One area that has received tremendous focus, and where meaningful improvements are happening in Japan, is in funding and operational support available to early stage ventures.
There is growing recognition here that entrepreneurship – whether inside or outside an organization – needs to be fostered if Japan is to remain a global business leader. One area that has received tremendous focus, and where meaningful improvements are happening, is in the area of funding and operational support available to early stage ventures. Some examples:
The government is striving to foster entrepreneurship. In 2015, Prime Minister Shinzo Abe visited Silicon Valley. He returned to Japan committed to find ways to support entrepreneurs and open innovation within the country. As one example, the government took an existing program that had previously offered ventures up to only JPY3 million (~US$26,500) in funding which needed to be repaid from future profits and increased it to up to JPY20 million (~US$177,000), repayable through equity rather than cash. In this way, the government is helping to facilitate seed funding which has traditionally been lacking for entrepreneurs.
In Japan, the availability of venture capital has increased over the last several years, although numbers are of course still very small compared to the US. 2015 saw the highest number of new venture funds launched since 2005. Venture capital is also taking on a more international flavor: 500 Startups, the most active US seed fund, in 2015 announced a new Japan-only fund, which will close in early 2016. This fund will help fill an important gap in the local early stage funding market and potentially galvanize other international investors to take a second look at Japan.
Japan has also seen the rise of uniquely-Japanese funding structures for supporting entrepreneurs. One organization in particular is the Innovation Network Corporation of Japan – a private/public partnership that is currently investing in technology-focused entrepreneurial enterprises with strong support from the government. INCJ has a flexible mandate, unlike most VC investors - allowing it to consider making a $2.5 billion investment in a large industrial company while at the same time providing $2.5 million to a promising medical technology company.
Historically, big Japanese corporates have taken the role of incubators by making investments through their VC arms. In the past two years, between 60-80 percent of venture investments each quarter have come from corporate venture capital. In addition, over 70 percent of limited partner funds invested in venture capital firms in Japan come from corporates. A good example of the Japanese model of corporate venture support is WiL (World Innovation Lab), a $300 million venture fund launched in early 2014 backed by diverse companies such as INCJ, All Nippon Airways, Sony, Mizuho Bank, Nissan and NTT Docomo. WiL is not only a venture investor, but also an incubator, using its partners /investors’ platforms to accelerate investees’ business growth. As well as identifying and supporting promising startups in Japan, WiL is helping to find promising technologies and spin-out opportunities within its corporate partners, providing a structured environment to support their intrapreneurs.
Beyond corporate venture efforts, standalone incubator programs are cropping up to support independent entrepreneurs and startups. For example, Mitsubishi Estate, one of Japan’s largest property management companies created the EGG-JAPAN incubator within one of its buildings to support early stage companies with a B2B focus, while Venture Generation provides support both for early stage Japanese companies and for foreign companies looking to enter Japan.
The above examples show some of the changes happening in Japan to enable entrepreneurs to realize their vision and make a positive contribution to society – whether in a brand new venture or a large corporation. More needs to be done and continued effort will be needed from diverse corners of business, government and academia, but the feeling among Japanese entrepreneurs and venture investors today is one of strong optimism and excitement for the future. I encourage you to come to Tokyo and see for yourself!
Subscribe to KPMG’s Venture Pulse Newsletter
If you would like to receive a newsletter when a new selection of blogs or the latest Venture Pulse report has been released, please reply to:
Paul Ford works in KPMG’s Transaction Services at the Tokyo office. His operations experience as a senior finance, legal and HR executive in the technology industry provides him with unique insights during the transaction process, particularly in viewing and addressing issues from a client perspective. In 2014, Paul launched KPMG FAS’ Internet Deal Advisory due diligence practice and has personally led the due diligence of over 25 internet / software business M&A transactions since 2012, both in-bound into Japan for foreign clients and overseas on behalf of Japanese clients.
Blog series covering topics related to venture capital investment globally.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.