Why The Indian Tech Startup Ecosystem Has Got The Attention Of Japan’s Leading Investors ?

In the aftermath of the second world war, when the Japanese territory was destroyed in bombing across 67 cities by US forces, the then Prime Minister of India Jawaharlal Nehru gifted an elephant named ‘Indira’ to the Ueno Zoo in Tokyo after receiving a request from school children in Japan. When ‘Indira’ passed away in 1983, Tokyo governor Shunichi Suzuki mourned her death and paid tribute to her role in bringing hope to Japanese children, and playing a role in solidifying the Japan-India friendship for more than 30 years.

The story of ‘Indira’ is a testimony to the deep emotional connection between India and Japan, which has lasted decades even as the two economies have changed. Today both countries are proactively promoting wider interaction on the technological front by enabling interactions between stakeholders of their respective startup ecosystems.

While China and India are two of the fastest-growing economies in the world, Japan had already gone through a technological revolution, way before India and China came into the limelight.

Today, the Japanese economy seems to be on a slowdown track — the 10-year CAGR of the net FDI inflow into the Japanese economy has recorded a negative growth rate (-1%), while the private consumption expenditure is growing at a slow rate of 0.61% (2012 to 2017). With such slowdown in economic activity, Japan has turned to invest in economies with higher growth potential. As investing in a major way in Chinese tech companies is out of the question for Japanese investors due to political and historical concerns, the best possible option for the Japanese investors in Asia is India.

Why The Japanese Investor Are Investing Into India

The rising interest of Japanese investors in terms of investments in startups based in Asia (outside Japan) has been recorded from 2015 onwards. Between 2015 and 2017— the value of investments into startups of other Asian countries had more than doubled from $7 Bn (in 2015) to $16 Bn (in 2017), whereas the growth in the number of deals into startups surged 15% during the same time period. Within this growth, India is a recent entrant, as Japanese investors are joining the bandwagon to invest in Indian startups.

Growing Private Consumption Expenditure

India’s younger population and growing household income are fueling the growth of private consumption — the average growth rate of private consumption expenditure between 2012 and 2017 among BRICS nation is a mere 3% compared to India’s 7.21%.

Private consumption expenditure — calculated as the imputed household expenditures excluding purchases of household dwellings — is a good indicator to assess the growing consumption in an economy. A higher growth rate in private consumption expenditure of an economy is also an indicator of growing demand in an economy.

Startup Ecosystem: India vs Japan

As per DataLabs by Inc42 the year-on-year count of unique startups receiving venture capital investment in the Indian startup ecosystem is growing at a rate of 19% (2014 – 2018), whereas in Japanese startups ecosystem is growing at a rate of 9%.

The higher growth rate indicates higher investor confidence in new opportunities in a startup ecosystem. Therefore it can be said that the new venture opportunity in the Indian startup ecosystem is comparatively higher than Japan.

Overall the positive socio-economic factors along with strong diplomatic relations are two catalysts fueling Japanese investor participation into Indian startups.

More partnerships on the startup ecosystem front such as the partnership agreement between NASSCOM and Hiroshima Prefectural Government to boost innovation into deeptech domains such as AI/ML, robotics etc. will open doors for collaboration on a wider scale.

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