The Congress was kicked off by the Japan Research Institute (JRI), financial services firm Sumitomo Mitsui Financial Group’s wholly-owned subsidiary which provides information services, management innovation and IT consulting services, and conducts economic research and GCV to provide the first day’s program: how to design Japanese society in the Reiwa [Emperor Naruhito] era.
BP Ventures, Tencent, SVB and Helsinki Business Hub also enabled meetings more than five years since GCV’s first corporate venturing collaboration at the British Embassy in Tokyo.
The delegation of international CVCs and VCs learnt about the status of smart city development in Japan, as well as similarities and differences between global and Japanese smart cities, public-private partnerships and startups with relevant technologies. In the morning, the delegation visited the smart city development in the Toyosu area by boat.
JRI runs Mirai 2020 – Incubation & Innovation Initiative (III) consortium, an incubation and acceleration scheme set up with Sumitomo Mitsui Banking Corporation that looks to help startups intending to create social impact.
The Mirai 2020 III consortium program focuses on startups from seed to early stage, as well as corporate and university spinouts. The target areas are broad – including sportstech, healthtech, fintech, agritech, foodtech, artificial intelligence, internet of things, big data, virtual reality and others – which form the foundation of Japan’s growth strategy and contribute to the revitalisation of the Japanese economy.
Five smart city-focused startups shared two-minute pitches in the matinee session: visual intelligence technology developer PerceptIn, vertical-axis wind turbine developer Challenergy, aerial space commercialisation service provider TrueBizon, empty seat information service provider Vacan and smart lock developer Bitkey.
Smart cities
James Mawson, editor-in-chief of GCV, welcomed the attendees with Hironobu Azuma, a principal at JRI’s research consulting department.
Azuma said: “Today’s activities are centred on smart cities and are being hosted by Japan Research Institute’s III consortium. The advantages of bringing everyone to Japan is that G20 has just taken place in Osaka, and on this occasion, we are having a representative from the World Economic Forum on the panel – we are looking to build a global alliance.
“Tokyo will also be hosting the Summer Olympics next year, while Osaka will host Expo 2025, so the next five to six years Japan will be quite active in the international arena. In the future, as different industries are being disrupted, I am hoping corporates and startups will work together to update world cities.”
On smart cities, Mawson said: “With half of people now living in cities for the first time – and expected to increase to 70% by 2050 – ‘smart city’ is a ubiquitous term for the technologies and business models that will affect most people by leveraging data and digital technology to help solve pervasive problems in public and private services and urban planning.
Above: Delegates listen intently on the boat trip to the smart city in Toyosu
“From reducing carbon emissions and congestion to creating more affordable housing, everything about how we live, move, work, eat, meet and think is up for grabs.
“And with a majority of the world’s population living in Asia, this region is a petri dish for global innovation. From cashless economies ruled by apps, such as Tencent’s WePay, to Japan’s robot-assisted living to support the ageing society, to Singapore being ranked the most AI-enabled city, the future can be seen, right here, right now.
“And all this is supported by corporate venturing as part of the broader private capital markets that have seen more than $149.7bn invested in urban technology over the past eight years, according to data provider PitchBook.
“In the past year, corporate-backed GBCI venture capital firm in Singapore launched a $100m smart-city development fund that focuses on investments in technologies like AI, robotics, big data, internet of things and virtual reality, with its first venture-built company, Building Cities Beyond Blockchain, as a foundation for smart-city application development.”
Mawson added that the top 10 smart city suppliers, according to Navigant Research, are also some of the most active corporate venturers. “In 2017, Cisco said it invested $1bn dedicated to building smart cities around the globe through the use of its Kinetic Cities IoT platform, while Microsoft said it would invest $5bn in IoT technology from 2018 to 2022 (and co-founder Bill Gates’ investment firm Cascade Investment has bought a stake in 24,800 acres outside of Phoenix, Arizona, which will become a new smart city).
“Ultimately, governments have the convening power, but corporations have the capital: $22 trillion of cash on their books. Bringing both together will make the world a better place.”
