The surge of interest in and money for startups in Japan reflects a shift in venture capital investing. In the past, Japanese venture capital firms preferred small, minority investments in middle-to-late-stage ventures with stable operations. Now VC firms take a more hands-on approach, investing higher sums, dispatching directors, and extending business support.
Plug and Play typically makes small investments of USD100K – 150K primarily in seed-stage and early-stage startups. “There are many amazing venture capital firms in Japan that we network with, share deals with, and trade information with, which is typical for most startup ecosystems. Because of our ticket size and value proposition as a foreign investor, we can differentiate from Japanese venture capital firms and remain a neutral player in the ecosystem.” Kiva, an extended warranty service provider for e-commerce, is a recent investment that Plug and Play made with other Japanese and foreign investors, such as SBI Investment and Arbor Ventures.
Japan’s latest startup boom coincides with Prime Minister Fumio Kishida’s renewed focus on open innovation and disruptive business ideas. Under a two-pronged policy promoting growth and sustainability unveiled in November 2022, Kishida is aiming for a tenfold increase in annual investments for startups, to around 10 trillion yen (US77 billion dollars*) by fiscal 2027 (ending in March 2028). KEIDANREN (Japan Business Federation) has issued its own pro-startup policy recommendations
, encouraging big companies to aggressively explore synergies with startups and calling for the creation of 100,000 new companies.
Building up a nurturing network for startups––an “ecosystem” ––will be key. The Government of Japan is now racing to connect entrepreneurs, universities, big corporations, and venture capitalists in order to foster more collaborations and spur deals that could spawn the next Google or Amazon. Accordingly, it has acknowledged the need for changes towards upgraded childcare services and startup-focused intellectual property rules in particular.
To create better opportunities for startups, the Ministry of Economy, Trade, and Industry (METI) launched J-Startup in 2018. The program mobilizes resources for the country’s top-performing ventures, connecting them with free workspace and consultation services and assisting them in marketing their products and services at conferences overseas. In 2022, METI began offering subsidies for startups to use for staff recruiting.
Other policy measures have boosted the market’s allure. For instance: tax breaks encouraging Japanese companies to set up corporate venture capital (CVC) units as well as a government-led 10-trillion yen (77 billion dollars*) University Endowment Fund
(1.0MB) to support research and university-affiliated startups. Deregulation could fuel another cycle of expansion. In 2024, the government is expected to loosen restrictions on limited partnerships in Japan, which would allow more money from global investors to flow into Japanese venture capital funds––and ultimately to startups.
The country’s job seekers have begun to take notice of recent surveys showing that more young and mid-career Japanese professionals are hopping from big companies to startups or are open to considering the switch. That is a big deal in Japan where conventional thinking tends to equate job prestige with big-name companies.
