Last month’s article discussed how the Silicon Valley firm 500 Startups is planning to address the lack of venture capital in Japan. They will do it the lean and dynamic, way, through small seed stage investments. This will help kickstart some new companies, but the real lack of funding comes later, when investors fail to provide later-stage funding.
The phenomenon is not new and in 2009 the Japanese government, recognizing the need for technological innovation as a driver of the economy, set up a public-private partnership called Innovation Network Corporation of Japan (INCJ) to address the issue. The venture is endowed with a 300 billion yen fund, 286 billion of which come from the government and the remaining 14 from 26 Japanese corporations.
The purpose of the partnership is to promote open innovation and invest the fund money into next-generation businesses, or, as the fund’s new leader Toshiyuki Shiga puts it, “to help create a Japanese Elon Musk.”
Shiga, the former chief operating officer of Nissan Motor Co., was appointed leader of INCJ after Prime Minister Shinzo Abe’s visit to Silicon Valley. There, he met with aforementioned Elon Musk, founder of both Tesla Motors Inc. and SpaceX, and Jack Dorsey, co-founder of Twitter, and announced the Japanese government’s intention to promote startups.
And thus, among investments in established technology companies, INCJ provides support to startups and venture capital firms involved with that ecosystem. In 2014, it invested in Oh My Glasses Inc. and WHILL Inc., two prominent Japanese startups. In early 2015, INCJ made a strategic LP investment of no less than 5 billion yen in a fund set up by the well-known Japanese VC firm Incubate Fund.
Such a combination of private early-stage investment and funding from government or big corporations at a later stage is the current state of affairs in Japan. However, as startup popularity grows and new actors such as 500 Startups start coming in, the situation might evolve towards a market where government intervention is less needed.