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Let's look at Japanese startup trends together and talk about how global startups that want to do business in Japan should understand & adapt to the latest Japanese startup ecosystem.
✅ 1. The size of the Japanese startup market in 2023 is about 29 billion dollars. 5.4% less than in 2022
✅ 2. Industries where the market size decreased: AI, SaaS (Series D and above startups received less investment.
✅ 3. Industries that grew in size: Fintech, healthcare (government and large corporations invested more)
On December 8, 2023, the Nikkei Newspaper released the NEXT Unicorn Survey, which examines unicorn companies, which are privately held companies with an enterprise value of more than $10 billion.
-Comparison of startup market size in 2023 and 2022
-Startup market share by industry in 2022 vs. 2023
-List of "unicorn" companies among privately held companies with an enterprise value of approximately $10 billion or more
-Amount of enterprise value by unlisted unicorn companies, etc.
According to the Five-Year Plan for Startup Development announced by the Kishida administration in 2022, the amount of investment in startups was expected to increase to about 750 billion dollars over the five-year period from 2022 to 2027.
The 100 trillion won investment in startups is 10 times more than the amount invested in 2022, the first year. (Previous Japanese government investment in startups: 360 billion yen in 2017 and 820 billion yen in 2021) There were three main goals that the Kishida administration aimed to achieve with the 5-Year Plan for Startup Development.
-Create 100 unicorn companies in Japan
-Create 100,000 startup companies
-Make Japan a favorable nation for startups to do business in, and attract quality startups from overseas.
However, while we expected the size of the Japanese startup market to gradually increase in 2023, it actually decreased by 5.4% from 2023.
In 2022, the Japanese startup market was worth about 4 trillion yen, which is 5.4% less than in 2023. To understand why, let's take a look at how the market size changed by industry. I've gathered only the industries that mainly increased and decreased in 2023.
In 2023, the AI and enterprise SaaS industries shrank, while fintech and healthcare expanded, which makes it nervous as there are many SaaS companies trying to enter Japan. To find out why the AI and enterprise SaaS industry in Japan declined in 2023, we need to analyze the status of the Japanese stock market and the investment flow of Series D/above startups.
In 2023, the Japanese stock market was in a recession, and experts attribute the decrease in the size of the Japanese stock market to the reduced amount of overseas investment. In order to recover the Japanese stock market, there are opinions that the government needs to support overseas companies and overseas VCs to invest more in Japan.
In other words, the reason for the downturn in the Japanese stock market is linked to the global recession. As the Japanese stock market suffered, Japanese VCs became more conservative in investing in startups, and there were many cases where they invested less in Series D and above startups than in Series C and earlier rounds.
It was mainly startups with Series D or higher that faced the cold winds of the Japanese stock market recession head-on, mainly companies providing AI and SaaS services. Even among the Japanese startups that have consistently maintained the 1st-3rd place in corporate value such as Preferred Networks, Smart News, and SMART HR suffered from the downturn in the Japanese stock market.
In both 2022 and 2023, the AI industry ranked first and the SaaS industry ranked second in terms of startup market size in Japan. Even if the market size of both industries decreased, the AI industry is about 93 billion yen, and the enterprise SaaS industry is 77 billion yen.
These two industries are likely to continue to be the first and second largest in the Japanese startup market because of the characteristics of the Japanese market, which is stable in terms of industry trends unless there is a major change in government policy, such as regulation, and because these industries have led the growth of the startup industry by attracting investment in AI and SaaS companies. Japanese AI company Preferred Networks still has the highest startup valuation among Japanese startups.
Having seen that it is even difficult for local companies to get invested by Japanese VCs, I expect that there are two situations and how to deal with them.
(1) Overseas AI and SaaS service companies that have no experience in Japan will have a harder time getting Japanese investment than before.
→ To be competitive with local players, you need experience in networking with Japanese VCs and pitching locally.
→ To communicate with Japanese companies, "Japanese pitching materials" and "Japanese pitching" are essential, rather than English, for in-depth conversations with Japanese VCs.
(2) Japanese VCs and CVCs want foreign startups to solve problems they can't solve themselves, such as new businesses.
→ Large Japanese companies are more than 100 years old, mainly in the manufacturing and robotics industries.
→ There are many big enterprises that are strong in existing businesses but weak in new businesses, and they are looking forward to solving these challenges through startups.
→ Japanese major corporations place a lot of value on new businesses that can protect the environment, such as sustainable industries, where they need to create new cases by utilizing their existing industries.
(3) Understanding Japanese Corporate Culture, Business, and being flexible is a must
→ You need to be aware of the business of VCs, CVCs, and large Japanese companies you want to collaborate with.
→ You need to understand the business culture, which is different from other countries.
→ Japanese organizations communicate through documents, so if you have a need, you should organize it into an item, document it, and share it to get real support.
After 2020, the Japanese government provides support programs and schemes exclusively for fintech and healthcare startups. The support programs and systems helped them grow in Japan.
