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SoftBank incubator steps up investment in Japanese AI

Trade war and China security concerns could be opportunity for tech sector

The incubator runs a 300 member community called "Kernel" (Photo courtesy of Deepcore)

TOKYO -- A Japanese incubator owned by SoftBank Group, is accelerating its investment into the country's artificial intelligence startups despite the verdict of its parent group's founder that Japan is "underdeveloped" in the cutting edge technology.

Deepcore has one investment fund with a portfolio of 18 AI-focused startups in the seed to early stage, many of which are Japanese. The fund is planning to increase the number to "a total of about 70 startups," says Chief Financial Officer Kasumi Amemiya, who adds there is a growing opportunity in Japan.

"We will be investing in a few new startups," Amemiya told the Nikkei Asian Review. "We will be making some announcements very soon."

Deepcore is so confident in the country's investment prospects that it  is hinting it could launch a second investment fund,   which could be bigger than the first.

Existing investments include AI surveillance software Vaak as well as UsideU, a provider of a digital dispatch service called Collaboroid.

The investment offensive follows the damning assessment earlier this month of Japan's track record on AI by SoftBank Group CEO Masayoshi Son. Japan, once at the forefront of technology development, had fallen so far behind India and Southeast Asia in the technology that it is now an underdeveloped country, the world's biggest tech investor warned at a technology conference in Tokyo.

Concern is mounting in Japan over the potential of the country's AI ventures as Chinese and U.S. startups take the lead in developing disruptive technologies.

Japan's government spending on AI is far below that of China and the U.S., while venture capital spending also lags behind. According to CB Insights, there are about 360 unicorns -- private companies valued at $1 billion or more -- in the world that collectively are worth nearly $1.1 trillion. The U.S. is the leader, leads in shares of unicorns, accounting for around 50%, followed by China which accounts for nearly 30%. Meanwhile, Japan only has one widely recognized unicorn: AI company Preferred Networks.

Amemiya remains optimistic though, pointing out that "Japan's strength lies in its manufacturing skills and craftsmanship." "New services are born out of the collaboration between AI and the real world like robots and automation. Japan could be a big contender in this area," she explained. "I believe Japanese AI startups have the chance to grow into unicorns."

However, Japanese startups face strong competition from China's determination to create world-beating companies in cutting edge technologies. Data by global tech market advisory firm ABI Research states that Chinese AI startups raised $5 billion in venture capital funding in 2017, overtaking the U.S. which had a little over $4 billion in funding. A ranking by Nikkei revealed that China overtook the U.S. in AI patent filers over the last three years. The country is already the home to SenseTime, a leading AI facial recognition company whose worth is estimated to be over $4 billion.

"China's large amount of data and government led initiatives cannot compare to any other country. It is hard to compete head on with Chinese AI startups," noted Amemiya.

The ongoing U.S.-China trade war could offer a sliver of opportunity though.

Amemiya points out that "the trade war could be a good opportunity for Japanese AI startups. If security concerns continue to rise, this could lead to barriers for Chinese AI startups because companies will be wary of using their technology or services. This could become an advantage for Japanese AI startups."

Deepcore stresses that their main goal is to nurture Japanese entrepreneurs.

The incubator runs a 300-member community called Kernel, 80% of whom are students, and hosts weekly meetings and events where young hopefuls exchange ideas and advice. Deepcore provides assistance and opportunities for members to collaborate with companies and research institutes on projects using cutting edge technology. The aim is to create an environment that encourages entrepreneurship within the AI field. If they see potential in an AI startup within Kernel, Deepcore would consider funding it, although only one has received backing so far.

Scheme verge, operator of travel app Horai, uses AI to coordinate travel plans. The investment amount has not been disclosed but the startup plans to put the money toward further service development and testing.

Amemiya signaled that more startups from Kernel will be receiving capital from the company in the near future.

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