Japan’s trinity comes together

At the beginning of October this column said: “In university venturing, the trinity is often a combination of government officials, academic administration and business support and in Japan the signs are promising that all three are coming together to support the latest signs of vigour in an economy moribund since the early 1990s.”

This was written after a number of corporations and universities set up venturing funds in the summer and ahead of my trip to Tokyo last month for events hosted by the Japan Venture Capital Association (held at NTT Docomo) and hitotsubashi University where I expected to learn more. The early signs are that, this time, the promised dawn of growth and revived entrepreneurial activity looked for over the past two decades might be met.

Since the change in government a year ago, Japan’s Ministry of Education has been reforming its system to incentivise universities to boost start-ups as part of the government’s plan to ensure the business start-up rate exceeded the closure rate and increased from 5% of all companies to 10% over the next 10 to 20 years.

A large part of the planned increase in start-ups is expected to come from universities and government research laboratories, the authorities said.

The Ministry of Education has agreed a $1bn investment programme for four universities – Tokyo, Tohoku, Kyoto and Osaka – to encourage their start-up rate.

While Tokyo and Kyoto have well-established university venturing units following 2004 changes in regulations to allow them to effectively incorporate and become independent, sources close to Osaka and Tohoku said they were exploring how to set up their own funds and collaborate more with industry.

The ministry’s plan follows on from a 2001 initiative, the Hiranuma Plan, that called for 1000 start-ups from local universities in the three years from 2003 to 2005. This plan delivered 1,600 start-ups of which Hisatake said 0.7% floated on the stock market and 60% survived at least five years, albeit most had added almost no net new employees.

But some university spin-offs have seen rapid growth, including UTEC-backed PeptiDream, which recently floated with a $1bn valuation, Naked Technology, which was acquired by games group Mixi in September 2011, Phyzios, that exited in February after four years, while Meti also pointed to Tokyo University start-up Euglena, which produces healthcare supplements and jet fuel and “can save the earth”.

Japan’s authorities are overhauling other tools to support start-ups.

Meti said it had set up a Mekiki programme, called Jump Start Nippon Project, to build a venture ecosystem through a network of mentors and supporters, including top-rated venture capital firms, such as Globis Capital Partners, which has recently made an initial close of its latest fund; corporate venturing units, including Global Brain and CyberAgent Ventures; and university venturing funds, such as the University of Tokyo-affiliated UTEC Capital.

Meti said it also wanted to enhance the $20bn Innovation Network Corporation of Japan (INCJ), a government-backed organisation. The INCJ has set up a division to increase its venture investment, especially at an early stage, with decision making on deals delegated from Meti to the INCJ.

The INCJ has this month hired Ken Yasunaga, former managing director at the JVCA, to run this division.

Japan’s politicians are also expected to vote this week on a law to provide tax breaks of up to 80% for corporate venturing.

This is the latest of recent government-sponsored initiatives around the world, including France’s fiscal incentive scheme (see our sister title Global Corporate Venturing here for a comment on this), which allows businesses to depreciate their minority participation in the capital of an innovative small- and medium-sized enterprises over a period of five years, and Turkey’s act that effectively allows corporations to deduct from their annual taxable income all the money they invest in a corporate venturing scheme.

Under Japan’s Industrial Competitive Advantage Law, which is expected to pass and come into force from January, 80% of corporate venture investment through funds is deductible from taxable income.