New start-up wave challenges Japan's aversion to risk
15/12/2016 23:00
* Start-ups on track to raise record funds this year - think
tank
* Investment led by big firms to keep up with technology
advances
* Risk-averse Japan firms, investors slowly warm to
start-ups
* Venture investment in Japan tiny relative to U.S., China
By Tetsushi Kajimoto
TOKYO, Dec 16 (Reuters) - A wave of start-ups is emerging in
famously risk-averse Japan as cash-rich corporations
increasingly delegate the task of keeping pace with technologies
such as artificial intelligence and robotics to smaller, nimbler
businesses.
Japan has been dry ground for start-ups, given the shame
that entrepreneurs and investors associate with failure, but it
is on track for a record funding year for unlisted start-ups,
exceeding the dot-com bubble of 2000, according to a private
research firm.
"The fundraising environment has improved a lot compared
with a few years ago," said Ken Tamagawa, 40-year-old CEO of
Soracom Inc, which helps companies set up platforms allowing
devices to communicate with each other via the "Internet of
Things".
It raised 3 billion yen ($25.6 million) from Mitsui & Co
8031.T and an investment fund in which Toyota Motor Corp
7203.T has a stake.
Dozens of companies, including electronics maker Omron Corp
6645.T and real estate developer Mitsui Fudosan Co 8801.T ,
have set up venture capital funds to seek returns or team up
with smaller companies.
"It's becoming harder to change with the times," says Kei
Saika, investment director at Omron's investment arm, which was
set up two years ago. "It's more efficient if the venture firms
have the technologies that we don't."
The trend comes with the support of Prime Minister Shinzo
Abe, who sees start-ups as a way to breathe new life into
Japan's long-stagnant economy, and has spoken of Japan learning
the lessons of California's Silicon Valley.
"The tide is changing, although the share of people willing
to take the risk of launching a business is still relatively
small," said Yasuhiko Yurimoto, President & CEO of Global Brain
Corp, a venture capital firm that invests in financial
technology, or "fintech", artificial intelligence and robotics
start-ups.
"More success stories are needed to create a virtuous cycle
of growth."
Start-ups raised 92.8 billion yen in the first half of the
year, according to data from think-tank Japan Venture Research.
At that pace, the amount will exceed last year's 165.8 billion
yen and the previous high of about 170 billion yen set in 2000.
The funding is mostly homegrown; foreign investors made up
just 10 percent. Corporations and their affiliated venture
capital firms accounted for more than a third of investment,
while independent venture capital firms made up 19 percent.
WAY TO GO
Life Robotics CEO Yoon Woo-Keun managed to raise 1.5 billion
yen this year for his company, Life Robotics, which developed a
robotic arm called "CORO" designed for use at cosmetics
companies, car factories and logistic warehouses.
CORO is now being used at Toyota, Omron and the Yoshinoya
9861.T restaurant chain, but for years he got the cold
shoulder from investors in Japan and had considered decamping to
the United States.
Yoon still thinks Japan has a long way to go.
"People talk about a robot boom and start-up boom in Japan,
but personally I don't feel we have reached such a stage at all
in terms of money," he said.
Indeed fundraising in Japan remains a fraction of levels in
the United States, where start-ups raised roughly $60 billion
last year, and even China, where they garnered about $20
billion, according to the Venture Enterprise Center.
Few innovators have made it big in Japan, and most of them
got started soon after World War Two, when Soichiro Honda began
making motorcycles and Akio Morita launched what became Sony
Corp 6758.T . Softbank's 9984.T Masayoshi Son is a more
recent example.
But new names could soon be emerging among the younger
generation.
Classes on entrepreneurship at top universities are packed,
as many students turn their back on both the seniority-based
lifetime employment model that served their parents, and the
cheap, insecure contract work that is slowly replacing it.
Yousuke Okada, 28, is typical of this new breed.
He started ABEJA, which uses "deep learning", a form of
artificial intelligence that processes vast amounts of data, to
analyse shoppers' behaviour.
"It tends to be time-consuming if you try to start something
new like 'deep learning' at a big company, so I decided to do it
by myself," said Okada.
Half of the 20 employees at Astroscale Japan Inc, which
develops technologies to solve space debris problems, are in
their 20s, says company president Miki Ito.
The rest are in their 60s, retirees from jobs at big firms,
as it is hard to find mid-career experienced workers willing to
jump ship.
Success stories from Japan's last start-up boomlet include
networking app company Line Corp 3938.T , and Mixi Inc
2121.T , a social network operator.
But the new breed will, above all, have to learn how to
handle failure.
Of the current crop, only one in 10 will survive, Yurimoto
predicts, and only one in 1,000 will make it to IPO, like Line
and Mixi.
($1 = 117.3700 yen)
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Graphic on fundraising by start-ups in Japan http://tmsnrt.rs/2hyOBFp
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(Reporting by Tetsushi Kajimoto; Writing by Tetsushi Kajimoto
and Malcolm Foster; editing by Will Waterman)
((tetsushi.kajimoto@thomsonreuters.com; +81-3-6441-1829;
Reuters Messaging:
tetsushi.kajimoto.thomsonreuters.com@reuters.net))
Keywords: JAPAN ECONOMY/ENTREPRENEURSHIP