Incubate Fund is preparing to launch a third fund for Indian startups. The Tokyo-based company aims to put together US$60 million, more than triple the capitalisation of the second fund.
“We’re not slowing down our pace of investment,” said Nao Murakami, a general partner at Incubate Fund who heads Incubate Fund India.
The Indian startups discovered by Incubate Fund provide support for business digitisation, among other pursuits. They receive about US$1 million to US$2 million. The firm will allocate 60% of the capital in the third fund to companies already in its portfolio to support sustainable growth.
Incubate Fund started investing in Indian startups in 2016. “There are areas that are inefficient, so the investment themes are broader than in Japan,” Murakami said.
Incubate Fund backs 25 companies in India. They include ShopKirana, which developed a merchandise procurement app for retailers, and Captain Fresh, a business-to-business platform for trading seafood.
VC firms are reducing investments in startups as central banks engage in monetary tightening. Even in India, startups raised US$17.4 billion in VC funds this year through the end of the third quarter, down 13% on the year, according to CB Insights.
But the attrition has been milder in India compared with other economies. VC funding has plunged 54% in China, 32% in Japan and 26% in the US.
Bolstering growth expectations for India is the country’s burgeoning population. India will be home to over 1.6 billion people by mid-century, according to estimates from the United Nations, up 20% from this year.
In contrast to China and Western countries, which face shrinking populations, India has strong potential to grow sustainably over the long term.
VC capital is especially focused on the digitisation of payments. With India’s government leading the way, the Unified Payments Interface launched on a pilot basis in 2016. The platform lets people use smartphones to execute payments and money transfers between accounts held at different financial institutions. UPI’s transaction volume has swelled rapidly.
The rise of smartphones has helped cashless payments penetrate the farming, fishing and medical sectors. Indian VCs such as Chiratae Ventures foresee fintech becoming a US$1 trillion market in 2030, exploding tenfold from 2021.
The competition is fierce in grabbing a piece of the Indian market, as US consultancy Bain & Co counted 665 India-focused VC funds last year.
It has become crucial for a VC to offer collaborative support or another added value to the financial backing.
Tokyo-based Genesia Ventures, which specialises in investing in Southeast Asian companies, has started to look for targets in India. The firm is considering opening an Indian unit next year.
“The conditions (in India) resemble that of Southeast Asia, so we can apply our experience and know-how,” said Takahiro Suzuki, general partner at Genesia.
Genesia will discover Indian targets by exchanging information with Indian VCs interested in Southeast Asia, and by engaging in joint investment. The company anticipates synergies in India by supporting collaborations with Southeast Asian companies in its portfolio.
Beyond Next Ventures, another Tokyo VC is creating its first India-focused fund. This is in response to the wealth of opportunities in the country’s tech sector, which is concerned with climate change and health care, said Shah Mayur, head of the Indian business development group at the firm.
In India, Beyond Next Ventures has supported Japanese companies in new business development. The firm teamed with Toshiba’s Indian arm to host a contest from June through August that called for new business ideas that would resolve social issues. Winners can collaborate with Japanese companies and gain access to seed money.
India’s government recognises more than 81,000 startups. CB Insights reports that the country has 70 unicorns – startups worth more than US$1 billion – making India the third-largest producer of unicorns behind the US and China.