Trying to find unicorns: Japanese start-ups see hope on the horizon
15 October, 2020
Hampered by cautious investors and a rigid corporate culture, Japan has produced simply a couple of major start-ups. But there are signs that may be changing, industry insiders say.
Despite being the world's third-largest economy, Japan is far behind America and China with regards to generating "unicorns" -- new companies valued at more than $1 billion in private funding.
There are practically 500 unicorns worldwide, from Silicon Valley rental giant Airbnb to Bytedance, TikTok's Beijing-based parent company.
But only four of the firms are Japanese, according to the latest list published by U.S. analytics platform CB Insights.
"In accordance with its GDP, Japan should have at least 50 to 60 unicorns," said Gen Isayama, head of World Innovation Lab, a California-based company that provides advice and capital to start-ups, with a focus on Japan.
"In Japan, innovation efforts have always been led by big corporations," he explained, with banks "more ready to loan money to these corporates rather than to purchase start-up companies."
Japan's venture-capital market, worth around $4 billion this past year, is much smaller compared to the United States' at $137 billion and China's at $52 billion, according to many studies.
But even Japan's own SoftBank Group, which has invested heavily in tech firms, tends to fund overseas prospects, including Uber and Alibaba, and has barely touched smaller homegrown companies.
That insufficient private capital for expansion can force Japanese start-ups to go public much earlier than their counterparts elsewhere.
But "in the event that you go public too small, you can't ever grow", warned Isayama.
"In Japan, the standards for listing are very low, so there are a whole lot of tiny corporations, and several of them are content with that," said Takeshi Aida, founder, and CEO of RevComm, a Tokyo-based AI start-up that hopes to launch soon in Southeast Asia.
The country's shrinking population and stagnant economy mean "a lot of international companies are not really thinking about Japan", he told AFP.
That in turn can mean Japanese start-ups feel "protected" from outside competition, he added, lacking the drive to grow and expand.
Industry players also indicate cultural factors, saying Japan's education system is still designed to produce prospects for stable jobs at big companies.
It takes "a whole lot of guts" to break the mold in a society famous for conformity, Isayama said.
Aida chuckled when he recalled his student days: "I was very strange in comparison to other folks. I talked about an excessive amount of, I spoke my mind."
Takafumi Kurahashi, operational director at digital start-up SmartHR, said he realized the cultural dissimilarities growing up between Japan and America.
"If you show off you will be pushed back," he said of his experience at a Japanese senior high school. "THEREFORE I learned the hard way, by getting pushed back."
Despite the difficulties, professionals see known reasons for optimism.
"Manufacturing, heavy-industry driven corporations have realized they can not innovate in the way they used to", Isayama said, plus they are able to invest in start-ups that may fill that gap.
Corporate investors are also slowly but surely realizing it is best to give start-ups space to find their wings, instead of trying to regulate them, he added.
The pandemic and new Prime Minister Yoshihide Suga's reform agenda are also driving Japanese businesses and government departments to digitize further, which could provide new opportunities for homegrown tech entrepreneurs.
Isayama said government support for start-ups is also improving, with officials seeking advice from experienced investors on which firms to support.
And innovators may take inspiration from the success of companies like Mercari, an e-commerce platform for second-hand goods founded in 2013, which has been downloaded a lot more than 50 million times in America.
Mercari was Japan's first unicorn to go public in 2018, in fact, it is now valued at 780 billion yen ($7.3 billion).
"When Mercari went public, it had been huge news for us," said Kurahashi. "We are more determined to aim high and make history."
Source: japantoday.com