Fintech fundraising in Japan vs. Singapore

While the Japanese economy, which is almost US$5 trillion in size, dwarfs Singapore’s less than US$400 billion gross domestic product, Japan lags far behind the city-state in fintech investments.

A KPMG report found fintech investment in Singapore in 2021 hit US$3.94 billion while investment in the sector in Japan in the same period was only US$1.2 billion. Some of the Singapore figures can be attributed to special purpose acquisition company offerings, but this doesn’t explain why Japan is seeing just a third of the fintech investment Singapore is.

Shibuya Crossing in Tokyo, one of the busiest crosswalks in the world / Photo credit: Sean Pavone / Shutterstock

Fintech fundraising in Japan is certainly harder than in Singapore, but it is getting easier. In Singapore, fundraising is currently easier than it is in Japan, but it is getting harder.

Thanks to the evolving fintech landscape and a normalizing financing environment, the two markets are converging. However, while they are drawing closer, there are still stark differences that founders should recognize when considering the two markets.

Varied investor mix

There are 337 venture investors in Japan, of which a minority are institutional VCs, while the rest are a mix of corporate and government institutions. In Singapore, there are 606 venture funds – more than 400 are institutional VCs.

In other words, Japan is overstocked on corporate venture funds and understocked on institutional VCs. This is reflected in the risk-reward expectations of investors.

Comparatively, Japanese investors are generally more risk averse, more valuation shy at earlier stages, and more focused on later-stage rounds than their peers in Singapore.

Lack of fintech specialization

Japan’s venture ecosystem has grown by more than 15 times in the last decade. However, there are no fintech-focused institutional VCs, while in Singapore, there are half a dozen.

Non-specialist venture firms cover a broader portfolio, so they are less familiar with fintech-specific models than fintech-focused investors or specialists are.

Most Singapore-based funds focus on Southeast Asia or India, so investors may not be comfortable or experienced with the Japanese market, or they may need to seek a mandate exception from their investment committee before diving in. This adds an extra hurdle for a Japan-based startup – not only to convince the investor of their venture but also of the market’s viability.

Smaller round sizes

In my experience, the sizes of seed to series A rounds for fintech startups in Japan are smaller than in markets like Singapore. The US$3.4 million seed round my company raised is higher than many other published seed rounds in the country.

The investors I speak to say they typically raise US$700,000 seed rounds in Japan. A figure like that won’t take you far in Japan if you’re setting up a business that requires licensing, let alone hiring talent with salaries comparable to places like London, Singapore, or New York.

Notwithstanding the recent nosedive of the Yen against the US Dollar, I expect to see these round sizes go up to meet the costs associated with licensing as more fintech and banking-as-a-service startups enter the Japanese scene.

Closing the gap