Japanese investors exploring India’s startup ecosystem a decade ago sought scale. What they discovered instead was a rare combination of scale and science, a market where innovation was frugal, but matching global standards.
India, today, is not merely an investment destination for Japan’s venture capital community, but a partner in building the next generation of deep-tech, AI, and industrial ventures across Asia.
India has an “unmatched convergence of market readiness, digital infrastructure, and entrepreneurial depth,” according to Nao Murakami, founder and general partner at Incubate Fund Asia, a seed-stage focused fund investing in India and Southeast Asia.
In a conversation with AIM, Murakami outlined five structural pillars that make India exceptional for venture capital: scale, digital access, macroeconomic growth, abundant talent, and active exits.
Yet, what draws investors like Murakami to India is the gaps in the ecosystem in terms of income, supply chains, and efficiency. “Social issues are business opportunities,” Murakami noted, adding that these inefficiencies are “the very reason for India’s next wave of startup creation.”
Japanese Capital Meets India’s Agility
Jay Krishnan, partner at Beyond Next Ventures (BNV), a Tokyo-based early-stage deep-tech venture capital firm, believes the alignment between Japan and India is more philosophical than demographic.
Their India subsidiary, BNVI, actively invests here in startups, while also helping them connect with Japanese corporations and markets.
“Deep-tech by nature demands long-term, systems thinking, it’s not about blitz-scaling; it’s about building enduring advantage through science, process, and precision,” he said.
Krishnan believes India’s founders bring agility, creativity, and access to vast talent and data, while Japan contributes discipline, quality assurance, and long-horizon capital. “You get startups that not only innovate fast, but can commercialise globally with maturity,” he observed.
BNV’s cross-border investments, spanning semiconductors and materials, as well as AI and healthcare, are evidence of this mutuality. Indian founders are increasingly designing from first principles, and Japanese markets offer the ideal proving ground for scale and reliability.
Friendshoring and Long-Horizon Capital
Japan’s surge of interest in India is also tied to geopolitics. As the world re-orders supply chains around the principles of “friendshoring” and economic trust networks, Japan’s institutions are looking outward for scalable innovation ecosystems.
According to Emmanuel Selva Roya, research associate at the Mizuho India-Japan Study Centre, IIM Bangalore, “Japanese venture capital firms are increasingly channelling funds into India’s AI, fintech, mobility, and commerce sectors, viewing India as a high-growth alternative to Japan’s saturated domestic market.”
Japan’s structural challenges, an ageing population, a shrinking workforce, and a risk-averse capital market are accelerating this east-to-west capital flow. As Roya noted, “With over 80% of Japanese startups exiting via small IPOs, companies rarely achieve unicorn scale. That constrains returns and pushes investors to seek scalable, demographically vibrant markets, making India a natural destination”.
The AI Equation
Murakami observed that while Indian AI startups have strong application-layer capabilities, few are yet tackling foundational models, a space that requires heavy capital and a global presence.
“We haven’t evaluated many deep foundational-layer models in India yet, they require hundreds of millions of dollars to grow. But application-layer and AI service companies? That’s where we are doubling down,” he said.
Incubate’s recent focus on companies such as DPD Zero, which uses AI to automate debt collection, reflects that approach. “If there’s a clear market and the technology truly improves efficiency, we invest,” he explained.
This strategy mirrors BNV’s investment logic. Krishnan described AI as an infrastructure layer, not just a buzzword. “We’re not chasing surface-level ‘AI-enabled’ startups; we’re backing deeply technical teams solving infrastructure-level problems in model optimisation, data pipelines, and domain-specific AI applications.”
Their investment in FinalLayer connects India’s engineering talent with Japan’s AI needs.
Deep Tech as the Next Frontier
While commerce and mobility remain key areas for Incubate Fund, Murakami said they are consciously expanding into AI and deep-tech investments.
“We are now testing deep-tech investments, science-led technologies in [areas such as] space, defence, semiconductors, and energy. With India’s ambition to be a developed nation by 2047, these sectors will have huge government and private-sector tailwinds,” he said.
