Interview
How SMTB hopes to build regional startup ecosystems across Japan

Universities have, for centuries, been hubs for learning and innovation. In recent decades, they’ve also played a key role in the development of startups and technology hubs, creating pipelines between researchers, students and venture capital. The most famous example is the strong connection between Stanford University and Silicon Valley, with many of the region’s largest tech companies tracing their roots to products, designs, or capital from Palo Alto.

In Japan, the link between academia, businesses and startups is not yet strong, but that is starting to change. At the forefront of creating a new model is one of Japanese well-established and largest institutional investors, Sumitomo Mitsui Trust Bank (SMTB), where a project led by Kengo Noguchi,Deputy Chairman of the bank, is aiming to develop regional ecosystems centered around Japanese Universities, starting in Tohoku.

We spoke with Mr. Noguchi to learn more about SMTB’s strategy, approach and future plans.

When you start something new, it's quite challenging to have people sympathize internally as well as externally. Back in 2017, when I was the managing executive officer of the division in charge of this effort, I was leading on trying to change and shift the direction of how we engaged with university communities.

While we were trying to embark on collaboration with these universities, we did not know, for example, how they operated, what their organizational structure looked like, what the process was for them to decide whether to embark on a business or not, or how their IP or patents were being managed. Therefore, we visited many universities, met with many people at different levels, and had quite a few interviews and hearing sessions.

I took risks myself, such as becoming a visiting professor, to better understand what professors or researchers at the universities were thinking and what they were ultimately hoping to accomplish. As the division head, I took the initiative to show others what could be possible, and then I thought they would be interested in following. That's how I was able to gain more sympathy internally at SMTB as well.

It took well over six years until this joint venture was established. So it was not something that was built all of a sudden. It was step by step, building this up from 2017.

The purpose of the academic world is to engage in research and development activities independently, and then try to conduct as much research as possible. On the other hand, the industry side is focused on boosting their earnings by introducing new products or engaging in marketing activities. If they have direct dialogue, it often does not go well.

So, one reason why we established the Tohoku University Co-creation Initiative (THCI) is that we understood that we needed to be the translators or interpreters for both sides.

We made a direct equity investment into THCI to take on some risk ourselves rather than just being consultants. We wanted to create a success story as an example so that we could share it when we asked others to come on board. We wanted to be the frontrunner in creating that example.

I think traditionally, Japanese financial institutions did not proactively create markets or try to generate added value. We were very passive.

When we decided that we wanted to embark on creating markets ourselves, we thought that there would be a big affinity for us to actually try to support the engagement, or bridge, between corporations and startups. Startups struggle in the startup phase, and we thought it would be beneficial for us to connect with large cap companies, and then they would have a higher probability of overcoming what is often, I think, a very difficult phase.

We are not just involved in offering some banking services, such as lending. We also have corporate pension fund schemes that we offer to them, advise them on corporate governance, and support their social benefits and welfare activities.

A main reason we try to support startups is that they may be able to help solve societal issues.

I am very confident and convinced that social issues can be solved if this collaboration between the academic and the industrial sides can materialize. To make a better society, you need breakthrough technology, and this technology is often, I think, coming out of universities.

A challenge for us going forward is determining exactly what type of added value we were able to achieve. Therefore, I think we need to come up with a very easy-to-understand and clear structure for us to actually evaluate the progress towards solving social issues.

The joint venture company that we have established with Tohoku University is taking a sort of middle-ground approach between the industry and academic sides. But it does not necessarily mean that this will be the same for all universities, because each university will have a different situation, conditions, or way of engaging.

For example, with money, sometimes it will be angel investors that are most suitable. Other times, it could be the local government, the city, or the prefecture with public funds. There will be occasions where we ourselves will be making an equity investment or offering some debt.

I think THCI is a vehicle that is required in this current era. However, ten years down the line, I do not foresee THCI playing a major role. I'm hoping to see a society where university professors, as well as students and the corporate side, understand the importance of trying to commercialize technology in order to generate added value. If they are able to understand that, they would be able to do so without the presence of THCI.

I hope that society will progress and that we are just offering that trigger.