A panel discussion moderated by Azuma followed, discussing new ways to design cities. The panel had Takuma Enomoto, a member of the executive committee for Fukuoka City general transportation strategy, Ryuta Mizoguchi, solution sales division head at general contractor Shimizu Corporation’s Life Cycle Valuation (LCV) business group, Chizuru Suga, head of the World Economic Forum Centre for the Fourth Industrial Revolution Japan, and Dennis Liu, associate director of global strategy
and business development at Ford Research and Innovation Center, the motor company’s research and development office.
Liu, who heads Ford’s Silicon Valley corporate development efforts managing investment activity and relationships with VCs, corporate innovation and CVC outfits, and the greater startup ecosystem, said although Ford has not made direct investments in many of the smart city ideas such as smart sensors, its mobility-as-a-service initiatives are relevant to the smart city work and collaborations.
Ford works closely with the government and law enforcement and understands the importance of public-private partnerships with regard to developing autonomous vehicle programs and other new technologies.
Above: a building in Tokyo’s smart city
Enomoto specialises in urban transport planning, urban and regional area design and creation of urban policy and transportation policy and joined Fukuoka Directive Council in 2015. He said Fukuoka City is running the Smart East Proof-of-Concept (PoC) Program where urban developmental challenges and other social issues, including declining birth rates and ageing population, are addressed in order to achieve sustainable growth of Fukuoka Smart East.
Mizoguchi, who joined Shimizu’s LCV business group in 2018, said Shimizu Smart Cities focus on community planning that is disaster-resilient and friendly to people and the environment. The initiative uses of natural energy, continuing business operations during natural disasters with the Business Continuity Plan and maintaining people’s lifestyle with the Life Continuity Plan.
Suga, who is a policy expert at Japan’s Ministry of Economy, Trade and Industry (METI), concentrates on market reforms including finance, education and healthcare, specialising in sustainable ageing society development. She said the World Economic Forum will contribute to global efforts to advance the responsible and ethical use of smart city technologies.
In the evening, a dinner sponsored by Finnish regional development agency Helsinki Business Hub was enjoyed by more than 40 Japanese VCs and corporates at the ceremonial hall Palazzo Ducale Azabu.
Sony site visit
On the second day, consumer electronics producer Sony’s corporate venturing subsidiary, Sony Innovation Fund (SIF), received the delegation in the morning. Toshimoto Mitomo, executive vice-president of Sony and senior investment executive for SIF, retold Sony’s history since it was founded in 1946 as an electronics shop to today’s multinational conglomerate corporation.
Mitomo said the secret to Sony’s success was always based on collaboration, for example, its tape recorder in 1949 was created with telecommunications electronics equipment maker Anritsu Denki, its transistor was produced in 1954 with electrical engineering and manufacturing company Western Electric (the predecessor of telecommunications group AT&T), and the compact disc was invented in 1979 with the help of electronics conglomerate Philips.
The $100m SIF was formed in 2016 in this spirit of collaboration, innovation and challenge, he said. SIF head Gen Tsuchikawa added: “Since establishing Sony Innovation Fund in 2016, we have invested in 50 startups, mainly in robotics, AI and other fields with high growth prospects.”
SIF’s primary purpose is to support Sony’s business strategy, making direct and indirect contributions through the early acquisition of the following assets: new technologies and new markets, new business models and talents familiar with new fields. The fund helps the corporate to be a more open and swifter enabler for external collaboration by establishing processes and developing internal human resources.
SIF provides value to entrepreneurs based in the US, Europe, Israel and Japan by liaising between portfolio companies and the parent. Startups regard Sony as a well-respected household brand and seek out Tsuchikawa as a reliable partner with the technical knowledge to help them on their journey.
Sony launched Innovation Growth Ventures (IGV) in July this year, a joint venture with brokerage Daiwa Securities’ investment banking subsidiary, Daiwa Capital Holdings, to focus on areas including AI, robotics, mobility, internet-of-things, entertainment, medical, financial and sports technology. It is aiming for a $185m final close.
IGV ensures transparent governance and decision-making through its 50 general-partner (GP) structure between Sony Group and Daiwa Securities Group, leveraging resources and knowledge of both groups. In addition to the US, Europe, Israel and Japan, the new fund will also add other Asian regions including India to its target, concentrating on middle and later-stage ventures.
