Ex-Ante Evaluation
Private Sector Investment Finance Division,Private Sector Partnership and Finance Department, JICA
1. Name of the ProjectCountry: Republic of India
Project: DX Start-ups Investment Project
Loan Agreement: October 29, 2021
2. Background and Necessity of the Project(1) Current State and Issues of the Start-up Market in India
In India, underpinned by the world’s leading IT industries and abundant
excellent human resources that support them, the rise of start-ups is remarkable,
and start-up ecosystems that produce incubators which support investors andentrepreneurs at home and abroad, accelerators which back up businessexpansion, and a succession of emerging start-ups which are connected in an
organic manner with enterprises, universities, research institutes, and otherorganizations are being formed mainly in large cities such as Bengaluru, Delhi,and Mumbai.
Since 16 million new workers enter the labor market in India each year,
creating jobs is an urgent issue to be addressed (Ministry of Skill Developmentand Entrepreneurship, 2015), and in order to enhance industrial competitivenessin the international market, it is also necessary to promote innovation. For thisreason, the Indian government promotes start-ups as a matter of national policy
and is pushing Startup India and other start-up promotion policies. From 2014 to2019, the number of start-ups established in the country grew at an annual rateof 12-15% as compared to the previous year. It is estimated that during those
five years, some 9,300 new start-ups were founded, creating 470,000 new jobs
(Ministry of Commerce and Industry, 2021). Meanwhile, nine unicorns (unlistedfirms whose valuation is one billion dollars or more) based in India came into
being in 2019, nine in 2020, and 17 in 2021 (as of July), making a total of 53
unicorns, the third largest in the world after the United States and China (VentureIntelligence, 2021).
Changing the entire existing industrial structure significantly utilizing digitaltechnology or bringing drastic changes to value creation for customers is called
digital transformation (DX). The number of start-ups working for DX has risen inrecent years, and the world’s DX market was worth 1.18 trillion dollars in 2019and is expected to grow at an average annual rate of 16% from 2021 to 2026
(UnivDatos Market Insights, 2020). DX has been chosen as a national policy inIndia, too, and the Narendra Modi administration announced its slogan “DigitalIndia” in 2015 and is pushing initiatives such as e-education, e-health, and ecommerce utilizing digital technology and addressing issues such as disparities ineducation, healthcare, and other sectors between urban and provincial areas,inefficient distribution, and climate change.
On the other hand, one of the most serious issues that face start-ups isfunding, and in particular, immediately after start-ups are established, funding isimportant to enable them to get through the phase in which business revenue isstill limited while costs for business verification and expansion inflate losses. Since
there are many cases in which start-ups have difficulties in offering sufficient
security as they have a poor track record of past performance, it is hard to procure
funds by obtaining loans from private financial institutions or issuing bonds, andbasically, start-ups have to procure funds through investment (IFC, 2018). In
India, investments by investors and large corporations at home and abroad aswell as government-led start-up funds being established under the Startup India
policy are available, but it is estimated that while there is 10.5 billion dollars’
worth of demand for funding immediately after start-ups are established, only
seven million dollars of funds are actually supplied (IFC, 2018). Although thestart-up market is growing rapidly, sufficient funds and investors for start-ups do
not exist yet, nor are sufficient investments made for start-ups compared to thecurrent demand for funding. In addition, partly owing to the effects of COVID-19,
the start-up funding environment is expected to worsen, and according to asurvey conducted by InnoVen Capital in 2020, 58% of start-ups replied that theywould have difficulties in fund procurement in 2020 and thereafter.
Under these circumstances, through investments in the RP fund, a Japanbased DX start-up investment fund, this project finances DX start-ups in India
and promotes business alliances with Japanese-affiliated companies to provide
better access to finance, create employment, and encourage cooperation
between Indian and Japanese enterprises, thus contributing to sustained
economic growth in India. Therefore, it is consistent with their challenges to beaddressed and its government policy.
(2) Japan and JICA’s Policy and Operations in the Start-up Sector
Japan's Country Assistance Policy for India (March 2016) viewed enhancing

