A new wave of small Japanese investors is scouting in India for early-stage start-ups they can bet their money on, undeterred by a bearish spell that threatens to upset Tokyo-based Soft-Bank’s biggest wagers in the country.

REAPRA Ventures and Asuka Corporation are the latest Japanese early-stage investors preparing for their India debut, joining Incubate Fund, GREE Ventures, Mistletoe Capital and other funds that have recently started investing in the country.

This fresh infusion of capital likely signals a return of confidence in India’s start-up ecosystem despite a recent battering of some well-known consumer internet companies, although not without a healthy dose of caution.

Unlike SoftBank that invested hundreds of millions of dollars in potential blockbusters such as the now struggling Snapdeal, the new investors from Japan are cherry-picking small start-ups with niche technology that can be exported to other Asian markets. Some of these investors said they were more likely to spare much smaller sums of $1-5 million for companies they decide to back.

“We are not eyeing models like Uber, which are easy to have ideas on, disrupt and scale. We are looking for start-ups that can create business models in complex markets,” said Japanese entrepreneur Shuhei Morofuji, the 39-year-old Founder of REAPRA Ventures who wants to take Indian companies to Southeast Asian markets.

“An example would be start-ups experimenting with experiential travel or trekking within the larger travel market.”

Morofuji, who hosted a dinner for 30 startup founders and investors in New Delhi last month, said India will be a major market for 30 investments planned this year from REAPRA, which will invest about $1million per deal.

REAPRA has invested nearly $30 million in 60 start-ups across Indonesia, the Philippines, Bangladesh, Singapore, Thailand, Korea and Malaysia. Several of the Japanese funds that have entered India in the last two years are expanding their fund allocations for the country and accelerating their pace of deal-making.

Incubate Fund, which has invested in three start-ups including Indore-based ShopKirana since it entered India in 2016, expects to back another dozen companies this year and expand its India fund size to $15-20 million from $5 million.

GREE Ventures has overshot its target corpus of $60 million for its South East Asia Fund from which it invests in Indian start-ups. The fund has made six investments so far, including in Mumbai-based fashion rental start-up Flyrobe. A couple of more deals are in the pipeline for the India market.

“It will be a 50:50 split between Southeast Asia and India from our current fund. We are quite bullish on India,” said Investment Manager Nikhil Kapur.

“We don’t want to get swayed by market buzz words. We don’t mind working against the market; it is challenging but you get the best outcomes also… It is clear in India that customer loyalty is fickle and price sensitivity is the major barrier.”

The fresh capital flow from these funds into India comes at a time when the overall value and volume of investments in domestic early-stage ventures have dropped. The number of venture capital deals fell 21% to 405 in 2016, and the total capital invested fell 28% to $1.4 billion, according to data from Venture Intelligence.

Deals worth $2.39 bn

In 2015 and 2016, 19 Japanese investors participated in domestic start-up investment deals worth about $2.39 billion, show data from researcher Tracxn.

REAPRA Ventures and Asuka had their earliest exposure to India through their investments in the funds of Japanese early-stage investor Beenext, which has been active in India for 4-5 years now.

Beenext, which was earlier known as Beenos, has led a financing round of Rs 200 crore in used cars marketplace Droom along with Japan’s Digital Garage and other investors. It has invested in 10 India companies so far.

Droom and rental start-up NoBroker are heavily funded by Japanese investors.

“We have raised $20 million so far, out of which one-third is from Japanese investors,” said Amit Kumar Agarwal, Chief Executive of NoBroker, which is backed by Beenext and Digital Garage.

One big attraction towards Japanese investors is their ability to forge contacts with other Southeast Asiafocused investors for domestic start-ups.

“Japanese investors value relationships a lot,” said Rajesh Sawhney, who raised $2.5 million from Japanese investors M&S Partners and Mistletoe for his food start-up InnerChef in the final quarter of last year, “and if they like you they will bring other Japanese investors in the next round”.

Source: Economic Times