in an otherwise gloomy global economic outlook and a world of ultra-low yields, japan’s thriving venture investment is a bright spot
fundraising by startups in japan used to be a rather sad undertaking. in the early 2000s, after the dotcom bubble had burst, investors became cautious and million dollar deals where almost unheard of. compared to the u.s., japanese investors seemed particularly stingy.
this picture is beginning to change. according to cb insights, the median early stage tech deal size in the u.s. has been hovering quite steadily at about $2m from between 2014 and 2016 (link). in the same timespan japanese startups have seen their median deal size double according to jvr, a research outfit (see chart below).
much of this is owed to corporate venture capital (cvc) stepping up the pace, rather than vc money, which is so dominant in america. with japanese bond – and increasingly equity markets – being squeezed by the central bank’s ultra-loose monetary policy, startups are one of the few remaining attractive long-term investment categories. shortage of liquidity certainly is not an issue. japan’s large companies are awash with cash, having stashed away over $2 trillion. toyota alone hoards roughly $10 billion.
companies are now using some of this cash mountain to invest in new japanese ventures. softbank's recent injection of $25 billion into its new $100bn venture fund is Japan Inc's biggest and most publicized, but by far not the only one. ‘mirai creation investment’ (link), a fund created by toyota together with smbc, a bank, and sparx, an asset management company, for instance, just invested in uievolution, inc., a cloud solutions venture. soracom, an iot platform provider, also received about $7 million from mirai, where mitsui, a large conglomerate, had already invested millions before that. mitsui fudosan, the mitsui group’s real estate arm, similarly just established a cvc outfit in 2015 (link). two of the latest additions to cvc come from sosei and nikon. sosei, a biopharma company launched its $20 million ‘sosei cvc’ in in june this year (link). the ‘nikon-sbi innovation fund’ is planning to provide about one hundred million dollars for investments focusing on ai and robotics (link).
these examples are part of a much larger investment spree by japanese corporates. cvc is part of about two-thirds to four-fifths of all vc-backed deals in japan versus only about one-fifth in the u.s. (see chart below). and the trend has been pointing further up. according to research compiled by ulrike schaede from the university of california, 32 out of the top 300 cvc funds in the world are from japan (mitsui’s, for instance, with its 273 deals ranks 7th). with deal size now growing, too, venture funding is finally on track to become serious business.
japan is still not the easiest place to be a startup and on an aggregate level the risk money available to japan’s entrepreneurs is still only a fraction of what is available in the u.s. but in an otherwise gloomy global economic outlook, japan’s thriving venture investment and the warming up of large firms to the opportunities of collaboration certainly is a bright spot.