The story of Tokyo’s startup ecosystem is stuck on the same chapter – a lot of promise but little progress. While Tokyo ranks near the top in the world for market size, economic vitality and human capital, its lack of incentives for entrepreneurs means the city’s startup ecosystem is dwarfed by the likes of Singapore.
As says Phillip Seiji Vincent, managing partner and CEO of Plug and Play Japan, Covid-19 has thrown a curveball at entrepreneurs in Japan. While some companies struck out swinging, the startups able to adjust to the new business landscape are in position to hit a home run.
Global innovation platform Plug and Play Japan supports more than three dozen corporate partners and has accelerated more than 300 companies in the past three years. During a Zoom chat, Vincent explained why despite Japan’s stagnant entrepreneurial history and a bleak global economic forecast he believes Tokyo is ready to turn the page.
Nikkei Asian Review reported in 2018 that venture capital funding in Japan increased by 50 percent to ¥345.7 billion ($3.09 billion). Have you seen this trend continue?
It is not a bad time to be a startup in Japan because there is an abundance of money from both venture capital and corporate venture capital. It is much better to do a startup here as compared to places like Silicon Valley. There is cash…. If you look now, Sequoia Capital is refocused on investing in Japanese companies going forward as well. It’s not just domestic funding that’s increasing – it’s international interest in domestic startups as well. We see that as a very good – slow – but surely upward trend.
SoftBank’s investment in WeWork signaled a positive change in Japan’s startup culture – but that deal went south in a hurry. What effect has WeWork’s high-profile failure had on Tokyo’s startup culture?
“VC funding will still be there, startups will still be created, dreams will still be dreamed”
First of all, that’s part of the game. Anything startup- and investment-related, you are going to win some, and you are going to lose some. Has it had a huge impact on the startup ecosystem? To me, not that much. Because in a general sense, and what we have talked about and will talk about again, the general startup ecosystem is on the upward trend. The startup impact on the economy, and even from the very early stages, is making these small and many impacts on the Japanese economy. I think the general consensus is we appreciate SoftBank and these companies that are still bullish and challenging and disrupting. We can look at these types of deals and learn a lot. These are all lessons that we eventually have to learn. So in a way, WeWork is a small stepping stone in the general growth of the startup ecosystem. In a positive, glass half-full way of looking at it, VC funding will still be there, startups will still be created, dreams will still be dreamed, companies like WeWork and that type of funding are still possible. So in a sense, this whole startup revolution is still just starting.
Tokyo’s language and cultural barriers have long been cited as reasons for the lack of international startups launching headquarters here. Have you seen any shifts in these regards?
It’s still very much a barrier; that problem still persists. What has changed is not necessarily Japan’s English literacy, because that still needs a lot of work, but there are a lot of mediators or supporters, guys in the middle like Plug and Play, that have taken the middle position to help international startups come to Japan. Tokyo Metropolitan Government is doing something similar.
Tokyo’s business culture, the stereotype of being risk-averse, is also cited as a reason why growth of domestic startups has been stifled. Is this still the case?
“People are not eager to leave companies and start startups”
These issues are still apparent in terms of lifetime employment; people are not eager to leave companies and start startups. The risk is still higher than the reward, but we are starting to see more changes right now from the general startup ecosystem and from universities in terms of education. They are preparing people to think that working in the corporate is not the only way, so I think there is a change in the younger generation for this.
What does Tokyo Metropolitan Government, and the Japan national government, need to do to facilitate more entrepreneurial growth?
I think the number one thing the government can do is support education. Support entrepreneurial education, whether it’s programs or courses in terms of technology or programming or even business literacy in general needs a lot of support in Japan and Tokyo. To change that and make efforts there can create a better startup ecosystem for the future.
What are Tokyo’s benefits for potential startups?
Several things, one is the cluster of large corporations, and that is major. Comparatively to any other city, Tokyo has the most dense number of Fortune 500-type companies in one place. I think these corporates are also in a sense really ready to work with startups, ready now more than ever. And money, and this ties into the corporates as well, corporates, VCs, government grants, this is also at an all-time high, so money is there. Whether in fund-raising or in the revenue and client side. And it is not competitive – in a good way – for startups to come from overseas to get in the Japanese market, or for domestic startups trying to disrupt industries. I think there is still not a lot of that being done yet, so companies thinking of doing that moving forward have a great chance.
How were Tokyo startups affected during the Covid-19 pandemic?
The good impact it has had in Japan, and Tokyo specifically, is on the corporate side. Because of the situation, they had to learn how to use Zoom, how to use Google Meets, these sharing tools and remote digital tools. Corporates are asking more and more how do we become digital? How do we become remotely and virtually savvy? A lot of these solutions are what startups have. A lot of these B to B companies, or even B to B to C companies, are really being helped by the corporates’ need to be able to work with them. One more comment is that startups and companies in general are learning how to pivot. They thought there was a one-way road to success, and this pandemic is a huge curveball and they need to learn how to hit it. How do we pivot our business and strategy and ideas to survive post-Covid? It is creating a lot of these strategies, and that is also positive.
Ultimately, what is the future for Tokyo’s startups and entrepreneurs?
“The world is paying more attention to what’s going on in Tokyo”
We are on the cusp, I think. I always talk about innovation as a cycle, and this is true for companies, cities, countries, but Japan has bottomed out in terms of innovation because of the way corporate culture became so big and there was no need for innovation. We are on the cusp, after it has bottomed out, to innovation being needed again. I think we are very much at the beginning stages of seeing that. But Tokyo, you see a lot of these rankings recently, and Tokyo is on an upward trend. It used to be top 50, now it’s top 30, now it’s top 20, now it’s top 15. The world is paying more attention to what’s going on in Tokyo. Hopefully, this becomes a catalyst right now for a very scaled upward trend in innovation and business.