industrial competitiveness as a priority area, stating that the Japanese
government would work for assistance to contribute to creating new jobs for theyoung working population, improving productivity by strengthening theeconomy’s technological foundations, and stepping up development of industrial
human resources in such areas as management and practical techniques. TheJICA Country Analysis Paper for India (March 2018) positioned developing highproductivity industries as one of its major development challenges, emphasizingthat they required the establishment of investment environments and thedevelopment of industrial human resources in both tangible and intangible
aspects. Individual projects being carried out include organizing new ODA loan
projects in the areas concerned as well as the Survey to Collect and Confirm Basic
Information on the Formation of Technical Cooperation Facility and Ecosystems
for Global Impact Investments for several countries such as India. This project,which aims at supporting India’s start-ups that work to solve social issues throughDX, promotes and complements Japan’s and JICA’s initiatives.
(3) Other Donors’ Activity: None in particular
3. Project Description(1) Project Objective
The objective of this project is to improve access to finance, create
employment, promote DX, and further cooperation between Japanese and Indianbusinesses through providing funds to a Japan-based DX start-up investment
fund, by financing DX start-ups in India and encouraging business alliances withJapanese-affiliated enterprises, thereby contributing to sustained economic
growth in the country.
(2) Project Site / Target Area
Entire India (excluding disputed areas)(3) Project Component(i) Loan amount: USD 4 million(ii) Outline of the Project Plan: Through investments in the RebrightPartners IV Investment Partnership, the project invests in start-ups thatare five years old or less (from the seed to growth phase) and work for
DX mainly in India and promotes business alliances between Japaneseaffiliated enterprises and Indian enterprises targeted for investment.
(4) Project Implementation Structure

(i) Investee: Rebright Partners IV Investment Partnership(ii) Executing Agency: Rebright Partners Pte Ltd (RP)(iii) Operation and Maintenance Agency: Rebright Partners Pte Ltd (RP)(5) Environmental and Social Consideration / Cross-sectional Issues /GenderCategorization
1) Environmental and Social Consideration(i) Category: C(ii) Reason for Categorization: The adverse effects of this project on theenvironment are considered as minimal in accordance with the JICA
Guidelines for Environmental and Social Considerations promulgated in April
2010.
2) Cross-sectional Issues: This project contributes to measures to mitigate andadapt to climate change because its subprojects include undertakings tocontribute to prevent global warming by utilizing digital and clean
3)

technologies.
Gender categorization:[N/A]

GI(gendermainstreamingneeds

survey/analysis project)
Reason: Gender mainstreaming needs were confirmed in the review, but it
was not decided to carry out specific activities that contribute to gendermainstreaming.
(6) Other Important Issues: None in particular
4. Targeted Outcomes(1) Quantitative Effects
Baseline(Actual value in2020)

Target (2029)[Expected value atthe end of the fund]015

Number of jobs createdSet at the time ofinvestment decision

Set at the time ofinvestment decision

Number of direct beneficiaries

Set at the time of

Set at the time ofinvestment decision

investment decision

0 companies

9 companies

Indicator

Number of DX start-ups targeted
for investment

Results of business alliances withJapanese enterprises through RP

(2) Qualitative Effects: Providing start-ups with better access to finance,enhancing industrial competitiveness, and promoting innovation in Japanand India
5. External Factors(1) Prior Conditions: None in particular(2) External Factors: None in particular
6. Lessons Learned from Past Projects(1) Evaluation Findings of Similar Past Projects
The four lessons learned from the Regional Business Development Fund Project,
an overseas investment and finance project for India, were (1) the formulationof fund manager replacement standards, (2) request for the compilation ofreports that enable accurate evaluation of development effects, (3) thepreparation of a long list of entities targeted for investment, and (4) theimportance of confirmation as to taxation on JICA.
(2) Lessons for the Present Project
In light of the four lessons specified above, examinations confirmed thefollowing points: (1) it has been agreed with RP that if, among the fund managers,
one of the two key persons no longer becomes involved in the management of
this fund, new investments from the fund shall be suspended until his/her
successor obtains the approval of a majority of investors; (2) it has been agreed
that the results of the management and effect indicators listed above shall besubmitted to JICA each year; (3) factors such as the rate of return and theprobability of exit for each start-up have been examined by obtaining a long listthat included candidates targeted for investment; and (4) the pass-throughmethod is applied to taxation for this fund, and it has been confirmed that only
withholding taxes are levied in India when invested funds are recovered.
7. Evaluation Results
As described above, this project is consistent with India’s development
challenges and development policy as well as Japan’s cooperation policy. Its
necessity is recognized, its plan is appropriate, and it is fully expected to achievegoals in the plan. Therefore, the significance of support it provides throughoverseas investment and finance is high.

8. Plan for Future Evaluation(1) Indicators to Be Used: As listed in Section 4(2) Timing: Ex-post evaluation when the fund is terminated