Japan is the world’s third-largest economy, with a gross domestic of nearly $5 trillion, the country has been home to some of the most successful electronics and automotive businesses, such as Canon, Casio, Nikon, Sony, Panasonic, Nintendo, Hitachi and Fujitsu for electronics, and Yamaha, Toyota, Nissan, Mitsubishi, Honda, Suzuki and Mazda for automotive, to name a few.
Many of these have conducted corporate venturing investments, and some have their own specialised corporate venture capital (CVC) vehicles. Japan Venture Capital Association has 72 CVC members, most of whose deals have been tracked by Global Corporate Venturing Analytics.
GCV held its third Asia Congress at Sony’s headquarters in Tokyo in October 2019, along with a Smart City programme organised by Japan Research Institute, financial services firm Sumitomo Mitsui Financial Group’s wholly-owned think tank.
It was followed by a two-day GCV Academy workshop led by Paul Morris, former head of chemicals supplier Dow Chemicals’ Europe-based Dow Venture Capital subsidiary who helped set up the unit.
The Academy participants came from CVC units SCB Digital Ventures (now SCB 10X), Omron Ventures and Saint-Gobain Nova, on behalf of financial services firm Siam Commercial Bank, electronics producer Omron and construction materials manufacturer Saint-Gobain. Corporates Hitachi, advanced materials supplier JSR, chemicals producer Mitsubishi Chemical, telecommunications firm SoftBank and engineering firm ST Engineering, as well as public-private partnership Innovation Network Corporation of Japan-backed Universal Materials Incubator filled out the Academy attendees.
The Tokyo Academy (back row, from left): Yasuharu Sakurai, SoftBank; See Kiat Yang, ST Engineering; Atsushi Kato, Hitachi; Yuichi Hisamatsu, Omron Ventures; Koji Hayashi, Mitsubishi Chemical; Hirokatsu Nakayama, Omron Ventures; Yuuchirou Nakamura, JSR; Hiroyuki Kokudai, Hitachi Rail; (front row from left): Yosuke Yamamoto, Universal Materials Incubator; Wannita Wong, SCB 10X; Jaytiya Ngammaykin, SCB 10X; Jing Zhou, St Gobain-Nova; Paul Morris, GCV Academy; and Toshikazu Tatsuta, JSR
Speakers included Nobuyuki Akimoto, previously vice-president and general manager of mobile network operator NTT Docomo’s CVC subsidiary NTT Docomo Ventures; Markus Moor, managing partner of Emerald Technology Ventures, which runs multicorporate-sponsored vehicles; Kay Enjoji, president of TEL Venture Capital, which represents semiconductor production equipment maker Tokyo Electron; and Dennis Liu, associate director of global strategy and business development for carmaker Ford Motor Company.
GCV will run another iteration of Asia Congress and Academy in Tokyo next year because of its strategic importance in the corporate venturing space.
“In my view, compared with the US, the UK or other European countries, Japan has three major unique points,” Naoki Kamimaeda, partner and Europe office representative for Global Brain, a Japan-headquartered venture capital firm that oversees multiple corporate venturing vehicles, told GCV.
“First of all, there are not that many foreign investors active in Japan, especially in the early stages. Therefore, most investment rounds are led by Japanese investors and the syndicate consists of Japanese investors and corporations,” Kamimaeda continued. “Secondly, angels or family offices are less active. There are some very famous angel investors. However, it is not yet common for wealthy people to invest in startups in Japan. Lastly, we have fewer series A and B-focused pure VC funds than in the US, the UK or Europe. Only a handful of VCs have funds big enough to lead series A to B rounds.
“Syndication is more common and more CVCs are involved in early-stage deals. There are more chances for corporates to be involved in early-stage deals if they wish – this unique environment leads to more corporations to form CVC funds.”
Global Brain co-manages property developer Mitsui Fudosan’s 31Ventures funds, inkjet printer and electronics producer Seiko Epson subsidiary Epson X Investment, telecoms firm KDDI’s Open Innovation Fund, brewery group Kirin Holdings’ vehicle Kirin Health Innovation Fund, Norinchukin Bank unit Norinchukin Innovation Fund, logistics group Yamato Holdings’ Kuroneko Innovation Fund and Sony Financial Ventures, which is part of Sony Financial Holdings, consumer electronics provider Sony’s financial services subsidiary.
Gen Tsuchikawa, the chief executive and chief investment officer of Sony’s corporate venturing fund, Sony Innovation Fund (SIF), as well as Innovation Growth Ventures (IGV), which is a joint venture with Daiwa Capital Holdings, a subsidiary of brokerage Daiwa Securities, said: “Japan is a safe developed country with a significant consumer market, technology and large corporates.
