- Japan is shedding its reputation as a tough place for startups
- Launching a business got easier, but founders are still rare
Yusuke Muranaka is ready to bet millions of dollars on entrepreneurs in Japan. Now he’s got to find more qualified people willing to take his money.
While Japan has a reputation as a tough place to start a company, the conditions are improving with more incubators, programming schools and supportive government policies. People like Muranaka, an investor at DMM Ventures, are adding capital to the mix, another key ingredient for startup success. The 10 billion yen ($89 million) fund was launched in October by DMM.com LLC, a privately-held media and technology conglomerate.
Yet entrepreneurs are stunningly scarce in Japan. The country ranked dead last in the Global Entrepreneurship Monitor’s annual survey of 54 economies. Muranaka and his team spent two months sifting through about 60 applications and finally settled on just two investments. One is in Japan; the other is a Los Angeles-based startup whose founder happens to speak Japanese.
“To be honest, we expected there to be more,’’ said Muranaka, DMM’s chief operating officer and the de facto head of DMM Ventures. “The reserves of young entrepreneurs in Japan still seem to be a bit thin.’’
There are a number of reasons Japanese aren’t starting companies, according to Michael Cusumano, a professor at the MIT Sloan School of Management. Jobs are plentiful and the unemployment rate is the lowest among all developed economies save for the Czech Republic. And there is still a lingering stigma attached to failure. College students only get one chance to join a major firm or government — right after graduation, so job hopping is rare.
“In the U.S., MIT graduates go to a startup and work for a few years. And if it fails they will go to a big company,” Cusumano said. “In Japan, they can’t do that.”
DMM Ventures is the latest in a growing number of companies betting more entrepreneurs are on their way. WeWork Cos. set up a joint venture with SoftBank Group Corp. and opened 11 locations in Tokyo alone. Slush, the Nordic region’s biggest startup meetup, has been holding annual events in the city since 2015.
“This is a great place for founders,” said Kiyo Kobayashi, a partner at Tokyo Founders Fund. “Compared with the rest of the world, we are blessed here.”
Japan has come a long way from the time when you needed an equivalent of $100,000 in capital to register a company and venture investment was virtually non-existent, said Kobayashi, whose VC firm was started by eight local entrepreneurs using proceeds from their own startups. Now, the conditions are looking up: technical talent is plentiful, the Tokyo Stock Exchange’s Mothers section for startup companies makes going public relatively easy and there’s little overseas competition.
There are also self-made billionaires to serve as role models. Shintaro Yamada’s Mercari Inc., Japan’s first unicorn startup, went public in June minting a slew of young millionaires. Yusaku Maezawa, the flamboyant 43-year-old founder of Japan’s second-largest online shopping site Zozo Inc., gained international attention after booking the first ticket on Elon Musk’s rocket to the moon.
Founders have more options for raising money. After years of slow-moving corporate venture funds, private firms like 500 Startups, DMM and Draper Nexus are helping create a more diverse pool of capital. Startups raised $2.5 billion in 2017, according to the Japan Venture Capital Association, up fourfold in five years.
“You can no longer say that the money is tight,” said Muranaka. “What we need is more young people giving it a chance.”
DMM’s efforts suggest it is still outsiders who start businesses in Japan. Teplo is a startup developing a smart teapot that gets the brewing temperature just right and learns from user feedback. Kazunori Kawanobe, a 30-year-old engineer by education, founded the company with his classmate from India while studying at Babson College.
Los Angeles-based Happy Hour is a dating app that does away with endless swiping and plunges you straight into the first date via a 60-second video call. Founder Mike Eidlin was born in Japan and grew up in California. This is his fourth company.
“There are fewer founders competing for money in Japan,” said Eidlin, whose fluent Japanese helped him raise almost $1 million from mostly local angel investors.
DMM has long bought Japanese startups, often to get talented founders on board. With the VC fund, it is taking a longer-term view — invest in promising entrepreneurs and leave the door open for an acquisition in the future. It’s targeting Japanese founders under 25 — when it can find them.
“Our message is it’s OK to start young,” Muranaka said.