In addition, cases of collaboration with large corporations, which the Japanese government and Japanese VCs had hoped for and which had not been seen before, began to emerge.
Furthermore, I could see the intention to create examples of overseas expansion through fintech startups and healthcare startups in Japan.
In 2023, the fintech industry was the fourth largest startup market in Japan, and OPN Holdings, a post-paid payment service, was recognized with an enterprise worth of approximately 250 billion yen, making it the most valuable fintech company and leading the growth of the fintech industry in Japan.
In 2022, OPN Holdings was not a prominent player in Japan's fintech industry, as Gojo & Company (a small financial service for small and medium-sized businesses) had the highest enterprise valuation of any fintech company. But by 2023, OPN Holdings was valued at about 2.3 times more than GoJo & Company, and the size of the fintech industry was about twice as large as last year.
OPN Holdings' growth has been backed by the Japanese government.
OPN Holdings is a fintech company that was founded in Thailand and invested in by CVC in the Southeast Asian market. In August 2021, OPN Holdings received the "Deep Tech Venture Private Financing Debt Guarantee System" approved by the Japanese Ministry of Economy, Trade and Industry. This program laid the foundation for OPN Holdings' growth in Japan.
OPN Holdings' growth accelerated a year later, in May 2022, when the company raised approximately 120M dollars in a Series C round with investment from JIC Venture Growth Investment Corporation, Mitsubishi UFJ Bank, and Mars Growth Capital. From Thailand to Japan to the rest of the world, it's clear that OPN Holdings is a global company now.
Healthcare startups also gained momentum under the leadership of the Japanese government. PwC Consulting's <Healthcare Startups: Present and Future> explains the background of the growth of healthcare startups in Japan.
The Japanese government, led by the Prime Minister, the Ministry of Economy, Trade and Industry, and the Ministry of Health, Labor and Welfare, has created a support system for healthcare startups.
The system provides funding for research and development, proof-of-concept support, business development, networking assistance, and consultation with experts specializing in healthcare. The Japanese government provides networking with existing pharmaceutical companies and large corporations, allowing them to collaborate with startups.
There have been cases of acquisition, partnerships, and joint research between pharmaceutical companies and startups in the fields of regenerative medicine and AI drug development, which are mainly related to drug development.
(1) Regenerative medicine :
→ Acquisition of cell therapy drug development startups
→ A pharmaceutical company signed an agreement with a startup to develop a regenerative medicine drug.
→ Joint research on iPS cells
(2) AI drug development :
→ Strategic alliances with major companies and biotech startups
→ Collaborative research agreement with AI drug R&D startup
→ Partnership deal with AI and machine learning research and technology startup
(3) Aging :
→ Acquisition of a startup whose main business is the development of new drugs related to aging diseases
→ The Japanese government's reasons for growing healthcare startups include revitalizing local communities in Japan, expanding the business of existing companies, and encouraging Japanese companies to expand overseas.
(1) Fintech companies: Japanese financial companies need new technologies, but they are also conservative.
→ Having the latest technology that is not available in Japan can be a big advantage, but you need to make sure that it fits the market needs.
→ The Japanese financial sector is a legacy market, and they want to work with companies that can build the latest IT technology.
→ Among Korean companies, "Travel Wallet" was approached by Japanese financial companies because it had a technology that was in demand in Japan but not yet available in Japan.
→ However, Japanese financial companies are also conservative. Even if it is the latest technology and good service, there is a gap between the latest technology and the current financial services in Japan.
→ So the latest technology is not necessarily competitive in the Japanese market. It requires proper localization and implementation of systems that meet user needs.
→ As a conservative company, it requires patience to generate sales in Japan, but it is difficult for a startup to hold on when sales are not coming in. In fact, "Travel Wallet" is continuing its business in Japan with the support of the Tokyo Metropolitan Government.
(2) Healthcare companies: Japan is an extremely aging society.
→ In 2023, the average life expectancy of Japanese people will be 87.57 years for women and 81.05 years for men.
→ As Japan enters the age of ultra-elderly, " local depopulation" is no longer an unfamiliar topic in Japan.
→ Japan has a large elderly population in rural cities, and the healthier the elderly population, the more sustainable the rural cities.
→ Therefore, the Japanese government is promoting the healthcare business to maintain rural areas.
→ When building a service, you need to plan it as a service that is friendly to the elderly population.
→ In particular, when making a case, it is essential to consider not only silver towns that only the 0.1% of the elite can enter, but also ordinary elderly people, so that the service can be commercialized in Japan.
→ On the other hand, if you provide healthcare technology that improves the health of the elderly in a certain area, you will have a better chance of being approached by the Japanese government and the big corporations because it's a problem they can't solve.
Written by ZIPANG (Link)
※Original Source : 2023년 일본 스타트업 총정리 Playbook
※This article was not reviewed for English translation by the original author.
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