Investment in startups is growing rapidly in Japan. The Venture Enterprise Center (VEC, with its office in Chiyoda Ward, Tokyo), a general incorporated foundation, announced on Aug. 21 that total venture capital investments in FY17 was 135.4 billion yen. This represents an increase for five consecutive years and growth of 24% over FY16. Risk money has flocked to venture businesses amid low interest rates, propelling the growth in startup investments.
The VEC surveyed venture companies in Japan in June on investments received in the last fiscal year, getting responses from 115 companies. This survey excluded established companies’ direct investments in startups.
VEC Senior Managing Director Ryuji Ichikawa points out that “major companies are strengthening their relations with startups through venture capital for the purpose of technical innovation.” Nearly 20% of companies that responded to the survey were corporate venture capital outfits.
There were 1,327 cases of investment in startups, representing an increase of 20% over the previous fiscal year. While investments were mostly in IT companies, this trend is expanding to other sectors, such as biotechnology and energy. Ready supply of capital has served as a tailwind for merger and acquisition (M&A) of startups.
Ichikawa observes that “with the large number of new funds, active investments are also expected” in FY18. However, there are now also immensely overvalued startups whose valuation is not justified by their profitability. It is possible that the investment fever may be dampened in the event of an interest rate hike.