Expert’s view: Venture Capital and Corporate Venture Capital in Japan - New trends

Positive change is occurring in Japan in the landscape of the startup ecosystem. The government of Japan has appointed officially in August 2022 a new "Startup Minister" to help the support to startups, to implement an economic revitalization and in addition has launched the Five-Year Startup Development Plan in November 2022 to have 100 000 startups, 100 unicorns and an annual investment of 10 trillion yens. Although this seems to be an ambitious plan, Japan is setting the tone for a new economic road with entrepreneurship in high technologies and deeptech. 

The challenge for Japan is to increase the number of M&A as an exit strategy for startups as it is a way to promote open innovation. The current trend is the number of IPO being higher than the M&A. Managers of venture companies are more and more actively adopting M&A as their management strategy. Since April 2023, the tax system for promoting open innovation has been changed. Until now, only the acquisition of newly issued shares (new investment type) was targeted. However, the scope of the tax system now includes the acquisition of issued shares at the time of M&A. 
The amount of Venture Capital (VC) raised by Japanese startups, has reached a record of 877.4 billion yens (2022), (here) an increase of 7% compared to 2021. The number of VC firms is also increasing along with Corporate Venture Capital (CVC) set up by major Japanese corporations. Facing challenges with creation of innovation or having no R&D functions, CVC is for a Japanese company a way to look for open innovation, create collaboration with a startup and develop a new business. As the diversification of consumers’ needs is increasing, the product life cycles are becoming shorter. Japanese companies are looking to improve the productivity, but also turning to the global market for new opportunities.

By Dr. Nathalie Cavasin, NC Consulting, Tokyo