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Banking & Finance

Japanese startups moving up in weight class, survey finds

AI and internet companies lead way in attracting investors, building value

From left to right: Mercari CEO, Shintaro Yamada, Eliiy Power President Hiroichi Yamada and RakSul CEO Yasukane Matsumoto

TOKYO -- Japanese startups are bulking up rapidly, led by those with a digital angle, as venture capital firms and large companies eagerly invest in up-and-coming businesses with original ideas, a recent survey by The Nikkei shows.

The so-called Next Unicorn survey, conducted jointly with the Japan Venture Capital Association, targeted companies that possess unique technologies or business models and have been in operation no more than 20 years. Twenty-two of the 108 startups replying to the survey held an estimated enterprise value topping 10 billion yen ($89.3 million), based on data obtained from the companies themselves as well as venture capital firms.

Preferred Networks, a Tokyo developer pursuing industrial applications of a machine learning method known as deep learning, ranked atop the survey with an estimated value of 232.6 billion yen ($2.08 billion).

"Our vision is to transform the manufacturing industry by adopting deep learning," President Toru Nishikawa said.

The company received a roughly 10.5 billion yen investment from Toyota Motor in August. The partners are developing technology for object recognition as well as for analyzing vehicle information.

Mercari, ranked second with a value of 147.9 billion yen, has grown sharply by developing smartphone-friendly applications for its flea market operations. The company, looking to bolster overseas operations, recruited John Lagerling as executive director and chief business officer in June. Lagerling formerly served as Facebook's vice president of business development, mobile and product partnerships.

Companies using artificial intelligence dominated the upper end of the rankings. Freee, a Tokyo startup that taps AI to boost the efficiency of its cloud-based accounting services, stood fifth with an estimated corporate value of 39.4 billion yen.

Third-ranked Sansan offers a cloud-based business card management system. U.S. financial giant Goldman Sachs Group invested this month in the Tokyo startup, whose value is estimated at 50.5 billion yen.

Eliiy Power, a lithium-ion battery system developer, ranks fourth at 40.4 billion yen. RakSul, which offers easy, economical printing and delivery services by using internet-based ordering systems, stood ninth at 21.9 billion yen.

An eventual stock listing was on the mind of 83% of respondents, according to the survey, while roughly 20% said they would consider a buyout offer from a major company.

A separate survey, by Japan Venture Research, found that around 1,000 unlisted startups raised roughly 210 billion yen in 2016, up 20% from the prior year and the largest amount measured.

(Nikkei)

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