With deteriorating ties between India and China, Indian startups are looking towards Japanese investors as the COVID-19 pandemic has left them high and dry. Experts wonder if Japan can match China in terms of investment and risk appetite.
With the ongoing lockdown and the fears of raging virus, businesses have resisted opening its operations fully which has led to ploughing back of past profits and earnings. While it is easier for long-established profit-making businesses to survive, though, for a limited period in such a situation, it can prove to be fatal for the startups with little or no profits to fall back on.
In April, the Indian government modified the Foreign Direct Investment (FDI) policy which would require the government’s approval for nations sharing a border with India to invest in the country. Such a move is aimed to curb opportunistic takeover, especially from China, when the country is still in the process of fighting the COVID-19 pandemic.
There is a rising sentiment against Chinese products in India due to the recent border clashes. After the troops of the two neighbouring countries clashed on the LAC in the Galwan valley leaving 20 Indian troops dead and an unknown number of Chinese casualties, people are pledging to boycott Chinese products.
“In the last 12 to 18 months, a lot of Chinese VCs or Chinese companies want to throw money at Indian companies, and that has inflated a lot of deals,” said Chua Kee Lock, CEO of venture capital firm Vertex Holdings. He further added that the decline in Chinese investment due to the new regulations means startup valuations in India will be hit harder than in other countries.
With growing ties between India and Japan, Indian startups are looking to get investors. “Japan, by any stretch of the imagination, is one of the top candidates [to enter India],” said Rakesh Mishra, founder of electric powertrain startup Entuple E-Mobility, during his presentation organised by National Association of Software and Service Companies (NASSCOM) to woo the Japanese investors.
“At this juncture, I won’t be interacting with any Chinese investors,” said Ajit Patil, a co-founder of DeepTek, a Pune-based medical startup. He raised several million dollars in funding from local investors and Japanese medical imaging company Nobori in May.
Toppan Printing, a Japanese commercial printing company joined a $15 million funding round for Medikabazaar, an online shopping site for hospitals making it Toppan’s first investment in an Indian startup.
“Many parts of Southeast Asia and India are ahead of Japan in going digital,” said Hiroshi Eguchi, who leads strategic investments at Toppan. “India is also attractive as a market,” he added.
However, it is difficult to estimate whether Japan will be able to match China in terms of investment and risk appetite. According to Gateway House, a Mumbai-based think tank, 18 of India’s 30 unicorns — private companies with a valuation of at least $1 billion — have a Chinese investor.
Another Japenese fund, SoftBank is one of the biggest investors in Indian companies like Paytm, Oyo and Ola with about $10 billion in investments.
“There are many companies that make large acquisitions but a better approach may be to find success through various investments,” said Takeshi Ebihara, general partner at venture capital firm Rebright Partners, said during the NASSCOM event.
Analysed By Smriti Chaudhary. Invaluable inputs from Nikkei Asian Review