By William Pesek
William Pesek is an award-winning Tokyo-based journalist and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.”
If Yoshihide Suga is paying attention, here is how Japan’s embattled prime minister can hold onto power and jolt Japan’s economy: lean into the venture capital revolution now afoot in Tokyo.
“Revolution” may be too strong a characterization. Japan does like its change to unfold glacially. But two recent developments suggest the Olympics is not the only game-changer when it comes to Tokyo’s soft power.
The first is Kathy Matsui of Goldman Sachs fame starting a venture capital fund. MPower Partners has an all-female leadership structure. A fitting feature, given that the Matsui almost single-handedly convinced the ruling Liberal Democratic Party that the female half of Japan’s 126 million people matters.
The second is Masayoshi Son’s SoftBank Vision Fund finally giving his home economy a look. The globe’s most important VC power has poured countless billions into startups everywhere. In Japan, basically zero. Now Son’s team is on the hunt for an investment guru to kick the tires around Asia’s No. 2 economy — full time.
This is arguably the best economic news Japan has had in several years. Catalyzing a startup boom seemed a key priority in late 2012, when Suga’s boss, Shinzo Abe, took power. Abe talked a great game of cutting bureaucracy, tweaking tax incentives and reclaiming the past glory that saw the Walkman, bullet trains, Trinitron color TVs, gaming systems and robots change the world.
In September 2013, Abe took to the floor of the New York Stock Exchange, with Chief Cabinet Secretary Suga at his side. Abe’s Japan-is-open-for-business speech referenced Gordon Gekko, the Wall Street character famous for arguing “greed is good.”
There, the leader of the LDP called for nothing short of an innovative revolution. Abe talked of putting “originality and ingenuity” in the driver’s seat. He waxed on about changing an economic dynamic that works around “traditional and inflexible large corporations” stymying change. Then he returned to Tokyo and forgot all about it, instead deputizing the Bank of Japan to effectively protect the status quo with trillions of dollars of corporate welfare.
No wonder COVID-19 drove Japan’s economy off the road so quickly. And no wonder Southeast Asian upstarts like Indonesia are blowing the doors off Japan in creating tech unicorns that disrupt the economy and go global in a hurry.
Enter Matsui and Son, who are rolling up their sleeves to help generate new energy from young entrepreneurs. It is not that Japan lacks an innovative startup scene. That imagination and ingenuity breathed incredible life into the Olympic opening and closing ceremonies. The problem is a regulatory framework that makes it hard for 20-employee startups to grow into 200-person companies on the way to 20,000-staffer success stories.
Matsui told me that regulation is just one headwind. An equally debilitating problem is the “gap” in funding young innovators at the “growth stage” so they can perfect their technologies, strategies and staffing decisions. Starved for cash, most go public on the Mothers section of the Tokyo Stock Exchange far too early. That deadens the creative impulse because, suddenly, shareholders seeking short-term gains are in the room.
“The idea is that rather than try to change the ways of an adult or large company after they’ve gone public, let’s get proper ESG (environmental, social and governance) principles and values embedded into these organizations when they’re teenagers or children, before they go public,” Matsui explained. “That should set the stage for longer-lasting success and economic disruption.”
Japan’s embrace of ESG values lags those of many of its peers. Now Japan’s startup scene is getting a ginormous assist from Son’s roughly $100 billion Vision Fund. When he founded it in 2017, Son was actually beating a retreat from home. For all Abe’s spin and Gordon Gekko name-checking, Japan’s aging and rigid economy seemed no place to find the next Alibaba Group, Grab Taxi or DoorDash.
Son’s about-face on Japan adds financial firepower to the local startup scene. And it presents Suga’s beleaguered government with an opportunity. Rather than improve Suga’s chances of party reelection on Sept. 29, Tokyo 2020 is proving more of an albatross. Surging COVID infection rates and reports of big cost overruns put Suga’s approval rating in the low 30s at best.
Why not announce a Japan Tech summit to take place in short order? Suga could ask Son, Matsui and a handful of innovators from around the globe to brainstorm publicly on (a) Japan’s potential as a tech disrupter; (b) what Tokyo can do to empower entrepreneurs, and (c) how Suga’s party intends to make good on the big talk Abe deployed to the NYSE crowd. Perhaps even incentivize the creation of a Japan-specific Vision Fund.
Team Suga could see if Tesla’s Elon Musk and Apple’s Tim Cook want to join in via video. One of the first calls Musk made in 2014 while building his $5 billion Gigafactory in the Nevada desert, remember, was to battery pioneer Panasonic.
I asked Matsui if she worried a giant like SoftBank might big-foot smaller VC funds. To her, it just means the pie is getting bigger. “Frankly, it does not matter if it is SoftBank or whomever,” Matsui said. “We want to create a movement, and our small fund alone is not going to create a movement on its own. We need other participants to help create it together. Of course, we want to lead the movement.”
A preelection tech summit that offers an optimistic vision for change and prosperity could be just the thing. Surely, it would gain more attention than Suga and Abe talking about Taiwan and China. And surely, it is a way of leaning into Japan’s desire to increase its global soft power. And reflate the economy.