TOKYO – The two largest economies in the world, the United States and China, are sending dozens of start-ups to the public – at prices that defy all competition – with Japan in third place, which lags far behind.
The Japanese government wants to shift up to a higher gear in the launch phase, but that will not be easy.
The largest IPO in the country this year, and one of the largest in recent years, was that of Plaid Co, a developer of online marketing tools, which opened on the 18th. The month of December yielded an estimated $1.1 billion. In the meantime,
Airbnb Inc.
began this month with a $102 billion valuation, the largest in a series of IPOs of blockbuster movies in the U.S., while China’s JD Health International Inc. in Hong Kong began with a market capitalization of about $38 billion, a boom for an IPO in that city this year.
Japan does not have the self-reinforcing mix of young innovators and financiers that has made places like Silicon Valley and Hangzhou in China real growth centers. But venture capitalists and entrepreneurs say things are going better. The amount of money raised by start-ups in Japan has increased more than sevenfold over the past seven years to reach about $4.8 billion by 2019, according to Tokyo-based data monitoring company Initial Inc.
Investments in enterprises
The seed financing of Japanis increasing, but still lags behind that of other major economies.
Venture capital operations by country/area
Value in billions of dollars
There are more and more venture capital funds and the public sector is investing in them. A unit of Japan Investment Corp. (JIC) launched the largest venture capital fund in the country this year, worth $1.2 billion. In recent weeks, it has invested nearly $100 million in the first group of seven companies.
The Japanese parliament is expected to approve early in the new year a nearly $20 billion fund to be invested in eco-innovation over the next decade. The government hopes to channel public money to strategic areas with high growth potential – such as helping the large Japanese analogue company to switch to digital broadcasting, while at the same time stimulating private investment.
It will be useful to have an investor who can orchestrate relationships with large companies and government organizations, he said.
Takashi Sonoda,
Founder of Uhuru Corp. in Tokyo, a recipient of JIC venture capital funding that develops software to control sensor networks and other devices.
Previous public investors have stumbled. The original state fund, which was set up in 2009 to support innovative companies, ultimately spent most of its money on supporting equipment companies. Two years ago, most of the members of the first Board of Directors of the JIC resigned after a dispute with the government over salaries.
But industry observers say government support has helped starters shed their once controversial image and adopt a dose of cool Silicon Valley.
It is considered less risky or suspicious and it has also been very, very useful.
James Riney,
Founding partner and CEO of Tokyo-based Coral Capital, which grew out of the Japanese branch of the US venture capital fund 500 Startups.
Japanese venture capitalists made a joke about overcoming the spouses’ blockade, the family resistance faced by people leaving prestigious and stable jobs for a start-up, Rainey said. He said Japanese newspapers now have reporters dedicated to breaking the news – a sign of growing prestige.
Nevertheless, the volume of venture capital transactions in Japan last year was less than a tenth of that of China and less than 3% of that of the US, according to data providers PitchBook and Initial. In the first six months of 2020, Japanese seed capital funding decreased slightly to USD 1.9 billion on an annual basis, while US venture capital activities increased slightly.
Japan not only lags behind the United States and China, but also has fewer unicorns worth less than $1 billion than developing countries such as India. Even in Tokyo
SoftBank Group Corp.
the world’s largest technology investor, has shown little interest in financing national start-ups.
Compared to most other mature economies, even in a slower growing Europe, Japan still has a long way to go, he said.
Hideki Yarimizu,
General partner of JIC’s venture capital department. But it also means there’s a crazy chance to grow.
The volume of Japanese venture capital investment needs to be multiplied by about five or six times to reach a more appropriate size in relation to the economy, Mr Yarimizu said. He said he expected it to happen slowly over a period of 5 to 10 years.
For decades, large companies have been the centre of the country’s economy and corporate culture, and the road to success has been described as running from a top university to blue-chip companies such as
Sony Corp.
or
Toyota Motor Corp.
These companies have carefully protected their own technologies and supply chains, leaving little room for outside innovation, he said.
Hiroyuki Kuroda,
Secretary General of the Venture Center, Japan, a fund established in 1975 to support young companies.
In a survey conducted this year by the Center for Venture Entrepreneurship among start-up entrepreneurs, more than a fifth of those surveyed said that the people around them were against starting a business. Approximately 45% of the people who encountered resistance cited their mothers’ resistance and 38% of their former bosses or colleagues.
The entrepreneurs interviewed cited the widespread rejection of the idea of making money as the main driver of the change they hoped for. And Japan tends to be more inflexible on trading platforms than the United States, which means there are fewer companies, analyst Inizial said.
Atsuko Mori.
In Japan, the metabolism of companies is low, she says.
Email Fred Dvorak at [email protected].
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