Incubate Fund Asia raises $50 million to drive startup growth in India and Southeast Asia

Startup growth in India: Incubate Fund, a Japanese venture capital (VC) fund specializing in early stage investments, has announced the first successful close of its third fund with a target corpus of $50 million or approximately Rs 416 crore. This is the third fund by Japanese venture capital in India specializing in early stage investments. To further emphasize its commitment to supporting startups in India and Southeast Asia (SEA), its India-focused entity has been rebranded as Incubate Fund Asia.

There are around 5,396 early-stage startups in India. According to Crunchbase, there have been 8,206 financing rounds that have accumulated $5.1 billion. The funds raised will be used for both initial investments and follow-on investments in startups showing strong fundamental growth, according to a statement.

The fund aims to create a portfolio comprising approximately 20 startups with its third fund, allocating 40 per cent of its total investable corpus to establish the portfolio and the rest to back the most promising companies within it, the investment firm added. risk capital.

Incubate Fund claims to have firmly established itself in India’s dynamic startup investment landscape since 2016, actively taking on a lead investor role by establishing a dedicated fund for Indian startups. With a global presence and offices in key locations such as Tokyo, Singapore, Bengaluru, Mumbai, São Paulo and Mountain View, the company has made notable investments in startups such as Captain Fresh, Yulu, ShopKirana, Plum and others, playing a pivotal role. to guide these startups to market leadership positions in India.

Nao Murakami, Founder and General Partner of Incubate Fund Asia, said: “Our mission is to empower startups and drive innovation across Asia. With the closing of the $50 million target fund, we will be ready to significantly enhance our support to startups, driving sustainable growth and innovation. Incubate Fund Asia remains deeply committed to its vision of fostering innovation and catalyzing the growth of startups, ultimately contributing to the development of a thriving entrepreneurial ecosystem across Asia.” .

In 2019, Incubate Fund launched an $18 million Fund II.

Incubate Fund Asia has supported 27 Indian companies, including companies like ShopKirana and Captain Fresh. Its investments span multiple sectors, including B2B, B2C, supply chain and consumer technology startups, operating in Tier I and Tier II markets. Contributions made by Incubate Fund Asia have helped promote digitalization and business innovation, with the venture capital firm consistently investing between $500,000 and $1.5 million.

‘I am proud to say that ShopKirana was Incubate Fund’s first investment in India in 2016, since then we have raised four rounds and they continue to support us in each of them. They have stuck with us through the ups and downs, always pushing us to do better, giving us full access to their rolodex and much more,” said Sumit Ghorawat, Co-Founder, ShopKirana.

Headquartered in Japan, Incubate Fund has nurtured more than 200 startups in Japan and Asian regions. He expanded to India in 2016 and founded Incubate Fund India, now Incubate Fund Asia. The firm actively engages with startups, offering practical support and mentorship, making them a vital partner for entrepreneurs.

Incubate Fund Asia takes a prominent role as a leading investor by committing a substantial 80 per cent of its funds to Indian startups. This commitment spans multiple sectors, including B2B, B2C, supply chain, and consumer technology markets.

Indian startup ecosystem

Despite the challenging backdrop of the COVID-19 pandemic, the Indian startup ecosystem has demonstrated resilience and optimism by forging ahead with innovation and digitalization. Notably, Indian startups saw a continuous influx of funding starting in 2019, reaching its zenith in 2021, which was dubbed the “Year of Unicorns” as it gave rise to at least 44 unicorn startups. According to Statista, the government will have recognized more than 80,000 new companies by 2022.

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In 2022, the well-established startup hubs of Bengaluru, Delhi and Mumbai continued to dominate the landscape in terms of number of deals. However, an increasing number of investors are recognizing the untapped potential of Tier II and III cities, according to a Statista report. These emerging urban centers offer advantages such as a deep talent pool, lower operating costs, and burgeoning consumer markets. Additionally, startups in these cities are uniquely positioned to address regional challenges. E-commerce, enterprise technology and fintech have led the way in terms of financing deals in recent years.

India’s diverse funding ecosystem spans various sources including angel investors, venture capitalists, crowdfunding and government initiatives.

Navigating a winter of financing

The Indian startup ecosystem has found itself in the midst of a prolonged “funding winter” due to factors such as rising interest rates, inflation, tightening monetary policies and concerns about an impending recession. Both the value and number of financing deals experienced setbacks in 2022, and industry experts predict this trend will persist through 2023. Rising commodity and energy prices have raised operating costs, making it difficult startups to achieve positive cash flows, which subsequently affects investor sentiment. . Foreign investments in Indian startups were notably affected by the global economic slowdown.

Additionally, global investors are grappling with the realization that many previously funded Indian startups were significantly overvalued, leading to reductions in valuations of companies like BYJU’S and Swiggy. The funding shortfall has also spurred mergers, consolidations, mass layoffs and downsizing of operations for several startups, and even some closures, according to a Statista report.

Despite the efforts of the central and state governments, startups continue to face difficulties in accessing capital at various stages of their business journey, especially in the early stages. Cumbersome regulatory processes and compliance requirements present long-term obstacles to a startup’s growth trajectory. The inclusion of foreign investors and non-resident Indians (NRIs) under the ambit of ‘angel tax’ in the Union Budget 2023 has raised concerns among Indian startups, indicating potential challenges in securing future investments.