This is 500 Japan’s plan to boost the Japanese startup scene

There are two things that we would like to accomplish with the 500 Startups Japan fund. The first is we would like to be a part of one big cross-border M&A. The second is we would like to help build a truly global company out of Japan. These are in no particular order. We want both to happen.

It is no secret that the venture ecosystem in Japan is relatively small by global standards. I saw this chart below the other day that listed the top countries for venture capital investment, and I was disappointed to not even see Japan listed.

Why is this so? If you look at the venture life cycle, it goes something like this:

1. a smart and courageous group of people get together and start a company
2. investors back these smart and courageous people
3. the company exits through an IPO or M&A.

The exit part of the lifecycle is the critical component that makes the system work. Because without it, not only would investors not get a return on their investment, but entrepreneurs would not get a return on their time.

Both entrepreneurs and investors need the upside from the exit in order to make everything worthwhile. Otherwise, entrepreneurs are better off climbing the corporate ladder, and investors are better off investing in other asset classes.

Unfortunately, in Japan, these exits are few and far between. In any given year, there are about 100 IPOs, and possibly 20 notable startup acquisitions.

To give you perspective, there about 500 venture-backed exits in the US every year, of which about 80 percent are through M&A. I doubt that the number of IPOs in Japan can change dramatically in the near future. I also doubt that domestic companies will acquire startups fast enough to grow the market.

Progressive Japanese companies like Mixi, DeNA, and KDDI are making acquisitions, but the entire industry cannot rely on this list of about 10 companies to acquire local startups. Something has to change.

We see opportunities to drive cross-border M&A through two strategies.

Final thoughts