Tsuchikawa added that SIF was proud to promote diversity in its portfolio companies, with many of the founders being female, including Miku Hirano of document-reading tool provider Cinnamon and Naomi Kurahara of cloud-based satellite antenna sharing platform developer Infostellar.
Japan on the rise
Mawson then gave some insights from GCV Analytics on Asia’s importance in global venture capital ecosystem and how local corporate venturers are scaling and speeding up innovation as Japan waxes and China wanes over the past few quarters. (For GCV’s innovative region feature on Japan published in September, click here and a special report of profiles of leading active CVCs in the country can be bought here.)
With 543 active CVCs last year, the Asia-Pacific region had nearly as many as the US (582). This figure has more than quintupled since 2013 when CVC activity started to take off again this decade. While about 80% of investments are carried out by around 20% of CVCs, Asia-based corporations from China and Japan have led the scaling up of the global industry, Mawson added. Japan-based conglomerate SoftBank’s near-$100bn Vision Fund closed in 2016 has garnered most attention but China-based Alibaba and Tencent have dominated in their local markets through investing billions of dollars each year and increasingly looked abroad to help with their global expansion plans.
However, the 29% drop in CVC deal values in the first half of the year broadly mirrored the slowdown in large, China-focused investments, according to GCV Analytics. Twenty-seven China-based companies raised at least one $100m round this year, compared with 102 last year. Earlier in the decade, Chinese companies, such as Didi Chuxing and Ant Financial had both raised more than $10bn in venture capital. But while Japan has had fewer similarly sized large rounds (SoftBank’s Vision Fund has yet to back a domestic company) it has effectively caught up to China for CVC deal volumes in the first half of this year (153 for Japan compared with 158 in China).
Overall, however, the number of startup companies in Japan decreased to about 1,400 in 2018 from around 1,700 in the previous year, Statista said. At the same time, the number of funds they raised increased, indicating a higher amount of capital raised per startup and companies have scaled up. Mercari and Preferred Networks have both floated and now have market capitalisations of more than $1bn, although most of the CVC deals in Japan have relied on domestic corporations rather than attracting international investors, GCV Analytics data showed.
A panel discussion featuring Dong-Su Kim, CEO of LG Technology Ventures (LTV), a CVC subsidiary of South Korea-based diversified conglomerate.
Kim joined LTV in mid-2018 from electronics conglomerate Samsung’s corporate venturing arm, Samsung Ventures America, where he had been general manager for more than eight years. He is currently based in Silicon Valley, managing the $400m fund and portfolio companies including mobility software developer Ridecell, speciality chemical provider Lygos and autonomous shuttle transport provider May Mobility.
LTV is located in Silicon Valley instead of South Korea because that is where at least half of the venture deals are conducted, Kim added. He said if his unit were based in South Korea, it would make communication more difficult.
Kim said: “From my experience at Samsung Ventures which is headquartered in South Korea with investments in Silicon Valley, the communication from the investment team – most of whom were Americans with Silicon Valley culture – tried to communicate with people in South Korea who have very rigid Asian corporate culture, which created a lot of miscommunication.”
LTV, on the other hand, “has good autonomy”, explained Kim. “We do need to work with people in Korea, but things like how we structure the investment deals and valuation, and how much to invest are up to the local team in Silicon Valley to decide and negotiate.”
After the discussion, Sony showcased its latest technology in Sony Square. The delegation was able to experience some of Sony’s newest and most innovative products, including AI-enabled pet dogs Aibo and spatial audio technology 360 Reality Audio.
The corporate parent’s perspective
In the afternoon, the delegation was invited to trade association Japan Venture Capital Association (JVCA)’s premises.
The first panel discussion was moderated by JVCA chairman Soichi Kariyazono, who is a representative partner at Globis Capital Partners, education provider Globis’s investment vehicle, and featured Masashi Nakao, a board member of broadcaster Tokyo Broadcasting System, Toshiro Egawa, managing executive officer at financial services firm Mizuho Bank, Yoshikazu Kitahara, executive vice-president of property developer Mitsui Fudosan, and Soichi Tajima, general partner and founder of Genesia Ventures.
