Ever since Edward Feigenbaum and I wrote our book on Japanese entrepreneurship back in 2002, I’ve been interested in the evolution of Japan’s entrepreneurial ecosystem. My impression, drawn from conversations with many entrepreneurs and investors, has been that startups still face the same problems–risk aversion, lack of risk capital, insufficient access to human resources, and a dearth of early adopters–that we identified in our book. It seems that the overall situation has not improved, and may even have deteriorated. Data from Terrie Lloyd‘s recent newsletter suggest matters may be even worse than I had realized. From the newsletter (delivered by email and not yet posted online at the time of this writing):
whatever the reason, whether it’s the market competition, lack of sources for funding, or a risk averse culture, the number of new start-ups is falling steadily, meaning that the future commercial base of the country is being eroded. According to the Statistics Bureau there were somewhere around 29,000 small and medium-sized companies started up in 2006, down substantially from the 45,000 started in 1999. (General Edition Sunday, October 24, 2010, Issue No. 587)
The IPO market is way off, and comparison with South Korea indicates that the decline cannot be blamed entirely on the financial crisis:
2009 produced a record-low (in recent times) number of IPOs: just 19, and this year will not be much better. In stark contrast, perhaps surprisingly so, the South Korean IPO market is booming and there were 66 IPOs in Seoul last year, with an expected 70 lined up for FY2010.
IPOs were a bright spot when we wrote our book, but apparently not any more. To make matters worse:
fiscal 2009 venture capital investments fell 40% over those made in 2008, for a total of JPY63.7bn by the nation’s top 20 VC companies. To put things into better perspective, in a recent UK firm’s survey of 100 global institutional investors about the attractiveness to VCs in Asia and Oceania, Japan ranked bottom of the list…
Those interested in more details and analysis may wish to read the complete article; presumably Terrie will post it on his web site soon.
One of my friends is running an algae-to-fuel biotech startup in Japan. His company is arguably Japan’s premier startup in this very promising space, but he has two orders of magnitude less funding than competing US-based startups: millions of dollars versus hundreds of millions. Even if his technology is superior (I’m not qualified to offer an opinion), most Japanese entrepreneurs are playing in the minor league–or perhaps the little league.
This does not bode well for Japan’s economic future.