Exploring the Potential of the Indian Market and the Latest Fintech Trends with Ryu Muramatsu, Leading Japanese VC (Part 2)

Swiftly growing Indian fintech startup Drip Capital

* A service that connects sellers, buyers, and financial institutions online and converts purchase orders into electronically recorded monetary claims, opening the way for financing right from the time when a purchase order is issued or received.

As it happens, the business flopped, and one founder went back to India while the other stayed in the States—which in fact became a major factor behind the creation of today’s Drip Capital as a company assisting India-US trade. At the time, many Indian traders were struggling with financing and were unable to find a financing service that could solve their problem. The founder who went back to India was in talks with a client when the topic of India’s massive credit gap (the gap between capital supply and demand) came up, and it occurred to him that a framework like PO finance could be applied to India-US trade. The two founders respectively secured Indian sellers and US buyers and set up Drip Capital, which now of course has grown into a major service provider.

With the Drip model, the supplier fills in a two-minute application, Drip checks their eligibility, and the supplier receives finance within two days with no need for collateral or guarantees. It’s basically a receivables finance mechanism, whereby when a major firm buys products from a small or medium-sized supplier, Drip Capital purchases the receivables on a non-recourse* basis with no use of bank credit.

* A loan where the lender’s claim is limited to the cash flows from specified business and assets.

Drip spent two years developing its service, which was welcomed with open arms by the market and led the company’s growth to skyrocket. Many founders actually give up after two years—around two-thirds of founders receiving support from legendary US accelerator Y Combinator tend to bow out within that time. I really admire the way that Drip Capital hung in there, managing to receive Series A financing in its third year.

During the post-COVID “funding winter,” Drip slashed costs to put itself into the black. Even looking at other fintech firms, not many manage to produce an immediate profit through cost-cutting. One of the reasons that I invested in Drip Capital was because of those positive earnings. The firm seems to have a truly remarkable ability to adapt deftly to the times.

At GMO VenturePartners, we often say that there’s no right; we make it right. Drip is the epitome of that philosophy, charting its course with tenacity and flexibility to realize stellar success.

The three reasons why SMBC chose to invest in Drip Capital

* Middlemen who deliver products from suppliers of product components and raw materials to the appropriate retailers and agents.

In fact, in addition to supplying dashboards that visualize the cash conversion cycle,*1 foreign exchange position by currency, and the collection status of receivables, etc., and developing accounting automation solutions and a fully-digital supply chain finance engine*2 as digital added-value services, SMBC engages in activities such as holding workshops supporting the organization of customers’ supply chain management workflows and data structures as a consulting function.

*1 A financial metric expressing how many days it takes a company to collect its accounts receivable after paying its accounts payable.

*2 This enables the process from the supplier submitting a finance application to receiving the cash to be completed digitally within 30 minutes for up to 200 applications a day.

We also recognized that in Asia in particular, the high-interest-rate environment has created a strong need for financial services that enable suppliers and other small and medium enterprises (SMEs) to procure funds at low interest rates. Moreover, with strong economic growth throughout the region driving business expansion, companies now face a chronic labor shortage, leading all companies—large and medium-ranked firms and SMEs, Japanese and non-Japanese companies alike—to focus on proactive utilization of highly convenient digital tools and platform services.

Second, we saw a lot of potential in India.

Why? Well, India has more government-backed digital public infrastructure in place than other Asian countries, and its economic and population growth rates are also particularly high even for Asia, leading to the emergence of far more players in the fintech space. We saw India as brimming with potential.

Market research through the corporate venture capital arm we launched in 2023 also confirmed for us the sheer momentum of India’s startups.

Drip Capital’s service area is currently primarily India-US trade, but we thought it also had huge potential for expansion into trade corridors* between Asian countries other than India, Japan included.

* Trade routes and economic corridors linking specific regions and countries for the purpose of facilitating the distribution of goods and services.

Third, the introduction to Drip came from you, who we all know to have an outstanding record as a venture capitalist.

Your detailed briefing on where Drip Capital’s business stands in India, the kind of value being generated by the firm’s team members and business model, and Drip’s growth prospects and reputation was definitely a factor in our decision to invest. We have to be cautious about investing in a country like India where we have limited experience with startup investment, but after conducting careful due diligence,* we decided that if Drip had the support of someone with your excellent track record in startup investment, it merited positive consideration.

* An investigation that a potential investor carries out on a target business or other investment opportunity to confirm the value and risks, etc.

In other words, it was the way that everything came together—our own history of working to support corporate customers’ supply chain digitalization; India’s strong economic growth and the momentum of its fintech startups; and the introduction from an experienced venture capitalist—that pushed us across the line on our Drip Capital investment.

Now is the moment for Japanese companies to invest in overseas startups