Despite the impact of COVID-19 on the economy of Japan and the world, Japan's startup ecosystem has continued to strengthen and so too has interest from overseas tech companies when entering the Japanese market. In this article, Susan shared with us the story behind her market entry into Japan and her experience...Read More
During May 10-12, 2021, over 780 CEOs, Business Executives, Japan Policy Heads, VC, CVC, PE, Institutional Investors and Academia came from 42 countries to be a part of the annual EU-Japan EPA Forum which aims at deepening the relationships and understanding of the Europe-Japan economic landscape. This included innovation and technology related activities, and attracted global leaders from Japan such as the Presidents of JAXA (Japan’s equivalent to NASA), Olympus Corporation and NEC alongside many Europe-based key figures such as the European Chairman of Panasonic and many others.
Rainmaking Innovation Japan attended the event with Joshua Flannery speaking in the forum, it was a real honour to have been invited as a panelist for the session themed, “Can investing in Japan’s hyper-innovation startups stimulate the world of bilateral cooperation, M&A and joint ventures”. Joshua was representing Rainmaking Innovation Japan alongside peers from MUFG Innovation Partners, Rakuten Europe, Advantage Partners (Japan’s first private equity fund), Nomura Research Institute and the panel was moderated by the Executive Editor of Nikkei Asia.
There were some quite interesting insights revealed during the session, the first of which being the acknowledgement that Japan is still a developing ecosystem. There was a consensus that whilst there has been an accelerated rate of progress, and that particular ecosystem players are shining at a world-class level, there are still plenty of opportunities to grow and mature. In particular, producing and nurturing a constant flow of unicorn companies and also in terms of funding activities, especially at the angel investments stage are areas to strengthen for Japan to fulfil its full potential. It should be noted that particular areas of Japan have quietly shown relative dominance, for example, by far the largest number of foreign Corporate Venture Capital representatives based in Silicon Valley are Japanese, and for some time Japan has been one of the largest sources of venture capital across South East Asia.
Secondly, it was agreed that Diversity is a challenge that is now hurting the development of Japan’s innovation ecosystem. The CEO of Rakuten Europe, Toshihiko Otsuka, went as far to hypothesise that this lack of diversity is directly linked to the relatively small number of unicorns being born in Japan, citing the diversity in cultural backgrounds he has come across within successful ventures across Europe as a proof point that diversity can influence success in startups. Whilst the discussion focused on cultural diversity, it is important to highlight the other areas in urgent need of diversification including gender balance, and age groups in the innovation ecosystem which does reflect the wider corporate Japan in that regard. We have learnt through our global programs at Rainmaking that cross-pollination of ideas usually leads to a more successful result, and diversity across culture, gender, age and even professional backgrounds will optimise the impact of startup teams when working together.
Another challenge the Japan ecosystem is facing is participation rates in the innovation ecosystem from the general population, especially when participating as startup founders. Encouragingly, Tetsuya Inoue, Chief Researcher from the prestigious Nomura Research Institute noted that there is a growing number of people graduating from university who do want to establish businesses themselves, as opposed to taking the less-risky, more traditional route of employment with a large corporation. One way to encourage this is to make efforts via education to shift the mindset among students whilst they are considering what type of career is best for them. Interventions during high school and university age, where an “entrepreneurial career” is presented as a respectable and legitimate career choice are starting to happen at some universities in Japan but it needs to happen en masse for real impact to occur. As well as this, elements of critical thinking being introduced into classrooms can deliver the tools to people to explore alternative opportunities and develop the entrepreneurial thinking needed to support the innovation ecosystem. This has also shown to be developed via student internships in companies such as Rainmaking, which provides students with exposure to startups as they complete their studies.
Inoue-san and Joshua agreed that large corporations, however, are still taking the lead in the development and growth of Japan’s startup ecosystem and ultimately “providing the seeds of new businesses”, which speaks to the work we are doing with Rainmaking in Osaka, providing a landing pad and resources for inbound startups from overseas to scale into Japan – and doing so in partnership with large corporations with an appetite for global cutting-edge technologies. We have seen these large corporations take the lead in many of the key initiatives which are present in the current innovation landscape in Japan and recognised the impact it is creating for local ecosystems. The panelists also agreed that the fact Rainmaking is doing this in Osaka is a sign that all the action is not happening in Tokyo exclusively, as corporations, government and academia are making a concerted effort to build regional ecosystems across the country. As an example of how these national challenges can be approached in specific regions, our Osaka-based program Startupbootcamp Scale Osaka, is helping to seed the local startup ecosystem with foreign companies. This in turn has begun to see Japan-based offices of foreign startups sprout, with those offices hiring local talent. History has shown that it is common for employees of startups to later start their own company or join more mature startups as they grow towards unicorn status. It is this type of ecosystem “seeding” that sees the ecosystem win as a whole, and we believe that this methodology can be applied to other regions within Japan.
Whilst not an exhaustive list, the areas outlined above, and in the panel discussion, are all elements which point to development of the quality of the ecosystem between Japan and Europe. By investing in more startups from an earlier stage via angel investing, investing in initiatives and programs that contribute to the diversification of the ecosystem across critical segments such as ethnicity, gender and age, as well as making the “entrepreneurial career” more accessible and legitimate in mainstream society, we can see evidence of this pointing towards the potential increase in bilateral cooperation, M&A and joint ventures between Japan and Europe.
We believe in this development and enrichment of the innovation ecosystem, and have seen the progress of its development through this discussion. Further information can be found via the recording hosted online here. Do you agree with the thoughts shared in this panel? Rainmaking Innovation Japan is also opening our discussion channels to collaborate with startups and corporates alike to contribute to these initiatives within the ecosystem. Send us a message if you are interested to find out more..
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