The emerging start-up scene challenges the country’s corporate orthodoxy.
The Toto toilet, a state-of-the-art guarantor of sanitation for bathroom-goers worldwide, offers a useful rejoinder to those who doubt Japan for its years of economic and social drift. Japan’s reputation as an innovator remains intact, and today the country ranks third globally for R&D spending as a percentage of GDP – ahead of the United States and China.
Even so, Japan’s start-up ecosystem is underdeveloped. Three years ago, the Global
Entrepreneurship Monitor placed Japan 69th out of 70 countries for early-stage entrepreneurial activity.
Piotr Grzywacz, CEO of consulting firm Pronoia Group, blames the state of Japanese entrepreneurship on a tight regulatory framework and public bearishness on startups.
Regulatory reform has been gradual. In 2006, Japan’s Ministry of Economy, Trade, and Industry (METI) scrapped a company registration law raising the collateral requirements for new business owners. Despite lowering the required good-faith indemnity to a nominal 0.01 euros, METI’s initiative o ers only partial relief to foreign entrepreneurs, who must guarantee an initial capital investment exceeding 41,000 euros.
On the investor front, the improvements are more nuanced. Due in part to a new government provision making 80 per cent of venture investment tax-deductible, corporate funds and other venture groups have grown their activity by 300 per cent over three years. But these funds are often misplaced, according to Grzywacz, formerly of Morgan Stanley and Google Japan.
“The venture arms of corporations here are limited in their understanding of startups,” Grzywacz says. “They usually comprise salaried workers rotated from one division to another, who are ill-equipped to guide a startup through its growing pains.”
CHANGING OF THE GUARD
Yoshiaki Ishii, director of METI’s New Business Policy Office and architect of the new policy on collateral, insists the changes are solid and run deep. According to Ishii, Japan’s current leadership is systematically laying the foundations of a healthy start-up ecosystem.
After assuming office in late 2012, Japan’s Prime Minister Shinzo Abe courted industry leaders and investors aggressively, even visiting Silicon Valley in 2015 – the first sitting Japanese prime minister to do so. He established the Japan Venture Awards, an annual start-up competition jointly funded by METI and top corporations, and promoted entrepreneur and investor summits held under the aegis of the Venture Business Creation Council and Innovation Network Corporation Japan, among others.
Since 2016, the government has funded a pilot entrepreneurship education initiative in some 30 Japanese elementary, middle, and high schools. Building on earlier programmes dating to 1999, the new initiative includes seminars on communication, financial literacy, business modeling, and risk management, and allows students to simulate start-up incubation.
A special advisor to Prime Minister Abe and his Cabinet, William Saito – who started his first company in high school and is involved in efforts to improve Japan’s IT education – believes the programme is important for the country’s start-up future, though he is sceptical of its eventual success.
“While government-led e orts to improve the start-up curricula are well-meaning and a step in the right direction, until they become more scalable – for instance, by bringing in outside experts when students outstrip their teachers – I don’t see this making much of a dent in people’s fears about the very real dangers of becoming an entrepreneur in Japan,” says Saito.
Still, for Japan Inc., whose ageing workforce promises an increase in individual purchasing power and opportunity for future generations, it is only logical to focus on the needs of young people.
Stanford University researcher Kenji Kushida, writing for the Asia Pacific Initiative, a Japanese think tank, says Japan’s economy has moved from manufacturing to services, and is undergoing a seismic digital revolution. Kushida says these transformations are upending the traditional model of lifetime employment in a big company, and providing exposure to alternative means of employment. is, in turn, is destabilising for the country’s powerful corporate orthodoxy and welcome news for its brightest young visionaries.
A REAL ECOSYSTEM
At Slush Tokyo, a popular start-up convention originating in Helsinki with annual sister gatherings in Beijing, Shanghai, and Singapore, the focus is squarely on young people. Everything from the event’s international assemblage and retro atmospherics, to its colourful mix of exhibition booths featuring the latest in high tech is tailored to a young audience. Indeed, Slush is virtually a student-led organisation.
“We are very proud of our community of student volunteers,” says Antti Sonninen, Slush Tokyo CEO. “Our objective has always been to interest young people in startups, and what better way to achieve that than by making them a part of our operation.”
In a country where the majority of high school graduates go on to college (52 percent in 2014), university-affiliated venture incubators, like University of Tokyo Edge Capital (UTEC) and Miyako Capital of Kyoto University, play a pivotal role in upending the stigma attached to startups. Kushida points to Spiber and Cyberdyne, winners at the inaugural Japan Venture Awards in 2015, as pioneers in this new wave of university-incubated startups.
Spiber was founded by two college students who synthesised spider silk in a small university laboratory. Now it partners with North Face, the American outdoor apparel giant. Cyberdyne has authorised some 222 million euros in capital stock as of 2016, and markets its HAL (human assistive limb) robotic suits to medical facilities and private consumers on three continents.
“In 1997, Japan had a large amount of money flowing into a very few startups,” says Tim Romero, an investor, entrepreneur, and host of the Disrupting Japan podcast. “Though big, stable internet companies like Rakuten and GREE came out of that era, there are many more startups, with smaller amounts being invested into them, that are doing business with each other. Today, there’s a real ecosystem.”
Like Romero, Grzywacz is optimistic: “Entrepreneurs have plenty of opportunities to gain access to funding in Japan, and there’s still relatively little going on given the size of the economy. Hence, not much competition. Reform comes in fits and spurts, but we’re beginning to see pockets of change in places like Fukuoka, Sendai, and Tokyo’s Minato Ward.”