A Different Approach to Startups and Innovations Across the Sea

 2019-06-18 By: InnoVEX Team

One of the ASVDA Startup Ecosystem Forum speakers is Mr. Masashi Sato, Senior Manager of Nomura Research Institute. Despite a relatively short distance between Taiwan and Japan, he pointed out how significantly they might differ in his keynote speech. Coming from a background of both Researcher and also Co-founder & COO of SPACETIDE Foundation, his insights offer a refreshing outlook to the startup ecosystem of Japan.

A Different Perspective

Mr. Sato started his keynote by pointing out how Japan has changed over the decades. 30 years ago, many Japanese companies were among the world’s leading global companies; but now only a few of them retain that status. R&D spending in Japan is also quite considerable in amount, but the results are often lacking in social impact or real-life-use cases.

He suggested that everyone see this social trend as a tipping point for Japanese society as this is also proof that Japan needs to embrace open innovation, be more flexible, and create something new. This can be difficult especially as the large corporations that have for so long dominated Japan cannot be expected to be flexible or expand/ move rapidly. As a result, new players in the form of startups are needed. The good news is Japan has started creating new economic ecosystems through startups.

He said 6 to 7 years ago, the idea of working in a startup is considered too risky; a majority of the young people and new graduates do not even consider it as their first choice in careers. However, this paradigm has greatly shifted; the number of startups and the money invested into them have rapidly increased since 2013. As a result, many of the young people and new graduates are actively looking for startups as their career choice; rivaling jobs in consultancy agencies, bureaucrats, and investment banks.

Startups whose businesses are deeply embedded in their users’ daily life and aim to change society have a greater chance to succeed. This is great news for startups as Japan is expecting future unicorns; especially as IPOs are the more common exit strategy in Japan compared to M&A.

Location, Location, Location

Mr. Sato pointed out that Japan has been a relatively centralized society in both people and businesses. The startup ecosystem also sees a form of centralization in Tokyo; with different areas focusing in different industries. For example, Western Tokyo is more focused on creative based industries; while Eastern Tokyo which is closer to the government districts and Imperial Palace is more focused on conventional industries such as fintech, life science, etc.

Lead the Innovation Leaders

Contrary to many countries where most startups are funded by VCs or angel investors, the sources of investments for startups in Japan are corporates. The corporates usually have their own VC arm, making a CVC (Corporate Venture Capitalists). While the government and universities are now taking a more active role in funding startups, they are not yet at the same level as other countries or the Japanese CVC.

One of the most important players in the Japanese startup ecosystem is the government; especially as Prime Minister Shinzo Abe started an initiative to grow the Japanese startup ecosystem involving all sorts of government and commercial players titled “Venture Challenge 2020”. The aim of the initiative is to create startups which could be active in the global market.

A Sign of Changing Times

According to Mr. Sato, one of the catalysts to the change in both perception and support to startups is the 2011 tsunami which became the trigger for a lot of Japanese to think of making a new society. At the same time, the current population growth trend for Japan is not one which can support conventional economy practices; especially as the age of 40% of Japan’s population is predicted to be over 65 in 2050 and the total population to shrink to only 70% of the current numbers. This means Japan will lose a lot of their labor force and will need to invest more and more intensively in technology.

The concept of open innovation is starting to gain popularity in Japan, but only under the definition of “partnership between large enterprises and startups”. The larger enterprises have invested in startups and looked for new partners actively. One of the ways they do so is by making their own open innovation labs where the corporations hos accelerator programs, matchmaking events, and other measures to find potential partners more efficiently. The trend is also to move beyond national borders and welcome international players into the ecosystem. This means there are more opportunities for international startups who want to expand or migrate to Japan.

To watch the full forum session, visit our YouTube channel here.