Japan VC draws global attention - AVCJ Forum

The government unveiled a five-year plan at the end of 2022 that is intended to increase the scale of investment in start-ups tenfold to JPY 10trn (USD 69bn). This has helped maintain positive sentiment despite the expectation that VC investment, which stands at USD 1.4bn year-to-date, will fail to match the USD 4.3bn recorded in 2022.

Satoshi Fukushima, a partner at Globis Capital Partners, noted that Japan is well prepared to receive global investors because industry valuation methods and benchmarks are established. Globis recently closed its seventh fund on JPY 72.7bn (USD 544m), up from JPY 40bn in the previous vintage. However, the LP base remains 90% domestic.

More recent market entrants – Globis launched its fund more than 18 months ago – report greater international traction, albeit from a much lower base. Dimension closed its second fund in May on JPY 10.1bn, having secured its first overseas institutional LP. Abies Ventures is seeking JPY 10bn for its sophomore offering and plans to tap international investors for the first time.

Yuka Hata, a managing director and head of fund investments at Japan Investment Corporation (JIC), observed that Japan is likely to attract more interest as institutional investors pull back from mainland China. She cautioned that capital would flow to multiple markets – highlighting a recent increased focus on Europe – but “Asia as a whole is also gaining attention.”

Hata identified India and Southeast Asia as likely beneficiaries in the region. Japan’s potential advantage is its relatively large and mature economy, with some investors regarding Southeast Asia as not developed enough, she added.

Japanese start-ups are also well-positioned in that they are increasingly geared towards overseas markets. “Japan was in a closed environment but now they are opening up to the world,” Hata said, noting greater cross-border collaboration at the venture capital level as well.

Japan’s other core strengths include its R&D prowess, investors said. Kiichiro DeLuca, head of research at Weru Investment, pinpointed high levels of competence in new materials and healthcare equipment. B.T. Slingsby, a founder and managing director at Catalys Pacific, referenced biotech and the willingness of drugmakers to spend heavily on R&D to secure high-quality intellectual property.

Compared to other markets, Japan remains sub-scale in terms of technology IPOs. Slingsby noted that a lack of growth capital and cross-over investment from the likes of hedge funds restricted the scope of companies to scale up under private ownership, leading to smaller IPOs. He added that greater institutional investor participation would help. At present, retail investors cover as much as 70% of some offerings.

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• Topics
• North Asia
• Early-stage
• Technology
• Venture
• GPs
• Japan
• Catalys Pacific
• Globis Capital Partners
• Japan Investment Corporation (JIC)
• Werun Investment
• TMT