Japan, eclipsed by China in start-up activity, is boosting efforts to get foreign venture-capital firms more involved with its entrepreneurs.
The Japanese government-backed Cool Japan Fund yesterday said it would contribute US$10 million to become the largest limited partner in the Japan-focused fund of 500 Startups, a San Francisco-based venture firm specializing in early-stage investments.
The partnership aims to help start-ups in the nation expand abroad by leveraging the venture firm’s global network in about 60 countries.
The deal is unusual in a country where start-up funding is dominated by local corporations and marks the first time the state has directly backed a non-Japanese venture capital firm. The investment helps to show that foreign venture backers would be supported if they dedicate more resources to Japan.
The investment brings total capital raised for the venture firm’s Japan fund to US$35 million, exceeding its initial target of US$30 million when it debuted last year. So far the firm has invested about one-quarter of that amount in more than 20 local start-ups, including satellite services provider Infostellar Inc and high-tech wheelchair maker Whill Inc.
Its parent firm oversees US$350 million and has invested in about 1,800 companies globally.
By joining with 500 Startups, Cool Japan is aiming to bring in more local entrepreneurs. After nurturing businesses in their early stages, the government-backed fund might step in with additional financing in later rounds.
Cool Japan, established in 2013, invests in companies that promote Japanese culture. The government provides about 85 percent of the firm’s ￥69.3 billion (US$630 million) in capital.
Since its inception, it has taken stakes in more than 20 companies, including Japanese TV channel operator Wakuwaku Japan Corp and cafe chain Green Tea World USA Inc.
The US company is one of the few foreign venture firms that operate in Japan. Others include Salesforce.com Inc’s venture fund and Eight Roads, the late-stage venture capital arm of Fidelity Investments.
Silicon Valley accelerator Plug and Play Tech Center is to open its Japan office as early as this month, Bloomberg News reported last week.
More foreign backers could help boost venture activity in Japan, where start-up funding reached ￥210 billion last year, according to Japan Venture Research Co.
Still, that is far below China, which climbed to US$31 billion last year from US$3 billion three years prior, according to KPMG.
James Riney, the head of 500 Startups in Japan, said foreign venture firms can help change a culture dominated by corporate funding.
He said that companies dominate Japan’s start-up ecosystem, accounting for 72 percent of venture funding last year, compared with 24 percent in the US, according to CB Insights.
Corporate oversight can stifle risk-taking and innovation, and result in start-ups going public too soon, he said.
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