A report into Japan’s young, high-growth companies has found local corporations are buying relatively few domestic start-ups and could become a more important part of the entrepreneurial ecosystem as they seem to have created more value than traditional venture capital firms. See the linked powerpoint slides here.The US-Japan Innovation and Entrepreneurship Council, an organization sponsored by the two countries’ governments, said: “While additional research will be needed, early indications are that in Japan corporate venture-backed startups have created more value than traditional venture capital firms, possibly because they bring a more rigorous and industry-specific strategic focus to the transaction.” And the report identified a “rapid expansion of corporate venturing activity in recent years, with 2011 witnessing a record number of corporate venturing funds raised”. A number of notable launches coming from high-growth companies with previous venture backing. Of the 12 venture-companies identified by the report as having substantial impact on the Japanese economy – having more than 2,000 employees, a market capitalization of more than Y30bn ($378m) or more than Y45bn of consolidated sales – at least five have subsequently become corporate venturing investors. The five identified corporate venturing units with prior venture backing are: Social media group Gree set up Gree Ventures and indirectly invests via DCM’s A-Fund and with Infinity Ventures; Online gaming group DeNA also set up its Incubate Fund and is a limited partner in Infinity; Social network Mixi that has committed to Infinity and US-based venture firm NetService Ventures; Electronic commerce website Kakaku with incubator Open Network Lab; and Entertainment content provider Dwango, which has made minority to majority deals, such as Maho no iLand. And the council added “the present entrepreneurial environment [in Japan] offers more potential sources of venture financing than ever before” but more could especially be done to support the exit routes for these venture-backed companies, such as through tax incentives so the transaction cost was considered a one-time expense. The report to the council’s leaders said: “In the United States, exit via IPO [initial public offering] has declined while exit via M&A [mergers and acquisitions] has gained in importance; in Japan, IPOs predominate while M&As remain relatively rare. “Government policy should facilitate all three options, with perhaps greatest attention to encouraging an active and efficient M&A environment, including through wider use of preferred stock.” The report added: “In the challenging economic climate since 2009 a growing number of Japanese companies have completed an unprecedented number of corporate acquisitions overseas, including…
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Japan looks to corporates
Oct 21, 2012 • Global Corporate Venturing
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