WATI editor
Jun 10, 2024
Japanese companies are increasing their investments in startups, with corporate venture capital (CVC) investments reaching approximately ¥670 billion in fiscal year 2023, marking a nearly 30% increase from the previous year.
This resurgence is partly attributed to enhanced tax incentives for mergers and acquisitions (M&A) provided by the government. The influx of capital is expected to drive the creation of new businesses leveraging advanced technologies such as artificial intelligence (AI) and space development.
According to KPMG data, CVC investments in Japanese startups grew by 26% to $4.26 billion (around ¥670 billion) in FY 2023. This marks the first increase in two years, recovering to 85% of the highest level recorded in FY 2021. In contrast, global CVC investment decreased by 31% to $160.3 billion, with declines across the US, Europe, and India. Japan was the only major economy to see an increase in CVC investment, with the number of investment deals rising by 1% to 688, even as the global count fell by about 30%.
Gen Isayama, a prominent venture capitalist and former head of WiL, noted, "Startup valuations, which had been inflated until 2021, have stabilized. Large companies with ample funds are now actively investing and forming partnerships." He highlighted significant investments in generative AI, space, and robotics, fields that align well with the strengths of Japan's manufacturing sector.
For example, Sakana AI, a Tokyo-based AI startup founded by renowned AI researchers from Google. In January 2024, NTT, KDDI, and Sony Group invested a total of approximately ¥4.5 billion in Sakana AI. NTT plans to leverage Sakana AI’s computational resources and energy-efficient technologies to develop next-generation AI.
In December 2023, Mitsui Fudosan and Yamato Holdings invested a combined total of ¥6.2 billion in Axelspace Holdings, a Tokyo-based developer of ultra-small satellites. "We aim to deepen our understanding of the space industry and explore new business opportunities," said a representative from Yamato Holdings.
Government support has also played a key role in this growth. The tax incentives for companies acquiring startup shares through M&A were expanded in FY 2023, allowing companies to deduct 25% of the investment amount from corporate tax calculations. This applies not only to newly issued shares but also to existing shares, making it easier for large companies to invest in or acquire startups with innovative technologies and ideas.
Despite these gains, the gap between Japan and the rest of the world remains substantial. The US saw approximately ¥11 trillion in CVC investments in FY 2023, about 17 times Japan’s total, even though it had dropped by about 60% from its peak in 2021. Takuya Miyata, General Partner at US-based Scrum Ventures, observed, "While major US companies like Google and Meta are aggressively pursuing large M&A deals in new fields, Japanese companies tend to limit their investments to adjacent areas." He emphasized the need for deeper collaboration between large corporations and startups to achieve concrete business results.