Current VC market in Japan

VEC report


A report published in Jan. 2009 by Venture Enterprise Center (VEC), reported dramatically reduced IPOs during 2008. This was because of the high cost of maintaining public company status.

Most of the Japanese VC firms have been dependent on emerging market IPOs as a major exit option. Because M&A and trade sale transactions have been much smaller than in the US and European markets, these two could not be exit options for most of their portfolios. That is why the IPO market has a bigger impact on the Japanese VC industry than that in the US and Europe.

The report also mentioned the amount of funds raised by IPOs. In 2006, the companies raised JPY113bil. by IPOs in emerging markets. The amount was JPY63bil. in 2007 and JPY16bil. in 2008. I heard that some venture capitalists have said that an IPO was no longer a reasonable exit option for startups.

Reflecting the negative status of emerging markets, many startups have frozen their IPO schedule. VC money missed the investment targets.


IPOs in emerging markets

Year / IPOs / VC-backed IPOs

2002 / 86 / 65

2003 / 101 / 83

2004 / 151 / 116

2005 / 139 / 92

2006 / 155 / 115

2007 / 107 / 77

2008 / 42 / 36

2009Q1 / 4 / 2

Source: Japan Venture Research


Japanese VC business model

Current market conditions have transformed the Japanese VC business model into a variety of types.

Some VCs have shifted from traditional early stage seed investment to later stage growth investment and even buyouts, infrastructure and real estate. VCs are diversifying their own strategy to stabilize their source of returns.

Other VCs are setting up offices in the Greater China region and South East Asia region to cover potential high growth countries. One of the opportunities may be synergies between Japanese high tech startups and the Asian growth economy.

There should be a great demand for the technologies developed in Japan to solve environmental problems and to construct infrastructures across Asia.

I don’t think all of these strategic changes would be successful in the short term. However, with a long term perspective, Japanese VC firms should be changed to maximize fund returns.


Sources:

Venture Enterprise Center (VEC) was founded in 1975 to promote startups in Japan. VEC is one of the two major information sources of the venture capital industry. They publish a VC industry report every year to provide industry statistics.
http://www.vec.or.jp/



Founded in 2005, Japan Venture Research (JVR) is non profit organization to advise startups on capital structure and fund raising. JVR also conducts ad-hoc research on the fund raising environment for startups.
http://www.jvr.jp/


This blog, insight into VC industry in Japan

My intention in setting up this blog is to share knowledge about the Japanese VC industry. I would like this blog get many investors interested in Japanese VCs.

So far, the Japanese VC industry is not so globalized. However U.S. and European VCs are keen to partner with Japanese VCs because they believe there will be great startups and technologies here.

If you have any topics you want to know about or if you have any questions regarding Japanese VC investment, please let me know.