Japanese Investors In India And The Billion Dollar Startup Connect

Japanese investors have arrived in India, and in some style. This is clearly evident from the massive investments that have flown from Japan into Indian startups. As per data recorded by Datalabs by Inc42, the investment in Japanese startups stood at $12 Bn as compared to India’s $51 Bn funding inflow between 2014 and H1 2019. In terms of giving a boost to innovation, India stood at a better position with 2,773 unique startups funded as compared to 694 in the Japanese startup ecosystem during the same period. This is about 4x higher than that of Japan.

The Indian startup ecosystem has grown by leaps and bounds in the last decade to be one of the top three startup ecosystems in the world, with more than 39K startups (as of September 2018). The figures and market potential in India have attracted investors in various sectors from across the globe but Japan has emerged as a prominent one.

It has assessed the interest of Japanese investors in the Indian startup ecosystem is increasing over time and the two biggest indicators are the number of funding deals participation and count of unique startups funded by Japanese investors.

In its latest Japanese Investors in India report, DataLabs by Inc42 observed that that the Japanese investor participation in investment rounds of Indian startups has surged over 2x from 19 in 2015 to 34 by the end of 2018. Besides, the count of unique startups with at least one Japanese investor participation in its funding rounds is increasing at a rate of 28% since the year 2015.

While Droom is India’s soonicorn with the highest number of Japanese investors, Flipkart is the unicorn that has received most among funding from investors coming from The Land of The Rising Sun.

Indian startups secured 4,554 funding deals as compared to 1,301 deals in the Japanese ecosystem which is a whooping 3.5x higher. While Japanese startups raised $12 Bn overall between 2014 to H1 2019, in India, Japan’s SoftBank alone has invested $10 Bn in the Indian startup ecosystem.

As per analysis from Datalabs by Inc42, ecommerce (21 deals), enterprise tech (20 deals) and transport tech (14 deals) are the most preferred startup sectors for Japanese investors in India. Of the total funding deals between 2014 and H1 2019, 40% of the funding was poured into these three sectors. The analysis also reflects a bias towards investing in startups based in Tier 1 cities of India.

Various factors such as India’s largely young population, rising income, fastest-growing consumer market, increasing foreign direct investment, rising growth stage ecosystem, government support, and the existing success stories make India a preferred choice for investors.

SoftBank Dominates Japanese Investments In Indian Startups

In the last decade, the Japanese conglomerate’s SoftBank Vision Fund has been the most active investor in the Indian startup ecosystem. Established just two years ago, SoftBank Vision Fund has made bets ranging from ride-hailing to hospitality to ecommerce, coworking and digital payments across the world.

In the consolidated earnings of SoftBank Group Corp for fiscal 2018, the SoftBank Vision Fund has contributed ¥814.6 Bn to SoftBank’s income. The Vision Fund’s gains also grew 270% in FY 2018-19 from a year back.

Since its launch in May 2017, the fund has made large-scale, global investments in a broad range of technology fields spread across IoT, AI, robotics, mobile applications, biotechnology, cloud technology, and fintech. Focussed on driving the world towards the next stage of the so-called ‘Information Revolution’ and investing in innovative technologies and entrepreneurs that will define the future.

SoftBank Vision Fund’s investment philosophy focusses on making large-scale bets in unicorns or soonicorns that typically lead their respective sectors. Besides investments, it is now trying to find synergies between its global portfolio of companies and solve a wider range of problems.

As of March 31, 2019, the total committed capital for SVF stood at $97 Bn. The first Vision Fund changed the global tech investing landscape with massive bets on fast-growing companies spread across sectors.

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The investment strategy of Japan’s biggest investor in India is of great importance to understand the current landscape of the startup ecosystem in the country. The fund also focusses on investing in high growth companies that are either unicorns or soonicorns. The SoftBank Vision Fund looks into three broad aspects before investing — the market opportunity, the business, and the founders.

A common pattern that can be assessed by looking at SoftBank’s funding is that they are skewed towards the startup sectors that are transforming traditional domains such as retail and ecommerce, transportation (Ola), travel and leisure (OYO), etc where the utility of these sectors on the consumer side of these markets serves a huge benefit.

With almost 85% of its $100 Bn spent, Vision Fund I is almost closed to new investments. The fund is keeping about 15% of its capital in reserve for follow-on investments in its existing portfolio companies. However, the failure of WeWork to go public, not so great performance of its portfolio companies such as Uber and Slack, has put the second fund in grave danger.

The challenge for SoftBank and other Japanese investors is largely about finding companies within the focussed sectors that have clear profitability paths.

SoftBank is in the process of beginning investments from the second Vision Fund, with an outlay of $108 Bn. The fund claimed to have received commitments from technology majors such as Apple and Microsoft. Other investors in the fund include the National Investment Corporation of National Bank of Kazakhstan, Standard Chartered Bank, and some undisclosed investors from Taiwan. Further, SoftBank will be investing $38 Bn in the fund along with other committed investors including Foxconn, MUFG, SMFG, and Mizuho, the Japanese conglomerate said in a statement.

For more insights into how investors from Japan 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.

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