Why ‘Japaneseness’ is holding Japan’s startups back from going global

Ikuo Hiraishi is a Japanese serial entrepreneur and an angel investor. He runs DreamVision, a unique company with a clear mandate to “globalize” Japan’s startup scene.

Let’s be frank: Japanese startups have lagged on the global scene. Despite Japan’s economic strength and renowned tech prowess, its startup scene hasn’t yet matched its potential.

Data as of 2021 from the World Bank showed that startups in Tokyo raised 16x less funding per capita than startups in Berlin, even though the Japanese and German economies are of similar size.

Image credit: Timmy Loen

This isn’t to say that Japan’s startup ecosystem isn’t going in the right direction. It has, and optimism is of the essence when looking at domestic funding numbers.

Comparatively, though, the country is boxing below its weight. Many Japanese founders have built their startups on the shoulders of the GAFAMs, the real, American winners of the global startup game so far.

The current, fourth generation of Japanese founders can alter that trend. It can compete internationally and build global winners, emulating Japanese post-World War II corporate behemoths like Sony, Honda, and Panasonic.

For that to happen, however, the ecosystem has to address a few challenges.

Generation game

The modern Japanese startup ecosystem can be divided into four generations.

The first generation, birthed during the late 1990s, included startups that presciently realized the internet’s transformative power. They all had a simple mandate: recreate the real world digitally.

Founders during the first generation all shared one common trait: They understood the internet’s potential before their peers did. From there, founder demographics varied widely.

Rakuten founder Hiroshi Mikitani, for instance, holds an MBA from Harvard and worked in banking. Kaneto Kanemoto, the founder of OKWave (known as “Japan’s Quora”) used to be homeless and launched his startup using his wife’s savings.

The second generation spawned following the burst of the dot-com bubble in the early 2000s. Founders from that generation explored different types of internet businesses, resulting in diverse startups. Uzabase launched an online media offering, while Gree and Colopl rode the early mobile gaming wave.

The 2008 financial crisis, crystallized by the Lehman Brothers crash, brought the second generation to an abrupt stop. In Japan, the period was worsened by a fraud scandal involving a listed internet startup, Livedoor. These events all pumped the brakes on the Japanese startup dynamic.

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