Narrator: Investing in Japan Expert Perspectives
Foreign investment in Japan has continued to increase, and as of the end of 2022, totaled 46.2 trillion yen. In this interview series, we unravel the reasons behind Japan's current allure as an investment destination, exploring the insights of experts from around the world.
Interviewer: So for this episode, we have Ms. Christine Tsai, CEO and Founding Partner of 500 Global. As a venture capital investing in startups Globally, 500 Global has expanded into Japan since 2012, carrying out programs, especially in regional areas in Japan, including Kobe and Aichi. Great to have you, Christine-san.
So, first of all, tell us about your company and how many startups you have helped and how many companies. What are your characteristics of your firm?
Christine: Thank you so much for having me. I'm excited to share more about 500 Global and particularly what we have done over the past 13 years and in Japan. Well, as you mentioned, 500 Global is a venture capital firm. We invest globally and we back startups across stages from pre-seed all the way through pre-IPO. In total, over the past 13 years, we've invested in more than 2800 companies across 81 countries around the world.
And today that's something that we are really leveraging what we have built over the past 13 years, investing as early as 2010, you know, our first investment into a company in Japan was those early days, 2010, 2011. And we are looking forward to doing a lot more in the market and worldwide.
Interviewer: All right. So what is the attractiveness of Japan's startup market?
Cristine: Well, 500 has invested in more than 55 companies in Japan since 2010.
So for us, what is really exciting about Japan currently is looking at the history of where we have been in the market and what we have seen with founders and even allocators who invest into venture funds is there's a lot more momentum that has been slowly happening over the years and I think in particular with a lot of the convergence of the, you know, the Prime Minister's five year plan around really pushing startup creation, entrepreneurship, innovation. So really a top-down influence as well as how the Japan market is. You know, in general, it's, you know, one of the world's largest economies is very mature, very developed. And there's a lot of talent as it relates to engineering talent, hard, technical skills. So it's quite unique in terms of the maturity of the market.
Interviewer: Okay. Now and your company especially are in the regional startup market. So what is the attractiveness of going into the Japanese startup market and the regional level?
Christine: Definitely. So when we you know, from the very beginning of 500, if you think about where things were in the in the broader macro landscape in 2010, there were a lot of interesting things happening. And we're just coming out of the 2008 global financial crisis and innovation itself was at a really compelling inflection point with the rise of cloud mobile social platforms.So, here we were as 500 having this very strong conviction that startups would need different type of investor. One that actually knew how to operate. companies would understand these new technology platforms because we worked on them in our prior lives and that this would result in globalization for venture and startups. That was a very new concept at the time.
A lot of people thought that was very silly. They felt that they were not going to be very good companies or big outcomes outside of the US, but, you know, nonetheless, we believe that this would be the long term, you know, the long term plan and here we are in 2023, that's very much the case. So with Japan, you know, a lot of what we saw early on and this is still held, you know, very much to be true is that there's a lot of very key ingredients that Japan has that will result in a flourishing startup ecosystem.
So one is what I mentioned before, the economy is very modern, large, very technologically advanced. It's a, you know, mature market. There’re industries that are very well-established and strong brands and strong quality of product. There's just the sheer physical infrastructure is very top notch on the research and university side, you know, the academic side, very highly regarded, you know, very well trained, you know, well-learned, students coming out of the universities, which results in a very educated, skilled workforce, you know, the IP protection framework, political stability is very stable.
And in terms of geopolitical risk factors, which is something we do have to take into account in many markets around the world, it's relatively low in terms of in any sort of volatility that'll happen. All of those things are very ripe for having a flourishing VC ecosystem.
And then I think when you look at the market size itself, because the GDP of Japan, the regional economies, you know, some of them is as significant as certain many countries around the world in Europe or Asia. So the fact that the country's large market size, it actually is great potential for founders or entrepreneurs to test out new products or, get kind of market feedback.
So it's an attractive market, I think, to test out new products and a lot of room for innovation. And then I think the other two things of why we have an eye on Japan even more now than ever before is that because of especially and we see this firsthand with the work that we've done in Kobe and currently in Aichi, is that a lot of when we look at countries, there's usually one city that is kind of the hub for startup innovation.
And, you know, historically it's been obviously has been Tokyo, but multiple startups, hubs are starting to emerge across Japan and each hub is supported by what we see as a very healthy blend of investors, universities, the government, innovation hubs, corporates. And this is happening across markets like, what I mentioned, like where we have run programs in Aichi, in Kobe region but also even like Fukuoka and in other markets.
Interviewer: So you just mentioned that in the Japanese market, there's you know, there's good universities, there is a lot of a big market with a lot of companies and there's also government support. But with your collaboration with Kobe, you know, in Kobe, there's a support system for startups, a three way collaboration between industry, academic groups and the government. So what are your thoughts on the support environment in Kobe?
