Diving into Japan’s Venture Capital Landscape 2022

Our perspective on the growth of Japan’s technology ecosystem, including the latest funding data and perspectives from some of Japan’s leading VCs.

Ahead of our tenth investment in Asia, and our first in Japan, we are very excited to release our second report that looks in detail at the Japanese VC landscape.

Following our 2018 report, and despite some macro global concerns, we remain bullish about Japan and Asia in the long term. In just over two years, the White Star Capital team has made a total of nine investments in Asia, including Flash Coffee in Singapore, and SWING in South Korea.

Earlier this year, we were delighted to officially launch our Asian headquarters in Singapore, signalling both our interest and commitment to the region as an institutional investor. This report aims to consolidate key information and provide an overview of one of our key target markets for investment, Japan.

What has changed since our 2018 report?

Since the release of our first Japan report in 2018, we have seen VC funding accelerate and valuations surge in the country. With the creation of six new unicorns between 2019 and 2021.

Total capital invested into Japan’s startup ecosystem reached a record-high of $6.3bn in 2021, after a slight drop in 2020. In contrast to deal value, the number of deals has declined since 2018, indicating a fall in the number of early-stage startups.

Japan remains a largely untapped market ripe for disruption and entrepreneurial activity. We have actively supported expansion to the country for many of the startups in our portfolio, from Mnubo, which was sold to Aspen Tech two years ago, to Meero, and Swing in recent years.

Trending sectors and verticals

SaaS, AI & machine learning, and mobile were the three hottest verticals in terms of VC funding in 2021–2022 YTD. The same three verticals also led the way in terms of deal count, with SaaS at 459, AI & Machine Learning at 331, and Mobile at 226.

The top 5 fastest growing sectors in 2021 in terms of funding were Content Curation, Space, Logistics, FoodTech and Biotechnology. Sectors we expect to see continued growth in over the coming years.

The macro perspective

From a macro-perspective Japan has been somewhat at a stand-still for the past three decades, due to continued deflationary pressure, challenging demographics, the rise of competitive neighbours, and chronic resistance to change.

However, under the covers, there have been promising technology and innovation trends, towed by budding entrepreneurs, which are now blooming. International technology investors are no longer passing over this market, as can be seen by the large early-stage deals participation in 2020.

In addition, the new government administration led by Prime Minister Fumio Kishida has announced multiple initiatives to support Japan’s startup ecosystem since assuming office in October 2021. This includes an announcement earlier this year that the Japanese government will be launching a ministry to promote startups. A five-year plan will be formulated by the end of the year with a view to increase the number of startups by 10x over five years.

Looking towards the future

Whilst there is much focus on Japan’s low growth and ageing population, Japan still remains the world’s third-largest economy and has a highly attractive domestic market that international tech players are increasingly looking to target. We see a new generation of entrepreneurs coming out of these companies that drive the start-up ecosystem going forward.

In particular, Japan is quickly emerging as a global leader in artificial intelligence research and business applications. The surge in unicorns that leverage this technology at their core is evidence of Japan’s increasing global presence in this field.

​​While mega funding rounds have increased average deal size, the median deal value has also been increasing steadily over the years. This signals a maturing Japanese startup ecosystem.

White Star Capital has been forming valuable relationships with key investors and stakeholders in the Japanese ecosystem since 2017, and we recently completed our first investment in the country which we’ll be announcing shortly.

We continue to have a strong belief that the market is on an upward trajectory and that we will see great entrepreneurs create meaningful and impactful businesses extending beyond national borders. Do get in touch so that we can explore opportunities together.

For a more detailed analysis and a deep dive into Japan’s burgeoning digital asset space, you can download and view our report here.

White Star Capital is a global technology investment firm partnering with exceptional entrepreneurs who are building the iconic companies of tomorrow. With offices in North America, Europe, and Asia, our presence, perspective and deep operational expertise enables us to partner with founders to help them scale globally from Series A onwards.