April 12, 2017 11:00 am JST

Japan Inc. looks for unicorns but sees a lack of ambition

Exponential growth seems to be easier to chase overseas

KEIICHI MURAYAMA, Nikkei commentator

TOKYO -- Nations looking for new waves of economic growth are competing to nurture entrepreneurs and the companies they start. But Japan is hobbled in this race. Its culture appears risk-averse. So even though venture capital funds raised a record amount of yen last year, they didn't do much with it.

At least not in Japan.

According to Japan Venture Research, Japanese VCs raised 276 billion yen ($2.49 billion) in 2016 -- a positive step in a country said to be bereft of investors willing to bet on young companies.

But the barren landscape is more of a mirage. Every day in Japan, there are events where entrepreneurs and investors (or representatives of major companies) can give and listen to pitches.

The scene just isn't what it is in other countries.

Although the number of startups is growing in Japan, the investments they are getting are smaller in value than what their brethren in other major industrialized nations are being showered with.

In Israel, starting a business is commonplace. So-called "Startup Nation" provides extensive education in information technology and has accumulated vast expertise in military-related high tech.

This environment encourages emerging companies to keep on building. Mobileye is one of these startups. It makes image processing systems for self-driving cars.

The environment is also luring money from abroad. In mid-March, Intel, the U.S.'s largest chipmaker, announced plans to acquire Mobileye for about 1.7 trillion yen.

Samurai Incubate, a Tokyo-based venture capital firm, established a base in Israel in 2014. So far, it has invested in 30 companies there, in fields such as artificial intelligence and information security.

"Israel is 20 years ahead of Japan," CEO Kentaro Sakakibara said.

He noted that Japanese auto- and auto component makers are jointly developing technologies and services with the Israeli startup.

There are other innovation hubs not named Silicon Valley.

China's Shenzhen is the home to DJI, the world's largest drone-maker. The city is crammed with factories that make pretty much anything and don't fuss about filling orders small or large. Where there are not factories, there are merchants selling various electronic components.

The mix allows ideas to easily cross-pollinate and attracts entrepreneurs from around the world.

Of 134 companies that have taken part in HAX, which bills itself as the world's first and largest hardware accelerator, 50% have been from North America, 25% from Europe and 15% from China. HAX has locations in Shenzhen and San Francisco.

India is also filled with young talent. The country, in fact, has been a major supplier of engineers to Silicon Valley (China has been another). But now many of India's bright young minds are deciding to stay home and start their own companies in a country with a brimming middle class.

India's version of Silicon Valley is located in Bangalore, in the south of the country. According to estimates, Bangalore will have more IT engineers than Silicon Valley by 2020.

Over the past 20 years, Silicon Valley has been ahead of the pack in internet services. A new race -- to get ahead in the so-called "Internet of Things" is already playing out.

France, which seems to have stayed out of high-tech industries, seems willing to enter this competition.

Startups that develop IoT devices with elaborate designs are emerging in the country, which is now encouraging new businesses with tax benefits and financial assistance.

Early results could be gauged in January, when 188 companies from France showed up at the big U.S. electronics fair known as CES.

There are other signs that Paris is transforming into a city of entrepreneurs. A startup incubator that can accommodate up to 1,000 companies -- one of the biggest of its kind -- will open soon in the city. The space will accept entrepreneurs from overseas.

So where's Japan, that great electronics powerhouse of the late 20th century? Two years ago, Japanese Prime Minister Shinzo Abe visited Silicon Valley, stopping by at Facebook and other companies.

"We cannot grow unless we keep up with the speed of change," he said.

Abe stressed the importance of entrepreneurialism. Although Japanese entrepreneurs have been sent to the U.S. for training, the country has a weak presence in today's high-tech world.

The U.S. and China are Nos. 1 and 2 in propagating unicorns -- young companies that have billion-dollar valuations and have yet to IPO or be sold to a larger company. Japan has one unicorn -- Mercari, known for its flea market app.

Silicon Valley, London and Bangalore are among the top 20 cities where entrepreneurs can readily secure funds and talent as well as grow their businesses. Tokyo and Osaka are not on the list.

"We cannot see the world as long as we remain in Japan," said Takakazu Fujimoto, one of the few Japanese to have participated in a HAX program. He has started a business of wearable devices for kids in Canada. 

Startup experts see two problems.

First, most Japanese venture companies are concentrated in a narrow field -- developing game apps for smartphones. Secondly, many of Japan's "socially successful" entrepreneurs -- graduates of prestigious universities who went on to work for financial institutions -- are tactful but have difficulty taking risks at critical moments.

In a nutshell, Japanese entrepreneurs are inward-looking and lack ambition.

Except for Masayoshi Son. But the CEO of Softbank Group is 59, he is always cited as Japan's most famous entrepreneur and he's more of a VC these days. This shows a deficiency on Japan's part.

The country does have some unique startups looking beyond Japan. Megakaryon makes artificial blood from induced pluripotent stem (iPS) cells, and Spiber makes synthetic spider silk.

In addition, Japanese industry excels in bioscience and materials. Surely these fields can birth a startup or two.

If they do, however, their offspring should be nudged from the nest of Japan and out into the greater world as soon as possible -- at least if they want to experience exponential growth.

 

SoftBank Group Corp.

Japan

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