Christine: I think with Kobe. And what we what we found is that there was definitely a lot of support from the government and I think also from the university angle, I think is very important because a lot of times either it's research or founders that come out of universities that need help commercializing and taking the startup and its product to market.
And, I think for a lot of the works that the work that we did there, you know, we worked quite closely with the city of Kobe to bring kind of that both the startup education and understanding fundamentals of growth as well as a bit of kind of a bit of corporate innovation as well, and tried to tackle it from really the early stage pre-seed seed stage of companies.
But one of the things that was quite unique was that it was open to startups even outside of Japan. So there were actually a number of companies that came from outside of Japan because they wanted to expand into that market. And you know, we ran this program for many years, so many, several batches. And I think the support from any kind of program, including at the university level, I think is quite critical for deal flow and for showing that, you know, if you are working on things at the academic level in the research labs, there's opportunities to commercialize what you're doing into becoming an established company.
Interviewer: And you mentioned collaboration with Aichi. So why did you choose Aichi to help the startups and be part of the ecosystem?
Christine: So for us, Aichi, the Aichi government has been a great partner and over the years so far in terms of the opportunity to bring innovation to that market, bring seed stage accelerator program, a market access program sort of similar to Kobe, but a little bit with some differences.
But global startups that want to expand into Japan, corporate innovation for a lot of the large corporates, which Aichi does have, of course, and how to work effectively with startups. Again, we work quite closely with the Aichi government to really tailor and run these programs such that they not only helped serve the prefecture in terms of their objectives, but also that it was good for the companies and them being sustainable.
So, we definitely prioritize the NPS and the experience of the startups, hopefully that these companies are investable, like people are interested in investing. You know, some of our own investments or our own portfolio that might want to expand to Japan also maybe went through that program. So I think for us it was really like an opportunity to go into a market that others weren't looking at within Japan and work with a very good partner.
Interviewer: Can you give us an example of a successful founder in Aichi and what are what were the key factors of the companies’ success?
Christine: So a couple of examples from the Aichi program. One company called Pollen, which actually was a company based in Singapore, more on the retail side. And then another company called BLUE EYES, which was a online platform for Japanese event organizers. Those are examples of companies that came out of the Aichi programs that had some that had more success in terms of meeting with companies across the prefecture hitting product market fit.
Interviewer: What about Autopass? That's also that was a successful startup in Aichi, right?
Christine: Yes, that's actually another good example and this is one where the example is a little bit of what I spoke to before, where sometimes companies will want to expand into the Japan market and they are coming from a market that maybe has some similarities. So, Autopass is a company that originally is based in Taiwan.
I think for them they also it helped quite a bit in terms of similar to Pollen like understanding the market, how to expand in that, you know, in especially for them being kind of the vertical relevance being in Aichi and close to like around the kind of the vehicle automotive like it was even more relevant for them being in Aichi and the corporations there. So you know we're excited to see how they progress as well.
Interviewer: Okay. And lastly, to just wrap up, so what are your prospects and expectations for Japan startup market and business opportunities in the regional market in this country?
Christine: So, in terms of business aspect, I think that there's a lot of really fast moving, interesting things happening around artificial intelligence. As you know, with AI and generative AI. And I think Japan actually has a really unique opportunity to stand out with this kind of the supercycle or I think people are calling it like a supercycle or a platform shift with the growth of AI technologies and what does that do for existing companies as well as if you're a brand-new company, like what is now going to be possible with AI that wasn't before.
So, I think this is actually a really unique opportunity for Japan in terms of, you know, all the ingredients that I mentioned earlier as to why there's a huge opportunity for a robust, thriving startup venture ecosystem in Japan around the maturity of the market, a strong educated workforce, research, all of those things in terms of leveraging this opportunity with AI to almost like leapfrog other startup ecosystems and get kind of be even further advanced.
And today there's certainly a lot of efforts from many countries to attract the best AI talent. And, that is something that can be quite compelling for Japan in terms of all of the things in addition to what's already happening top down with the government really having an explicit, you know, explicit mandate around the five year plan and encouraging startup innovation and venture activity and just making it easier to start companies and invest in companies.
But that in addition to that, I think there's also a really significant opportunity to leverage all of the developments around AI and make Japan really a very compelling place for foreign entrepreneurs and for anyone building an AI company, if they can offer, compelling resources like Compute obviously one of the things that comes to mind. But, you know, we actually have seen a few examples of AI companies they explicitly want to set up in Japan because of some of the benefits that they see.
So hopefully there's more of those coming. And, it's a really exciting time, I think, to be looking at the Japan market.
Interviewer: Okey, Thank you very much, Christine-san.
Christine: Thank you.
Narrator: Japan has many key ingredients that will result in a flourishing startup ecosystem throughout the country, establishing hub cities to foster innovations and business opportunities in regional markets.
Stay tuned to the "Expert Perspectives" series for invaluable insights from global experts.
Investing in Japan Expert Perspectives
