A growing wave: corporate-affiliated capital for startup investments has gone from $140m in 2013 to $3.4bn, according to a recent survey.
The capital raised by Japanese companies investing in startups has increased by more than 24-fold in the past decade — in 2013 there was just ¥20.3bn ($140m) in total corporate-affiliated capital in the country, now this figure has increased to ¥487.5bn ($3.37bn), according to data collected by startup information platform Initial in January 2024.
This rapid growth has come as even small and medium-sized enterprises in Japan have created funds. Some 142 new CVC funds were launched last year alone, including retailer MatsukiyoCocokara’s MC & C fund, land transport firm Nippon Express’s NX Global Innovation and precision instrument producer Shimadzu’s Shimadzu Future Innovation Fund.
The total amount invested in startups by corporates has risen more than fivefold in the 10-year period, from ¥39.6bn ($271m) in 2013 to ¥204.9bn ($1.4bn) last year, according to the Japan CVC Report 2024, compiled by venture capital firm Jafco and business co-creation group Relic.
The Japanese corporate venture model is different
Japanese companies’ approach to startup investing is somewhat different to the model we have seen globally. The GCV report on Japan’s CVC sector last year found that funds managed by Japanese respondents were generally smaller than those of global peers with 62% under $100m and 43% under $50m (versus 60% over $100m globally).
Japanese investors also tend to be domestically focused with 52% of those GCV surveyed saying the Japanese market alone was a priority, while a third saw the North American or global startups as important targets.
The recent Japan CVC report, which had responses from 146 investors, showed that nearly 40% of corporations preferred direct investments from the balance sheet, while more than 20% created specialised subsidiaries to conduct deals.
Almost 20% of the respondents were limited partners (LPs) in other VC funds and more than 10% had hybrid models. The remainder was split evenly between independent VC funds and other types of operations.
In the past year, most CVC investments in Japan ranged between ¥100m ($685,000) and ¥500m ($3.4m) per deal, and most surveyed units took part in one to five rounds, in line with global averages for CVCs.
Investment preferences and structures
In terms of investment strategies, 90% of respondents focused on early-stage startups, and 70% said they targeted mid-stage companies.
Most respondents said they sought balance for strategic and financial returns, with a strong objective to create synergies between portfolio companies and parent firms. Our own Japan corporate venturing survey found that some 41% of Japanese CVC units surveyed had a business development team which focused on fostering business collaboration between the startup and the parent company.
When it comes to equity funding, about 70% of CVC investments involved taking a 5% stake or less per company.
Additionally, investment timelines were longer, with most units taking between one and three months – though some also spent four to six months or longer – on a deal.
Key takeaways
The report showed that Japanese CVCs were more cautious in the past year, diversifying their investment activities and aiming for both strategic and financial returns.
Although Japanese CVCs tend to maintain close communication with portfolio companies, some challenges were identified in these relationships, including differences in culture, lack of flexibility and the need for better risk management. Efficient processes and clear evaluation criteria are crucial for an effective collaboration between parent firms and portfolio companies.
Nevertheless, the growing number of corporate venturing units is seen as having a positive impact on Japan’s startup ecosystem, enhancing the country’s innovation capacity and competitiveness, concluded the report.
GCV Asia Congress & International Delegation 2024
If you’d like to discover investment opportunities in Japan firsthand, join us at this year’s GCV Asia Congress & International Delegation (November 11th to 14th).
This article has been amended. We originally said that Japan had created nearly 5,000 CVC-related funds but this was incorrect. It is the total amount of available capital, rather than the number of individual funds, which has seen the dramatic increase.