They spoke about the role of CVC units from the Japanese corporate parent’s perspective, giving examples of how the venture deals help them enter into new markets and develop new business models. However, they mentioned their global counterparts go a step further, learning from the portfolio companies in order to innovate and implement new technologies within the parent organisation.
Moreover, the Japanese CVC arms focus more on strategic return and the investment performance is quite low in comparison with international peers that value both strategic and financial returns.
Martin Haemmig, an adjunct professor at the Technical Centre for Mechanical Industry and the Glorad Centre for Global R&D and Innovation, then took the stage and showed data identifying Japanese and other Asian corporate VCs were headquarters-centric in the past but have evolved to be more independent and autonomous.
In advanced economies, Haemmig added, innovation has traditionally been centred on aspects easy to measure, such as technologies, products, processes and business models. But in recent years, many countries including Japan have started to value R&D and other types of intangible assets.
The second panel discussion was moderated by James Mawson and featured global corporate venturers: Dennis Liu of Ford Research and Innovation Center; Jaytiya Ngammaykin, lead of strategic investment at Thailand-based building materials producer Siam Cement Group’s Digital Ventures subsidiary; and George Gogolev, corporate venturing manager for Russia-based mining group Severstal.
From left: George Gogolev, Jaytiya Ngammakin, Dennis Liu
They talked about Japanese and cross-border dealmaking from international corporate investors’ perspective. They agreed that although the Japanese ecosystem can be challenging to enter due to the language barrier and cultural differences, they noted corporates and VCs are more willing to cooperate with international players.
They mentioned different ways to participate in the ecosystem, such as co-investing with Japan-based corporates and VCs or station investors in the country to learn about local dealflow. As innovation is often born from international collaboration, the panellists sent a message to the Japanese VCs and corporate VCs that they are looking to explore different opportunities.
The final panel discussion followed, moderated by Masamitsu Kataoka, managing partner of TBS Innovation Partners, CVC subsidiary of TBS, and featured Yasushi Mizuta, general manager at the second investment department of marketing firm Dentsu; Hiroshi Asada, head of strategic investment centre at printing company Toppan; and Takeshi Kodama, executive manager at 31 Ventures, real estate developer Mitsui Fudosan’s corporate venturing arm, as panellists.
They discussed the evolution of Japanese CVC arms, from the earlier financial firms’ corporate venturing subsidiaries – such as SBI Investment, SMBC Venture Capital and Mitsubishi UFJ Capital – to today’s diverse line-up including their own. They agreed that compared with other ecosystems such as those in the US, Japanese CVC deals do not usually match corporate development needs.
Many Japanese CVCs outsource their operations to external VCs, making corporate development and culture change difficult to occur in large corporations. CVC and M&A departments can also go into conflict as the former tries to sell startups with an expensive price tag, while the latter is hoping to acquire companies economically. How to resolve these challenges remains an important issue to be addressed.
The last segment of the day was a presentation by Hajime Furuya, director of startup and new business promotion office of METI, who spoke about the survey and research on corporate venturing, startups and M&A trends in Japan and abroad conducted jointly by JVCA and GCV.
Both Japanese and global corporates, as well as their respective CVC arms, are driving the world’s rapidly growing VC money. Corporate investment in startups has exceeded 40% of startup funding in Japan and the US, and its presence is still increasing rapidly.
This is because the top management of large corporations is keenly aware of the need for updating their business models through innovation, which without the help from external startups would prove to be impossible.
Only through further collaboration with different international players can Japanese CVCs expand globally and connect with the world’s ecosystems and carry out open innovation that goes beyond national boundaries, Furuya concluded.
His closing remarks were apposite as they lead over the following two days to the first GCV Academy held at law firm DLA Piper’s Tokyo office, run by Paul Morris, speakers included local leaders, such as Keiichi Enjoji, head of Tokyo Electron’s TEL Venture Capital.
The annual GCV survey in English and in Japanese, in partnership with the JVCA, can be found here:
