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Why leading VC firm JAFCO is not giving up on Japan

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Everyone knows that the investment market in Japan is considerably smaller than its American cousin. The US saw US$33.1 billion worth of investments for 2013 – Japan, only US$1.5 billion. In these parts, the announcement of a US$50 million fund set up over several years is big news.

Japanese private equity firm JAFCO, on the other hand, has burned through an average of nearly US$80 million in Japanese investments every year since 2008. Last year saw 41 percent of those funds go to startups specializing in IT services. In a time when a stream of venture funds can be seen leaving Japan and even flagship institutions like Mitsubishi want to set up new funds in America, JAFCO’s dedication to Japan is surprising.

Keisuke Miyoshi, corporate officer of JAFCO’s investment division, sees it differently. “JAFCO was founded in Japan. This is where we have our best competitive advantage,” he says. “We do not believe that Japan is just going to sink and disappear. It is a large market that can create new companies and new IPOs.”

JAFCO’s investment activities span the world but are managed at a regional level. In that sense, it could be said that the firm can afford to be bullish on Japan precisely because they are diversified elsewhere.

However, even optimism has its limits. Miyoshi prefers businesses than can transfer their model outside of Japan. When pressed to answer if the country’s shrinking population or productivity concerns have influenced his thinking, Miyoshi maintains that the fundamentals of Japan’s economy are strong.

See: KDDI launches new $50M fund

That said, he does acknowledge that if there was a gap between what the country can produce and what it should be producing, JAFCO would be very interested in a company working to bridge that gap.

“We look for companies that can grow by identifying the opportunities that gaps create,” he said. He was recently impressed by news-curation app Gunosy, and had JAFCO participate in the latest US$12 million investment round.

For Miyoshi, Gunosy solves the gap of what users want to read and what traditional media outlets provide them. A curation app that customizes the user experience solves that dilemma in an elegant way. Gunosy also passes the “global” test. News aggregations apps like Flipboard have been tearing up Google Play and iOS App Store rankings around the world.

Miyoshi might have a sunnier outlook on Japan than other business leaders like Masayoshi Son, but he is no less passionate about finding innovative companies. “Old industries have established players and rules. They repeat the same things over and over. And that is why there is an opportunity for a game changer [in Japan].”

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Globe image via Flickr user mars discovery district

Editing by JT Quigley and Steven Millward

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