Takuya Hata, interviewer
The University of Tokyo (Todai) has produced many leading venture companies, including Preferred Networks and euglena Co., Ltd. Professor Shigeo Kagami is the mastermind behind Todai’s startup ecosystem, and Shukan Toyo Keizai spoke with him about the current issues and future outlook for Japan’s venture market.
Shukan Toyo Keizai: Venture companies are more active in their fundraising as an increasing number of companies are investing.
Shigeo Kagami: A major factor behind this is the change in corporate thinking. The past few years have seen many corporate scandals that leave you wondering why a major company would engage in such practices. I am thinking, for example, of the many scandals involving quality inspections that received wide coverage in the media last year. In addition, major companies are faced with the pressure of improving corporate governance and achieving an 8% return on equity (ROE) to attract Japan’s pension funds as investors.
At this point, major companies have done away with idea of totally independent management in research and development, the model where the company uses only its own technology, expertise, and people. Companies have come to realize that they must produce results by promoting open innovation, including real partnerships with venture companies.
Large companies will not survive without investing in ventures
Traditionally major companies took a condescending stance in relation to ventures. They did not view them as equals. That is no longer the case today. Companies see that they will not be able to survive unless they harness ventures’ edgy projects.
Preferred Networks has funding in excess of 10 billion yen from Toyota Motor. This kind of thing is becoming commonplace.
STK: Do Japanese universities have world-class technologies?
SK: Japanese universities prioritize basic research, and projects are generally long term. Lying untapped among their technologies, though, are innovations that will change the world in substantive ways. Todai’s Dr. Kikunae Ikeda discovered the chemical basis of a taste he named “umami,” and this resulted in the birth of a venture company called Ajinomoto. Japanese universities have many technologies like that.
Academic findings, though, don’t necessarily immediately look like they can be made into a business. You need to constantly ask yourself what kind of value a new technology can be made into. You need to look at it from the logic of the market, but this is hard for scientists to do alone. We need to train up people with a management mindset.
STK: Japan compares poorly with the United States in number of unicorns. (A unicorn is a privately held startup company valued at over $1 billion.)
SK: There are issues on the investment side, as well. Investment does not continue long term. I would like to see that change. Venture capital is smaller in Japan than in the United States and listing standards are lax, so ventures tend to be pushed to list early. As a result, unicorns do not arise like they do in the U.S. Once listed, the pressures of the market come into play, and companies can no longer take bold action. As a result, even if they have research results that could become core technologies around the world, they end up compromising midway and thinking small. This is a vexing situation.
STK: According to surveys conducted by overseas organizations, Japan has a low rate of entrepreneurial activity.
SK: It is true that entrepreneurial activity in Japan is among the lowest, but if you limit the survey to people who have been educated in entrepreneurship, the rate is actually among the highest. Students who think the most risky thing to do is to join a major company and the least risky is to join a high-tech venture have started to be seen at Todai in no small numbers.
It is critical that we have successful entrepreneurs who can serve as models. Elon Musk, who made a name for himself with PayPal in the United States, also launched Tesla and SpaceX. It is natural that successful entrepreneurs use their venture capital to launch another venture. Japan also needs this kind of virtuous cycle.
Profile of Shigeo Kagami
Shigeo Kagami is professor and general manager of the Office of Innovation and Entrepreneurship at Todai’s Division of University Corporate Relations. He took up his current position in 2004 after working at the Boston Consulting Group. Today he manages incubation facilities for university startups and develops large-scale research collaboration projects with industry.