Japanese entrepreneurs look at computer screens with graphs showing the ups and downs of Japan's startup ecosystem over time
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Japan is a bit of a paradox when it comes to business.

On the one hand, the country known for innovative practices, from Toyota kaizen to the TESSEI Shinkansen seven-minute miracle. Japan is the land of efficiency and teamwork as inherent cultural values.

On the other hand, when it comes to entrepreneurship in Japan, the startup ecosystem has been historically barren.

Where are all the venture capitalists, both foreign and domestic? Why is there such low entrepreneurial activity? If corporations are so strong, why isn’t there more corporate venture capital supporting the startup ecosystem?

In recent years, there has, in fact, been movement on all these fronts. We spoke to venture capitalists from GLOBIS Capital Partners (GCP), Japan’s leading VC firm, about entrepreneurial culture in Japan and the catalysts for change past, present, and future.

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Japan’s Startup Ecosystem, 2012 – 2022

Soichi Kariyazono is a cofounding partner at GCP. As a seasoned fund manager and venture capitalist, he’s had his eye on Japan’s economic development and venture capital investments for many years.

“Japan’s VC ecosystem has emerged rapidly over the past decade,” he says. Here’s his explanation as to why.

Fallout from Economic Crises in the Early 2000s

A series of economic crises—the Livedoor Shock in 2006, the Lehman Shock in 2008, and the Great East Japan Earthquake in 2011—left Japan’s VC and startup ecosystem in a near-death state. The amount of investment by domestic VC firms was well below 100 billion yen, and the number of VC firms that continued to invest was down by half from the pre-Lehman period.

At that time, Japan was dominated by financial VC funds. Investment performance was low compared to the rest of the world, and the ability to support seed- and early-stage startups was extremely weak.

Even Japanese institutional investors had low expectations for Japanese startups. VCs just didn’t invest.

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Private Sector Entrepreneurship Post-Tohoku Disaster

The unprecedented disaster of the Great Tohoku Earthquake in 2011 motivated people to think proactively. Not only did they look for opportunities to help with the reconstruction, but they also started their own businesses.

More and more talented people who had been working for large corporations, government offices, and professional firms became entrepreneurs and startup managers. As a result, the quality of Japan’s startup management evolved dramatically.

Institutional Change with Abenomics

Then came the Abe administration in 2012, which named startup innovation as the third arrow in the Abenomics quiver.

At the same time, we had the open innovation trend. Large Japanese companies started utilizing startups as partners to promote digital transformation, and expectations for startups began to grow stronger.

This accelerated the establishment of government-affiliated funds and corporate venture capital. Japanese investment in startups increased.

Cascading Benefits of Change

Entrepreneurship in Japan, as well as the IPO market, experienced a rapid revival due to these trends. The number of IPOs per year rose to around 100, creating a stable environment for startups to go public.

Furthermore, with the emergence of unicorns such as Mercari, Inc., the Japanese startup ecosystem began to attract global attention. Foreign growth funds and institutions began to invest.

Venture capital has created an organic ecosystem for the changing startup environment of funds, entrepreneurs, and exits.

When I became chairman of the Japan Venture Capital Association (JVCA) in 2015, the VC industry was disconnected. There were only about fifty VC members—mostly financial institutions, and no major VC firms.

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We’ve worked hard to change that, expanding our stakeholder base to include the government and large corporations. We also provide more educational seminars and partnership initiatives through policy advocacy and other means.

Investment in startups is now over 800 billion yen, and 1 trillion yen is in sight.

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The future of venture capitalism in Japan

Economic twists and turns have finally sparked a spirit of entrepreneurship in Japan. But will it last?

Kosuke Fukagawa, a senior associate at GCP, says, “Today, in 2022, the situation has similarities and differences to ten years ago. Society is recovering from the COVID-19 disaster, but unfortunately, most people believe that the economy is in the early stages of a recession.”

When asked what we can expect in the face of such dire predictions, Fukagawa’s answer was threefold:

  1. First, there will definitely be an economic recovery phase, as per the ten-year cycle.
  2. Second, technology adoption will certainly continue, especially in Japan.
  3. And third, technology companies will account for at least 10% of all shares listed on the Tokyo Stock Exchange (TSE). GLOBIS Capital Partners is here to make this happen!

Kariyazono, too, sees reasons to be optimistic. Startups in Japan have far stronger risk management compared to the US and China. The Japanese government remains committed to policies that will support the startup ecosystem nationwide, and a big part of that is collaboration with venture capitalists for social infrastructure and innovation.

“Japan’s startup and VC ecosystem will continue to evolve,” says Kariyazono, “from funding to human resources. That will have a significant positive impact on Japan’s national challenges, such as aging and digitalization. If Japanese startups can manage to globalize, even greater opportunities and achievements will emerge.”

In other words, entrepreneurship in Japan might finally be on track to spur long-term economic growth, not just domestically, but around the globe.

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