Japanese venture capital blooms but lacks specialization compared to the US

Photo credit: pigprox / 123RF.

Venture capital in Japan is maturing right next to its startups and entrepreneurs. This was the consensus in a panel about VC investment at this year’s Tech in Asia Tokyo conference. The session featured representatives from Globis Capital, YJ Capital, 500 Startups, and Rakuten.

Part of what’s driving this upward trend is technological advancements that have led to breakthroughs like the internet of things, blockchain tech, and artificial intelligence, according to Globis Capital partner and chief strategy officer Shinichi Takamiya. “We’re seeing the kind of change we used to see in the 90s,” he said.

You need a certain kind of grit if you are to establish a long-term business.

500 Startups Japan partner James Riney added that more old-school industries in Japan like insurance and law are being transformed by technology. “There are many industries where tech hasn’t had much reach yet,” he said, highlighting the opportunity that’s there for Japanese entrepreneurs.

Healthcare, homecare, architecture, and real estate are some other examples of existing markets in Japan that are ripe for improvement through technology, added Hogil Doh, investment manager for Rakuten.

“It’s becoming a tipping point – these social problems are singular in Japan and we’re experiencing everything ahead of other countries,” he said. If Japanese companies can solve such problems with technology, they could then become global by exporting their solutions and expertise.

500 Startups Japan managing director James Riney (L) and Globis Capital partner and chief strategy officer Shinichi Takamiya. Photo credit: Tech in Asia.

Cashflow

Japan venture capital has been on the rise, with more than US$2.4 billion pouring into startups from Japanese funds – both independent funds as well as university-related vehicles – in 2016. According to Tokyo-based firm Japan Venture Research (via Nikkei), that value hasn’t reached these heights since 2008.

The focus on traditional industries combined with the market’s coming-of-age has the added benefit of potentially attracting more mature entrepreneurs – people who have been part of those industries and know their needs and problems well, Takamiya said.

“Legacy industries present new chances for seasoned entrepreneurs, business owners, and startups,” he explained. “Having achieved some scale in the market, you need a certain kind of grit if you are to establish a long-term business.”

Hone your craft

The investors agreed that VC firms in Japan are still not as highly specialized as their US counterparts.

“US VCs are very vocal in the areas they are interested in,” said Shinichiro Hori, CEO of YJ Capital. In Japan, on the other hand, VC fields of specialization aren’t as clear. “It takes three to five years to build specialization in a particular area,” Hori added.

Riney attributed this to the relatively smaller need for Japanese VCs to stand out from the crowd. “Japan is still very small, and the need for differentiation is not as important as it is in the US,” he said.

“Because the VC industry in Japan is small and not so well established, we’re kind of running our firms as entrepreneurs ourselves,” Takamiya added.

Much like other developed economies that aren’t Silicon Valley, Japan is also feeling the talent crunch, the investors said. In particular, the country seems to lack resources for investors and entrepreneurs to track down and recruit promising individuals, both local and foreign.

Rakuten investment manager Hogil Doh (L) and YJ Capital CEO Shinichiro Hori. Photo credit: Tech in Asia.

Talking fintech

The ICO trend hasn’t gone unnoticed by the Japanese VC community. The panel appeared cautious and even bemused. Hori mentioned he met four companies planning an ICO in the past week alone. “When I went home, my mother was thinking about bitcoin,” he added.

The investors agreed it’s important for VCs to figure out what additional value they can offer to firms other than funding. But companies who go on to raise funds through token sales must think long and hard about the long-term merits, as regulation in this area is still taking shape in many countries.

Japan’s financial services watchdog FSA intends to start monitoring cryptocurrency exchanges soon, while China’s complete ban announcement is still fresh.

This is part of the coverage of Tech in Asia Tokyo 2017, our conference taking place September 27 and 28.

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from Tech in Asia https://www.techinasia.com/japan-vc-tech-in-asia-tokyo-2017
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