“Japan’s startup market is growing but remains small from what you may expect from Japan as a country – that is an opportunity.”
Above: Gen Tsuchikawa
Sony formed SIF in July 2016 to invest in seed to early-stage companies. With offices in Japan, North America, Europe and India, SIF has made more than 60 investments in areas including artificial intelligence, robotics, mobility, internet-of-things, medical, financial and entertainment technologies.
“When we started SIF back in 2016, we initially thought investments in Japan would be very small,” Tsuchikawa admitted. “But we found this to be wrong and made almost one-third of all our investments in Japan.”
Sony co-established IGV, a larger fund that concentrates on mid to later-stage companies, in March 2019. Then in September this year, Sony set aside an initial ¥1bn ($9.4m) to form Sony Innovation Fund: Environment, partnering entrepreneurs developing innovative environmental technology to fulfil its long-term vision of zero environmental footprint by 2050 in its products’ life cycle and business activities.
The firm will boost sustainability efforts and positive impact on the environment through the third corporate venturing vehicle-backed technologies and business initiatives. The scope of its mandate will encompass climate change, resources, chemical substances, biodiversity and environmental, social and corporate governance.
Toshimoto Mitomo, executive vice-president of Sony Corporation, said: “With its CVC activities, Sony has promoted open innovation by nurturing technologies and startups for the next generation. Through the activities of this new environment-focused fund, Sony aims to accelerate innovation that will help solve global environmental issues and contribute to the progress and development of society.”
Referring to a report published in September by entrepreneurial data aggregator Initial titled Funding in startups increased in both the number of companies and the total amount despite coronavirus, Kamimaeda added: “The amount of startup investment has been growing rapidly – from ¥191bn in 2015 to ¥498bn in 2019.
“More people are starting to look into the startup scene in Japan. Because of the environment I mentioned and Japanese corporations having plenty of cash and a lack of innovation, more corporations are interested to collaborate with startups to seek innovation sources and use investment vehicles to attract startups to collaborate with them.
“Most consultancies also started advising large corporations to consider how they can integrate startup collaborations with their future strategies. As more corporations establish CVC funds and start collaborating with startups, more corporations want to form similar CVC and open innovation arms to compete with the others.
“Japanese startup ecosystem is now in a good cadence and the time is ripe for corporations to create CVC funds, and I would expect more corporations to be involved in the innovation and technology scene.”
In 2019, Japanese corporate-backed VC investments reached $46.7bn across 749 deals while global corporate-sponsored deals in Japan-based startups reached $2.6bn across 382 transactions.
Japanese corporate venturing units’ portfolio companies that have scored an exit so far this year have logged $5.3bn in value among six events.
Kamimaeda said: “As Global Brain manages seven CVC funds alongside our mothership pure VC fund, we work with our CVC partners on a daily basis. We strongly believe collaborating with corporations is a key to stimulate the Japanese startup industry that will help startups grow and bring the ecosystem to the next level.
Above: Naoki Kamimaeda
“For that purpose, Global Brain established Alpha Trackers, Japan’s next-generation CVC labs in late 2018. Alpha Trackers has been attracting and inviting more corporations and has become one of the major CVC consortiums in Japan now.
“We collaborate with other CVC peers, VCs, incubators, accelerators, universities and the government deeply. As collaborating with other players is key to growing and strengthening the ecosystem, we actively work with them by mentoring their portfolio companies and co-investing.
“As one of the largest VCs in Japan, we at Global Brain are committed to the Japanese startup sector, bringing it to the next level and to making it more competitive in the world when compared with top startup scenes in other countries. We need to stimulate and improve the Japanese ecosystem further and incubate more global companies from Japan as well. To realise this vision, Global Brain needs to become more global to help our startups to expand internationally.
“Therefore, we have been actively expanding our footprints in new markets and aiming to become a global top-tier VC. Establishing our European headquarters in the UK was one of the first steps for us to achieve this goal.”
Sony’s Tsuchikawa agreed and concluded: “There is a very active community of people among startups, VCs and CVCs, as well as universities and the government. If our CVC friends in the Global Corporate Venturing community want to join, I will be happy to make an introduction.”
From top left clockwise: Koji Hayashi, Mitsubishi Chemical; Hirokatsu Nakayama, Omron Ventures; Wannita Wong, SCB 10X (then SCB Digital Ventures); Edison Fu, GCV; See Kiat Yang, ST Engineering; Atsushi Kato, Hitachi; and Yosuke Yamamoto, Universal Materials Incubator
