Japan’s startup engine is revving up. Prime Minister Kishida has made startups a key part of his growth strategy for Japan, with the goal of increasing the number of ventures tenfold over five years. Talented young people are increasingly drawn to startups and funding is rapidly rising. Tokyo, the beating heart of Japan’s $4.1 trillion economy and one of the world’s major financial hubs, is leading this boom, opening new opportunities for innovators from all over the world.
Japan’s startup momentum is significant, as shown by Initial’s January–June 2022 Japan Startup Funding Report. In 1H 2022 alone, young firms attracted JPY 416 billion ($2.84 billion) in investment capital, outpacing 2021’s 10-year-high, and the number of companies raising over JPY 1 billion in funding rose to 108—about 60% of the total for 2021. Add a huge talent pool, extensive business launch support in multiple languages and a plethora of incubators and accelerators, and you have an environment bubbling with innovation.
What’s more, say experts, the government’s backing has triggered a mindset shift in the labor market that is driving a rapid expansion of the startup ecosystem.
“I see the ecosystem growing exponentially,” says Yasuhiro Yamakawa, President of CIC Japan. Headquartered at the Tokyo branch of the Cambridge Innovation Center (CIC), this is a community of investors, private companies and members of government and academia where innovators can receive a wealth of support. “Before, young people would always seek careers at big firms, but the government’s support has removed this cultural barrier. Now, more and more talented people are considering a startup as their first career option. This will create a snowball effect.”
Singapore-headquartered fintech firm Credify, winner of the 2020 Tokyo Financial Awards sponsored by the Tokyo Metropolitan Government (TMG), saw opportunities in Japan for its patent-pending technology, which helps financial institutions digitalize services by enabling their different data ecosystems to interact.
The business launch was “straightforward,” says Maurizio Raffone, Credify’s Chief Financial Officer, and abundant networking resources provided intel for expansion. “We joined an accelerator program by Plug and Play Japan and are also members of the Fintech Association of Japan. This helped us develop our network and understand the key themes discussed by financial institutions and fintech operators.”
A key trend powering the ecosystem is that large companies are increasingly innovating in collaboration with outside firms. Given Tokyo’s concentration of major financial players, this is particularly evident in the fintech space.
“The growth of open innovation is one of the biggest developments in fintech in recent years. We have seen a massive flow of people and funds from traditional financial institutions into fintech,” said Yuki Kishi, Managing Director of the Fintech Association of Japan, at a roundtable arranged by FinCity.Tokyo.
Startup accelerator and venture capital Plug and Play Japan, based in Shibuya, is an innovation platform that helps entrepreneurs from Japan and overseas grow through its accelerator program. Yoshihiko Arai, Program Lead, Fintech, notes that more and more innovation clusters and coworking spaces are emerging around the city. “The Shibuya area alone is home to over 2,000 startups and over 100 office spaces. Many young people come to the area, so firms here gain natural access to this workforce. For AI and deep tech, it depends on where the universities are, but you’ll find a big cluster near Tokyo University and their Matsuo Lab. The Otemachi and Marunouchi area, where many traditional financial institutions are based, is a hub for fintech startups.”
Shinya Shimizu, CEO of Elephantech, a Japanese startup seeking to realize low-carbon electronic circuit manufacturing by mixing metal particles into inkjet printing, emphasizes the enormous pool of skilled people.
“For a deep tech or science-based startup like us, Tokyo is the right place. Japan’s massive R&D investment has until now not been sufficiently commercialized by startups, so there is a huge pool of talented researchers and engineers to draw from.”
For TMG, startups are key to increasing Tokyo’s status as a global financial hub. A fast-growing startup ecosystem will not only provide attractive investment opportunities for the financial institutions concentrated in Tokyo, but there is also ample scope for collaboration to develop new financial solutions.
Seeing the potential of startups here, in 2020, TMG launched the Tokyo Consortium, which works to promote collaboration between industry, government and academia, deepen the innovation ecosystem and produce ventures that enable socioeconomic progress. Membership spans some 400 organizations, including private companies, investors, incubators, universities, research institutes and local governments, which provide opportunities for business matching, investment and mentorship.
For Elephantech, TMG’s assistance opened new doors, bolstering already enthusiastic backing from venture capital providers. “Our support particularly involved marketing and PR, which helped us connect with larger firms and with recruitment,” says Shimizu.
Moreover, in August this year, TMG launched a new cross-departmental organization, “Team Tokyo Innovation,” to integrate the metropolitan government’s abilities to support startups across various sectors, harness ideas and expand the city’s entrepreneurial base. The team has established a permanent base at CIC Japan, in Toranomon, enabling TMG to deepen its relationships with budding firms through daily exchanges and one-stop assistance.
But TMG’s commitment to startups doesn’t stop there. A recently announced strategy, Global Innovation with STARTUPS, outlines a broad direction and a range of initiatives aimed at leveraging Tokyo’s strengths and making this vast metropolis the most startup-friendly city in the world. The strategy’s “10 x 10 x 10 innovation vision” aims for tenfold growth in the number of Tokyo-born global unicorns, Tokyo’s overall startup base, and in public-private collaborative projects.
Guided by a “born global” mindset, TMG will collaborate with a range of startup-supporting players. Key measures include:
· A new platform, called Tokyo Innovation Base, for exchange between domestic and international innovators
· A new mechanism to support firms taking on the global market
· Expanding metropolitan government areas where startups can play an active role
· Deregulation to attract highly skilled overseas human resources.
In addition, global events will play an important role in strengthening relationships with domestic and overseas players and in attracting foreign investors.
“Innovation is vitally important to achieving sustainable growth. In our view, innovation springs from startups,” says Naoki Kobayashi, Senior Director for Startup Strategy, Tokyo Metropolitan Government. “We have defined our direction and initiatives. Now, we will focus on implementation. We will work closely with startup-related stakeholders in Japan and overseas and create a cycle for upgrading the strategy based on their feedback.”
Under the theme Sustainable High City-Tech.Tokyo—SusHi Tech Tokyo, in short—TMG aims to lead the world in using cutting-edge technology, diverse ideas and digital know-how to overcome urban challenges and create a sustainable society. The first concrete step will be a large-scale event, City-Tech.Tokyo, held for the first time in February 2023 at the Tokyo International Forum. Some 300 startup companies from 100 cities in 30 countries are expected to exhibit at this event, attracting thousands of visitors. TMG expects to see many startups, including fintech firms, refine their bold ideas and services through pitch contests and booth exhibitions.
CIC Japan’s Yamakawa sees big opportunities for startups to help Japan overcome its pressing challenges.
“Digital transformation, going cashless, an aging society—on all these, there is a gap between where we need to be versus where we are,” he says. “But that gap is actually creating a big-leap opportunity. The agents of change will be the startups.”
