With SoftBank and other investors from Japan opening up opportunities to back Indian startups, the floodgates have opened. As per DataLabs’ latest Japanese Investors in India report, there are over 50+ active Japanese investors who have funded 105 Indian startups and 12 unicorns across 136+ funding deals. And if that feels exciting, there’s a lot more in store!
With over 49K startups (as per September 2018 DataLabs estimates), the Indian startup ecosystem has grown by leaps and bounds in the last six years to become the world’s second-largest startup ecosystem.
The numbers are catching eyeballs, especially from India’s old ally Japan, and like many entrepreneurs, Japanese VCs, angels, and other startup ecosystem investors have quickly recognised the India opportunity. As per analysis by DataLabs by Inc42, in 2018, the value of trade from Japan to India stood at ¥1,236 Bn ($11.62 Bn) compared to ¥585 Bn ($5.50 Bn) worth of trade from India to Japan. The value of trade from Japan to India is growing at a rate of 4%, whereas in the case of India to Japan the recorded growth rate is approximately 1%.
India’s ties with Japan have been ever-cordial with a long and firm relationship based on strong socio-economic support from both countries. A transformational development in this long history was Suzuki Motor Corporation’s path-breaking investment in India in the early 1980s that revolutionised the automobile sector, bringing in advanced technology and management ethics to the country. This paved the way for Japan’s contribution to the Indian economy which now stands at $30.27 Bn or 7.2% of the total FDI inflows in India during 2000-19. The higher growth rate of trade inflow from Japan in comparison to the outflow indicates the rising confidence of the Japanese business community towards the Indian economy.
As Japanese corporations such as Sony, Suzuki, Honda, Toyota, and others have established substantial market share in their respective sectors in the Indian consumer market, this has attracted the inflow of Japanese capital into the burgeoning Indian startup ecosystem.
Another factor is the business culture of Japan, where risk aversion is prevalent and entrepreneurship as a career is not encouraged as wholeheartedly as in India. Thus, finding new ventures or startups to invest in is a difficult challenge for Japanese VCs, angels, and corporations.
In this context, Japanese investors such as Hiro Mashita of M&S Partners, SoftBank, Mistletoe, BEENEXT, Spiral Ventures, and Incubate Fund India among others have backed Indian startups regularly and in big ways. Here’s a look at the most active VCs from Japan, operating in the Indian market.
Most Active Japanese Investors In India
Akatsuki Entertainment Technology (AET) Fund has invested over $50 Mn across 10 Indian startups since its launch in March. Backing startups such as Doubtnut, Planet Superheroes, LBB, and Mech Mocha, AET Fund’s principal partner Yuki Kawamura has said that consumer segments such as vernacular video, vertical media, mobile gaming, and live streaming will be the fund’s key focus areas in India.
Although the bulk of the fund’s investments are in the content and discovery space, it has also invested in B2B ecommerce startup ShopKirana. “We see so many opportunities in content, media and entertainment space in India, we’re considering to start our own business in these verticals as a part of Akatsuki’s operating team, which should have a synergised effect with our portfolio companies,” he added.
The Venture Capital firm by Teruhide Sato has invested over $60 Mn across 12 startups in India. The investment strategy of Beenos is more ecommerce and online payments focused. As per media reports, Sato believes that the things that were happening in China are happening now in India. Sato’s conception is that the people starting and operating startups in India are mostly students or graduates from either the Indian Institute of Technology (IIT) or from Ivy League universities. Excellent engineers are many and they can also speak English, creating trends that meet the market’s needs, and growth speed that outpaces China.
Hiro Mashita, M&S Partners
As the Japanese individual investor with the most amount of investments in the Indian startup ecosystem, Hiro Mashita has dealt with over 50 startups ranging from lending platforms, supply chain companies, digital education to information management sectors and more. A look at his investment pattern reveals that key areas of interest such as fintech, B2B, B2C, and mobile application space.
Japan’s Incubate Fund was set up in India during 2016 by Nao Murakami, a former associate at Nomura Securities as Incubate Fund India. Since then, it has invested in companies like GamingMonk, Kobster, Nimble Wireless, Olly Credit amidst others, thereby focussing on sectors such as ecommerce, real estate tech, and travel tech. The VC has invested over $53 Mn across 10 portfolios.
Incubate’s investment pattern shows that it prefers early-stage deals, as well as Series A, deals as indicated by its investment StayAbode’s Series A round. Further, it has announced plans to raise a $27 Mn worth fund by the end of this calendar year to double down its investments in the country.
Venture capital firm Mistletoe has investments in over 12 startups in India across varied sectors such as gaming, content and health tech. Its portfolio includes the likes of InnerChef, NinjaCart, Gastrotope, Fasal, Healthians and others.
Mistletoe is owned and funded by Taizo Son, the brother of Japanese investment giant SoftBank’s chief executive Masayoshi Son. Reports state how Taizo founded Mistletoe with the idea to radically improve the way city-dwellers live and work.
He envisions lush green cities where people enjoy largely car-free living, travelling about in vehicles underground or in drones overhead. And believes that most people won’t work in offices; instead, they’ll share ideas in cafe settings over steaming lattes. In terms of health, Taizo believes do-it-yourself checkups in futuristic bathrooms will monitor vitals, and robot chefs to whip up healthy, delicious meals.
With the latest fund size of over $108 Bn, SoftBank is one of the most active and the biggest contributors in the Indian startup ecosystem with 13 startups under its portfolio. Synonymous with popular startups like OYO, Delhivery, Paytm, Grofers, Flipkart, Ola, FirstCry and international companies such as Uber and WeWork, the VC has focussed on sectors like travel tech, transport tech, and enterprise tech.
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So What’s Drawing Japanese Investors To India?
Since the 1980s, Japan has believed that its focus should be on areas they’re inherently best at — consumer electronics (hardware), gaming, animation — and discouraged industries, where the country was weaker, no matter the profit potential, they wouldn’t venture. This philosophy is revealed in Japan’s tradition and culture through the concept of “Monozukuri”, the act of making things with a focus on achieving perfection.
One of the major factors for low investment drive among Japanese investors for their domestic market is the difference between the startup ecosystem in Japan compared to any other market like the US, China or India, which encourages private and independent innovation.
Although Japanese VC funds were up 450% in 2016 in terms of returns, investors face the problem of finding new investment opportunities in the Japanese market and have hence turned to India for those lucrative returns given the market conditions.
For more insights into how investors from the Land of The Rising Sun have accessed deals in Indian startups and the opportunity for such investors in India, get your copy of Datalabs by Inc42’s “Japanese Investors In India Report 2019” today.DOWNLOAD THE FULL REPORT Now