Japan’s industrial legacy makes it a natural collaborator in these areas. Through its Japan-based fund, Incubate has invested in more than 15 space-tech and semiconductor ventures, and intends to bring that network back to India. “Our Japanese portfolio experience and industry connections can help Indian startups grow faster,” Murakami said.
This is precisely the co-creation model Krishnan envisions. Japan’s corporations, he argued, face specific challenges, including ageing populations and manufacturing optimisation, adding that India offers the software talent and speed of iteration to solve them.
“If the last decade was about capital flows, the next one will be about knowledge, technology, and trust moving between India and Japan to build truly global deep-tech enterprises,” he said.
Institutional Bridges and Policy Catalysts
This private-sector momentum is reinforced by policy alignment. The Japan-India Digital Partnership 2.0 and the India-Japan AI Cooperation Initiative, both signed in 2025, have cemented government-to-government cooperation on startup exchange, R&D, and venture facilitation.
Roya points out that Japan’s ¥10 trillion ($68 billion) investment commitment for 2025–2035 prioritises AI, semiconductors, and clean tech, cementing long-term alignment in IT and deep-tech collaboration.
He argues this policy push reflects a deeper self-realisation, i.e., “Japan’s closed innovation system and demographic limits constrain future growth. By aligning with India, a global tech power with compatible democratic and economic frameworks, Japan gains strategic depth and innovation diversity”.
Murakami agrees that the state-level corridor is now mature, and that the next leap will come from private-sector execution. “Nothing is missing from a policy point of view,” he said.
Encouragingly, that shift is already in process. Japanese industrial giants such as Panasonic, Suzuki, and Mitsui have launched their own accelerator programmes in India, often in partnership with JETRO, Japan’s trade-promotion body.
Commerce and Manufacturing Tech
Incubate’s own future bets span three pillars: commerce, AI, and manufacturing tech. Murakami sees them as “interconnected engines” for the next decade.
“Tier-two and beyond markets still offer massive opportunities in micro-commerce, while industrial automation and AI integration will transform how Japan and India collaborate,” he said.
The manufacturing link, in particular, reflects Japan’s renewed physical presence in India. Companies like Denso, Panasonic Energy, and Toshiba have expanded their operations. At the same time, NTT Data’s partnership with Neysa Networks, a ₹10,500-crore AI data centre project in Hyderabad, demonstrates how corporate Japan is merging its hardware excellence with Indian software prowess.
Incubate Fund also emphasises sustainable business models and early revenue visibility. “Profitability can come later, but if there’s no business model, we don’t invest. For us, business model comes first, execution second, and technology third,” Murakami said.
That disciplined approach contrasts sharply with the “growth-at-any-cost” playbooks of Western venture capital. It resonates with Japan’s ethos of kaizen, which loosely translates to continuous improvement, and with India’s emerging focus on profitability and resilience.
The Emerging Co-Innovation Era
Both sides are discovering that their strengths, Japan’s precision and India’s velocity, are complementary rather than competitive.
From Beyond Next Ventures’ BRAVE accelerator and Incubate Fund Asia’s deep-tech forays, to UNLEASH Capital’s fintech AI investments, a distinct Japan-India tech corridor is taking shape. It is defined less by trade balance and more by knowledge balance, where R&D flows determine long-term impact.
Roya summed it up precisely. “Japan’s experience with hardware excellence but software lag has made collaboration with Indian AI startups both a strategic correction and a source of renewal.”
In that sense, Japan’s bet on India is also a bet on reinvention, of its own innovation model, of Asia’s capital networks, and of how two democracies can co-create technology for a changing world.
As the first cohort of Japanese-backed Indian startups matures, exits like POP’s Razorpay deal serve as proof points for long-term success. But for investors like Murakami, that’s just the beginning.
“I like India, and it gave me a huge opportunity to work here. I want to give back over the next 10 years of my life,” he said with characteristic humility.
His optimism reflects a broader sentiment among Japanese VCs that the true prize isn’t just returns, but relationships. The coming decade, they believe, will be defined not by how much capital crosses the Bay of Bengal, but by how much knowledge does.
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