Foreign investment in Japanese startups up 70% in H1 ’24

Overseas venture capital (VC) funds are demonstrating a growing appetite for Japanese startups, with investments surging nearly 70 per cent to 22.5 billion yen ($152 million) in the first half of the year.

This accounts for about 20 per cent of total VC funding in Japan, marking a notable shift from China due to increased geopolitical tensions. Foreign investment has surged, surpassing the overall four per cent increase in VC funding in Japan.

While the figure is still below the peak levels of 2021-2022, it signals a promising trend for the Japanese startup ecosystem. Analysts predict that the full-year total could surpass the 2020 figure.

Foreign investors are particularly interested in large-scale projects, with 16.3 billion yen invested in deals worth one billion yen or more.

Notable examples include Sakana AI, a startup founded by ex-Google researchers, raised around 4.5 billion yen in January. Lux Capital and Khosla Ventures, US venture capital firms, led the funding round.

Zehitomo, a startup connecting service providers with customers, secured 1.1 billion yen, with 500 million yen from overseas investors, including Taiwan’s Darwin Venture Management.

“Asian VC is taking a renewed look at Japan,” said Zehitomo CEO Yuichiro Miura. “The changing environment, including the government’s support of startups, is encouraging investment.”

Other Japanese startups attracting foreign capital include Renalys Pharma in the biopharmaceutical sector and EneCoat Technologies, which is developing perovskite solar cells.

The shift towards Japan is largely attributed to the increasing challenges of investing in China. The US has imposed restrictions on investments in Chinese AI and chip technologies, while Beijing has tightened its grip on corporate activity.

Attribution: The Nikkei Asia

Subediting: M. S. Salama