Japan’s corporate VCs are on a growing investment spree

Startups raising funds in Japan used to be a rather sad undertaking. In the early 2000s, after the dotcom bubble had burst, investors became cautious and million dollar deals were almost unheard of. Compared to the U.S. in particular, Japanese investors seemed stingy.

Increase in Japanese deal size

This picture is beginning to change. According to CB Insights, the median early stage tech deal size in the U.S. has been hovering quite steadily at about US$2 million between 2014 and 2016. In the same time span, Japanese startups have seen their median deal size double according to JVR, a research outfit. (See chart below.)

Chart showing investment raised by Japanese startups.

Much of this is owed to corporate venture capital (CVC) stepping up the pace, rather than VC money, which is so dominant in America. With Japanese bond — and increasingly, equity markets — being squeezed by the central bank’s ultra-loose monetary policy, startups are one of the few remaining attractive, long-term investment categories in the country.

Companies are having an investment spree

Shortage of liquidity certainly is not an issue. Japan’s large companies are awash with cash, having stashed away over US$2 trillion. Toyota alone hoards roughly US$10 billion.

Companies are now using some of this cash mountain to invest in new Japanese ventures. Mirai Creation Investment, a fund created by Toyota together with SMBC and Sparx (an asset management company), for instance, just invested in UIEvolution, Inc., a cloud solutions venture.

Soracom, an IoT platform provider, also received about US$7 million from Mirai, where Mitsui, a large conglomerate, had already invested millions before that. Mitsui Fudosan, the Mitsui Group’s real estate arm, similarly just established a CVC outfit in 2015.

Moreover, two of the latest additions to CVC come from Sosei and Nikon. Sosei, a biopharma company, launched its US$20 million “Sosei CVC” in June this year. The Nikon-SBI Innovation Fund is also planning to provide about US$100 million for investments focusing on AI and robotics.

These examples are part of a much larger investment spree by Japanese corporates. CVC is part of about two-thirds to four-fifths of all VC-backed deals in Japan versus only about one-fifth in the U.S. (as seen in the chart below). And the trend has only been pointing further up.

According to research compiled by Ulrike Schaede from the University of California, 32 out of the top 300 CVC funds in the world are from Japan. With deal size now growing too, venture funding is finally on track to become serious business.

Chart showing CVC in Japan.

Conclusion

Japan is still not the easiest place to be a startup, and on an aggregate level the risk money available to Japan’s entrepreneurs is still only a fraction of what is available in the U.S. But in an otherwise gloomy global economic outlook, Japan’s thriving venture investment and the warming up of large firms to the opportunities of startup collaborations certainly is a bright spot.