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Japan wades into crowdfunding world

Companies look to new source of capital and expanded investor base

JVC Kenwood used a crowdfunding campaign to raise over 20 million yen to develop new in-ear headphones.

TOKYO -- Fintech is changing the way companies around the world finance operations and make investments. In Japan, a growing number are turning to the web to raise capital needed for developing new products and services, with crowdfunding in particular rapidly gaining currency. 

Individuals are also seeing more options for investing their money. 

JVC Kenwood, a consumer electronics maker, raised money to develop new in-ear headphones that were first shipped in January. The product allows users to converse with others and play musical instruments while listening to music.

To finance development of the gadget, the company used a crowdfunding scheme that offered delivery of the product immediately after production to people who put up money. Investments could be made in blocks of 15,000 yen ($135).

When JVC Kenwood launched the crowdfunding campaign in July, the maker expected to raise around one million yen, but it netted over 20 million yen from individual investors. 

JVC Kenwood's success shows that consumers are willing to pony up money for projects that pique their interest even if it entails risk. 

This is encouraging news for the electronics maker, which is expected to report a net loss for the year ended March 31 despite a strong performance from its mainstay car navigation business. But the company still has a long way to go before regaining financial health, with its equity ratio languishing at around 20%.

Perhaps crowdfunding can improve the outlook for JVC Kenwood.

More investors, more money

Japan's crowdfunding market for new projects will grow to over 47.7 billion yen in fiscal 2016, up 30% from the previous year, according to Tokyo-based Yano Research Institute.

A wide range of companies, including Sony, Tomy and Eisai, are embracing this market even though it is still small. 

Several financial service providers, including Yamaguchi Prefecture-based Yamaguchi Financial Group in western Japan, are seeking to capitalize on the trend by helping companies start crowdfunding campaigns. 
A crowdfunding platform offering unlisted shares in exchange for investment is also emerging. It allows raising any amount less than 100 million yen on the internet from investors, including individuals investing up to 500,000 yen each. Such schemes are providing alternative financing options to an array of companies, from startups to multinationals. 

Japan Cloud Capital, a Tokyo-based startup, is poised to launch Japan's first crowdfunding scheme of this kind. Emerada, an online fundraising and investment services provider, is also working on a similar plan.

Crowdfunding can help finance projects that are unlikely to qualify for loans from banks, which have stricter standards for credit management. It can also be used to estimate demand for products before launch. 

The main selling point for fintech, so far, has been its cost-cutting effects. 

Takao Asayama, president of Tech Bureau, an Osaka-based developer of blockchain, the technology underlying virtual currencies like Bitcoin, claims blockchain can lower operational costs at financial institutions to one-tenth of current levels. 

Blockchain technology allows unrelated computers and companies to simultaneously collect and store information without relying on any central authority. Companies outside the banking sector, such as NTT Data, Orix and Autobacs Seven, have also been testing the technology for such purposes as inventory management and business-to-business transactions.

Chikai Tanaka, an analyst at Nomura Securities, however, points out that investors are interested mainly in the potential of fintech-driven growth. "Stock prices do not react to individual fintech trial schemes," he said.

Whether fintech leads to the expansion of the investor base in Japan depends on each company's ability to use new financing options to power their growth. 


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