A look at Japan’s startup scene: Its global position, biggest challenges and hidden weapons

Who’s driving investment, traditionalism vs. tech innovation, and risky business in a risk-averse nation.

Credit: Kim Marcelo

At their core, startups are born to service underutilized and underdeveloped market conditions to innovate, create, or disrupt stagnant industries. For Japan, it’s no different. The local startup space is comfortable sharing the spotlight with other major economic powers such as the US, UK, Germany and France.

But what does such a scene look like in a nation that still holds traditionalism and conventional corporate structures in high regard? In a country where fax machines, yes fax machines, still play a key role in many corporate spaces, how can a culture built on futuristic ideologies thrive?

It’s important to understand that the word “startup” broadly includes companies ranging from seed stage through to series C funding. For the sake of brevity, this article will focus on early stage seed investment. For those uninitiated in the world of startups, “seed investment” refers to the initial sum of money used to begin operations — when received externally, this type of investment is generally exchanged for equity in the newly formed entity.

In many ways, Japan’s startup ecosystem mirrors that of Silicon Valley, and other young, innovative tech meccas. Yet in many more, it’s akin to economist Simon Kuznets’ proverbial notion that there are four economic subtypes; ‘overdeveloped, underdeveloped, Argentina, and Japan,’ meaning in brief, it’s an entity with such unique history and trajectories, it’s near impossible to compare.

Big economy, small risks: What Japan invests in its startup scene

While Japan boasts the third largest economy in the world, its investment into the startup space is a modest 4.32B USD, compared to the world’s sixth largest economy, the UK, which saw a total investment of 15B USD in 2020.

According to Crunchbase’s 2021 Startup Ecosystem Report, Japan has maintained its global rank of 21st for the second consecutive year. Though Japan has remained competitive in Asia-Pacific (APAC), the gap is closing with countries like South Korea and India pulling further ahead, while countries with…