Historically, Tokyo and Japan in general was a ‘promised land’ for large corporations rather than startups. But things are starting to change, thanks to a growing innovation culture and strong support from the Japanese government.
In 2020, Tokyo was ranked 15th among the best cities for startups. For the first time, the Japanese capital made it into the top 30 in the annual study of the global startup ecosystems.
New trends in the Japanese startup ecosystem
According to Startup Genome, in 2021, startups from Tokyo received $1.7 billion in early-stage funding compared to the global average of $431 million. In 2020, the Japanese capital’s startup ecosystem had a market capitalization of $25 billion compared to the global average of $10.5 billion.
With Japanese companies funneling money into startups, the flows of venture capital have nearly reached pre-2008 levels. INITIAL reports that Japanese startups raised about $4.8 billion in 2019 — almost a 5-time increase from about $1 billion in 2011.
Tokyo is a center of advanced manufacturing and robotics. Being the global leader in these spheres, Japan produces more than half of the world’s robotics supply. The country also hosts the world’s first robot trade association (JARA) whose members include Sony, Toshiba, and other leading Japanese companies. Undoubtedly, such an environment boosts the performance of Japanese robotics startups.
Fintech is another big thing in the Japanese innovation market. According to the Global Financial Centers Index, the city is ranked 7th among the financial centers of the world. However, this trend does not apply to ecosystems outside of the capital: for many reasons, credit and debit cards did not catch on nationwide. In rural areas, non-cash payments are rather rare, and some supermarkets can decline credit card transactions.
The Tokyo Metropolitan Government actively promotes startups in several ways. For example, the Startup Ecosystem Tokyo Consortium (an association that includes businesses, universities, and local governments) aims to encourage the creation and growth of startups in the private sector and academic circles.
The government has issued three new startup visas that allow foreign entrepreneurs to stay in Japan for up to one year if they receive startup support from municipalities. Also, there is an organization called J-Startup which provides networking, funding opportunities, and other assistance.
Huge initiatives come from the University of Tokyo. Startups seeking to commercialize university research can count on financial support, incubators, rent subsidies, legal and accounting assistance, and entrepreneurship classes. Startups can also apply to use the university’s lab facilities.
The ultimate goal of these governmental decisions is to strengthen Japan’s international position as a hub for innovation, as well as to accelerate economic development of the country.
Japanese culture is sometimes seen as conservative and risk-averse, but Japanese corporations no longer guarantee lifetime employment and steady promotions — the tradition that came out of the late 1990s. This makes it easier for founders to attract top talent and raise money through early-stage investors and venture capitalists.
The tendency did not go unnoticed by international organizations such as the Cambridge Innovation Center (CIC), a US startup workspace company now headquartered in Tokyo. Its CEO Tim Rowe says, “Today, Japan is at a turning point where many younger Japanese are excited and interested to take risks and build something new. Our view is that Japan has basic trust, science and research, and that there are opportunities now for Japanese people to start their own companies and accelerate the culture of entrepreneurship.”
Pros and cons of building your start-up in Japan
Before launching in Tokyo or any other Japanese city, it’s highly suggested that you learn what awaits your business in the Land of the Rising Sun.
Advantages of launching in Japan
Japan is the world’s third-largest economy valued at about $5 trillion, so it’s a great space for testing all sorts of products and services. Japanese consumers tend to be proactive, well-educated, and wealthy. In addition, the quality of life in Japan is high, with a low crime rate and high standard of living.
This makes it both a great place to do business and a wonderful land for employees to live. The transportation and communications infrastructure is also excellent, which means employees can easily commute to work while businesses can take advantage of modern Internet access and other technologies.
Finally, Japan is highly committed to developing advanced technologies such as artificial intelligence, automation, and robotics. Perhaps no other country is so adamant with introducing innovative solutions. Here, the new tech instantly assimilates into everyday life, receiving lots of attention and demand.
Disadvantages of Japanese startup ecosystem
Corporations and conglomerates in Japan run the show, and it’s not an exaggeration. Their presence fragments the market severely, raising the entry level for the banking and food sectors. All economic space is occupied by large companies, so startups can integrate into this pipeline on a minimal scale. The only exception is new segments that emerged recently, such as the Internet sector and/or ecommerce.
Another crucial thing is language. People in Japan rarely speak fluent English, so our first recommendation to potential expats is to start learning Japanese. Trying to reach C1–C2 level skills would certainly be an overkill, but for sufficient business communication, a basic vocabulary with niche-specific terms is a must.
Top 10 startups in Japan
By 2023, Japan expects to see at least 20 tech unicorns. This is a statement from the strategy of economic development that was signed by Japanese Prime Minister Shinzo Abe in 2018.
Currently, there are 6 Japanese unicorns, and most of them were created within the last 5 years:
- Preferred Networks
We’ll wait and see if this list will grow as predicted. As for now, let’s check our favorite Japanese startups. Most of them haven’t got into a billion-dollar club yet, but we think they might be perfect candidates for future growth.
