Rakuten Ventures on why it’s not investing in India, China, and Indonesia

Rakuten Ventures, the investment arm of the Japan-based ecommerce giant, just announced it injected US$100 million more into its global fund, but don’t expect any of it to go to hot markets India, China, or Indonesia.

Speaking yesterday at Tech in Asia Singapore 2016, Saemin Ahn, Rakuten Ventures’ managing director, explained why. “Let’s look at India and China first. We give them due respect, but [it’s hard to invest] without having people on the ground who really understand the culture and the kind of investment dynamics there. We’re not in Indonesia because the market changes very quickly, day after day.”

In the case of India, however, aside from Rakuten Ventures’ “ignorance,” Saemin thinks it’s just not practical to invest yet. He pointed out that while India has a population of 1.2 billion, there are only about 40 million to 50 million people who actually have “real” smartphones – and not those weird Android permutations – and who are at least in the middle class, earning about US$10,000 a year.

“If you’re looking at ecommerce alone, you’re talking about a demographic that has been shrunk from 1.2 billion to 40 million or 50 million. That’s basically the addressable market […] For us, when we look at a market, we ask ourselves: ‘Can we get in at the price point we want? Can we actually see a lot of these platforms accrue the value that they want?’ We don’t see that yet.”

Rakuten Ventures now has global, Japan-focused, and fintech funds worth a total of US$285 million.

It has invested in 10 companies so far, four of which are in the US, while the rest are in Asia. Among its bets are file transfer app Send Anywhere, marketplace app Carousell, image recognition firm Visenze, and push notifications service OneSignal.

Asked why Rakuten launched its own flea market app Rakuma, which is apparently a rival of Carousell, Saemin replied: “Whatever Rakuten HQ does, we don’t have control over as Rakuten HQ has zero influence over Rakuten Ventures. We didn’t know about the Rakuma thing until they announced it. That’s how firewalled we are and we’re very comfortable with it.”

Few companies, more attention

This year is the first time that Rakuten Ventures “really got into investing and those investment cycles,” said Saemin. He added they didn’t want anything to slow them down, which is why they raised another US$100 million “preemptively.”

How Rakuten invests won’t change though. “We will continue to invest in [few] companies and give them more liquidity. We want to give them at least two to 2.5 years of runway with the investment we’re giving them. That’s in duality hedging our best to make sure these companies have focus.”

Rakuten Ventures will also keep its sights on verticals such as ad tech, algorithm development, and artificial intelligence, to name a few.

In terms of the kinds of companies the venture capital firm will back, Saemin said they have to be tech-centric and product-first. “But more than anything, I have to agree with the founder […] on the goal points they’re trying to shoot for in the next couple of years.”