Japan is the world's third-largest economy, but its venture capital (VC) and startup ecosystem has been lagging behind other major markets such as the United States, China, and Europe. However, in recent years, there have been signs of change and growth in Japan's VC and startup scene, driven by various factors such as government support, corporate innovation, and global opportunities. In this article, we will explore the current state and future prospects of investing in the VC and startup market in Japan.
Current state of the VC and startup market in Japan
According to Statista³, the total amount of domestic VC investment in Japan reached 877.4 billion Japanese yen (about 8 billion US dollars) in 2022, which was a record high and a 16.5% increase from the previous year. However, this amount is still small compared to the US, which had 156.2 billion US dollars of VC investment in 2022, or China, which had 44.6 billion US dollars¹.
The number of startups in Japan is also relatively low, with only about 10,000 startups as of 2022, compared to about 100,000 in the US or 50,000 in China. Moreover, Japan has produced only a few unicorns, which are startups valued at over 1 billion US dollars, such as Mercari, Preferred Networks, and SmartNews¹.
One of the reasons for the slow development of the VC and startup market in Japan is the conservative and risk-averse culture that prevails in the society and the business environment. Many talented and ambitious people prefer to work for established and stable companies rather than pursue entrepreneurial ventures. Many startups also tend to focus on the domestic market rather than expand globally, due to the language barrier, regulatory hurdles, and lack of global networks.
Another reason is the shortage of developer talent and innovation capabilities in Japan. According to a report by Indeed, Japan ranked 29th out of 60 countries in terms of the number of software developers per 1,000 people in 2021, far behind the US, which ranked 8th, or China, which ranked 18th. Japan also ranked 16th out of 131 countries in terms of the Global Innovation Index in 2020, behind the US, which ranked 3rd, or China, which ranked 14th.
The number of startups in Japan is also relatively low, with only about 10,000 startups as of 2022, compared to about 100,000 in the US or 50,000 in China. Moreover, Japan has produced only a few unicorns, which are startups valued at over 1 billion US dollars, such as Mercari, Preferred Networks, and SmartNews¹.
One of the reasons for the slow development of the VC and startup market in Japan is the conservative and risk-averse culture that prevails in the society and the business environment. Many talented and ambitious people prefer to work for established and stable companies rather than pursue entrepreneurial ventures. Many startups also tend to focus on the domestic market rather than expand globally, due to the language barrier, regulatory hurdles, and lack of global networks.
Another reason is the shortage of developer talent and innovation capabilities in Japan. According to a report by Indeed, Japan ranked 29th out of 60 countries in terms of the number of software developers per 1,000 people in 2021, far behind the US, which ranked 8th, or China, which ranked 18th. Japan also ranked 16th out of 131 countries in terms of the Global Innovation Index in 2020, behind the US, which ranked 3rd, or China, which ranked 14th.
Future prospects of the VC and startup market in Japan
Despite the challenges and limitations, there are also opportunities and potentials for the VC and startup market in Japan to grow and thrive in the future. Some of the factors that could contribute to this growth are:
Government support
The Japanese government has been implementing various policies and measures to foster and promote the VC and startup ecosystem in Japan, such as tax incentives, regulatory reforms, funding programs, and international partnerships. For example, the government launched the J-Startup program in 2018, which aims to support 100 promising startups to become global unicorns by 2023.
Corporate innovation
Many large and established corporations in Japan have been increasing their involvement and investment in the VC and startup scene, as a way to foster innovation and digital transformation in their own businesses and industries. For example, SoftBank, one of the largest and most influential investors in the world, has been backing many startups in Japan and abroad through its Vision Fund and other vehicles. Other examples include Rakuten, Sony, Mitsubishi, and Toyota, which have established their own VC funds or accelerators.
Global opportunities
As the world becomes more connected and digitalized, there are more opportunities and demands for Japanese startups to expand and compete globally, especially in emerging markets such as Southeast Asia, India, and Africa. Some of the sectors that have high potential for global growth include e-commerce, fintech, healthtech, edtech, and AI. Some of the examples of Japanese startups that have successfully gone global include PayPay, which is a mobile payment service that has over 40 million users in India, and ZOZO, which is an online fashion retailer that operates in over 80 countries.
Conclusion
In conclusion, the VC and startup market in Japan is still small and underdeveloped compared to other major markets, but it has been showing signs of growth and improvement in recent years, thanks to the support and involvement of the government, corporations, and other stakeholders. There are also opportunities and potentials for Japanese startups to innovate and scale globally, especially in the fields of digital and technology. Therefore, investing in the VC and startup market in Japan could be a rewarding and profitable venture for investors who are looking for new and emerging markets with high growth potential.
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We are always on the lookout for new opportunities to partner with talented and passionate entrepreneurs who have a vision to change the world. If you have a great idea that needs funding and support to grow, we invite you to apply to join our community and programs. Whether you are looking for seed funding, Series A, or beyond, we have the right solution for you.
Join our community now!