with the flourishing Indian fintech startup ecosystem. JETRO will also facilitate matchmaking between the investee Indian startups and Japanese companies that are keen to invest in the Indian market.

Ultimately, the Indo-Japan fund is the evolution of the Japanese investor interest in India, which is being driven by Softbank.

The Masayoshi Son-led group has invested around $10 Bn so far in Indian startups. Some of SoftBank’s key investments in India include Ola, OYO, Hike, Paytm, FirstCry, Grofers, Delhivery, Automation Anywhere, and Paytm Mall.

The investment firm has witnessed an 80% year-on-year growth in its operating income for FY 2019. SoftBank had attributed this growth to an unrealised gain of about $12.5 Bn from its investments in ride-hailing company Uber, Indian hospitality company OYO and other portfolio companies.