Aidemy was founded at the University of Tokyo. Its mission is to help people and organizations embed advanced technology in their industries. Aidemy provides e-learning training programs, advises on task sorting and concept development, and develops technologies for maintenance and operation.
In 2020, the global climate manufacturer Daikin has invested about $0.9 million in this startup. Since January 2019, it has been using Aidemy’s e-learning program and considering AI solutions to significantly increase productivity in offices.
Cinnamon is redefining the technology of information processing.
Using artificial intelligence, its Flax Scanner algorithm scans a large amount of information (i.e. news, documents, articles) and selects the most important parts. Another development of the company is a language-processing search engine designed to find customers for online stores.
Initially, the company developed an application for private photo sharing, but over time it moved closer to artificial intelligence. By 2021, the company was funded by MT Partners, Monex Ventures, and RPA Holdings. The amount of investment is kept secret.
Japanese biotechnology startup Heartseed is working on a treatment for heart failure using induced pluripotent stem cells (iPS cells). The therapy involves transplanting heart muscle cells derived from iPS cells into the patient’s heart using a special injection needle.
In 2021, the Danish pharma giant Novo Nordisk (annual revenue over $20 billion) covered Heartseed’s development expenses, providing a $598 million support. If everything goes well, Heartseed plans to introduce the treatment, including production and sale, around 2024.
The metaverse startup HIKKY is an open platform where users can interact with each other, develop original content, and connect to virtual reality from any device without using an app.
HIKKY runs VR events attended by over a million of guests, including artists and corporate sponsors. The scale is amazing: 1104 virtual stands were presented at one of the events in February 2021, even entering the Guinness Book of Records.
In November 2021, HIKKY raised $57 million in investments. According to the company’s CEO, the funds will accelerate the development of HIKKY’s own VR content creation engine called VketCloud. This cloud platform supports multi-user mode, so participants can communicate in the same 3D space using voice or text chat.
With the CureApp application, users can take notes about their health status, track their diseases, and receive forecasts. The application also offers individual advice on adjusting nutrition, lifestyle, and habits in order to help fight smoking and chronic diseases. The collected health data is used for statistical research.
In February 2021, Keio Innovation Initiative, Dai-ichi Life Group, Iwagin Jigyo Souzou Capital, and others invested about $15 million in the company.
Playco was created in 2020 as a developer of instant games. Its team believes that in the future, websites that support mobile gaming will replace mobile stores. For gamers, it would be easier to click on a link and play in a browser instead of downloading separate gaming apps from the App Store and Google Play.
Almost immediately after its launch, the company raised $100 million and reached a $1 billion valuation. In early 2022, a $40 million investment was made by Meta.
The dating market is huge — just remember how popular Tinder and Badoo are across the globe! In the Japanese dating service EveEve, each new user is subject to a two-step verification system involving moderators and other users.
Users who like each other can use the ‘trial period’ when they chat in the application for a strictly defined time (for example, from 10 to 12 PM).
Market Drive invested $1.5M in 2020 and $1M in 2021 to develop the app.
Innophys has developed an exoskeleton that allows users to effortlessly lift and carry up to 24 kg of weight. The product does not use a rechargeable battery — instead, the Innophys team introduced charging with muscle power. The owner will force compressed air inside a suit by using a small pump. The model is also reinforced with an aluminum frame that supports hips and lower back.
Citizens over the age of 65 make up almost a quarter of Japan’s population, and the share keeps growing. Exoskeletons made by Innophys are supposed to attract pensioners to sectors of the economy starved by labor shortage, such as agriculture, manufacturing, and construction.
The company was founded in 2013 and since then, 5 rounds of funding were backed by 29 investors. As a result, Innophys has raised a total of $44.3 million.
Kyoto Fusioneering is a Japanese fusion energy startup. It has won several international contracts, including the UK’s program to support development of a fusion reactor prototype. This program aims to harness the potential of nuclear fusion — a process that produces energy in the same way as stars and the sun. Fusion energy can also provide a source of sustainable electricity that is virtually limitless.
Kyoto Fusioneering has raised $14.7 million so far, including $11.7 million in the latest funding round. The funds will be used to accelerate research and develop technologies of plasma heating and heat dissipation, both of which are essential for fusion reactors.
The EmBodyMe app can turn you into anyone during a video call. Its algorithms read facial expressions and gestures to superimpose any image on them in a seamless, organic way. Animation is updated in real time according to facial expressions and movements.
A user can show up to a conference in a brand-new business suit while actually sitting in their pajamas. If you want to go further, come to the Zoom meeting fully cosplaying Darth Vader.
The app integrates with all leading video services, such as Zoom, Google Meet, Microsoft Teams, and Twitch.
Developed Asian countries are becoming a full-fledged competitor to Silicon Valley. Check this article about the Southeast-Asian startup ecosystem and learn how it turns into the next global hub of innovation.
For those choosing a country to base their startup in, we suggest Japan. It’s truly a remarkable place. It has a number of advantages on its side, from the size of the potential market to government support and other regional bonuses. Finally, with the state program of raising unicorns, your creative business ideas won’t go unnoticed.