Opinion: Why Japan’s fundraising jump in 2017 matters

Photo credit: Gelgas

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James is a TIA Star Contributor and publishes high-value content that serves the Asian tech community. Read more from TIA Star Contributors here.

Entrepedia published a report recently summarizing some of the startup fundraising trends in Japan. What is particularly noticeable is that the fundraising environment is good. Very good.

In 2017, startup fundraising reached JPY 279 billion (~US$2.66 billion). While some readers may dismiss this as just one check from SoftBank, we have to keep in mind that it represents a 21.7 percent increase from the year before.

The irony is that while I’ve heard voices outside of Japan be surprised at how small this number is, I’ve also heard voices inside Japan ask, “Aren’t we in a bubble?”

I doubt that. Relative to Japan’s GDP, this number is tiny. Japan’s economy is about one-third of the US’, and yet Japan only gets about 1/25 of US startup investment. Some may rebut that there are not enough startups to invest in, but I would argue that we are also not funding our startups enough. Unicorn status takes capital to scale up, so we should at least be at US$10 billion if we want to compete at that level.

A positive sign is that the number of JPY 1 billion (~US$10 million) rounds have increased. Startups in Japan are starting to raise much larger private rounds. This means that they’ll be able to stay private longer, which is an advantage. When startups IPO, they often need to sacrifice long-term growth for short-term profitability to satisfy public shareholders. Staying private longer will likely lead to larger outcomes for the largest home runs.

Photo credit: Entrepedia

The added benefit of these larger rounds is the ability to pull top talent from big companies into the startup world. It is not unheard of for later-stage startups in Silicon Valley to pay US$100,000, US$300,000, or even more to executives and top engineers. With bigger war chests, startups in Japan will eventually be able to do the same. As fellow VCs and I mentioned in a recent CNBC article, we are already starting to see the caliber of people in the startup ecosystem increase dramatically.

More funding and more talent will lead to much bigger outcomes. I’m looking forward to what’s to come.

This article was first published on the author’s blog.