As I sat on a tatami mat in the library of a 300-year-old Kyoto ryokan, my eyes were drawn to a Japanese translation of Walter Isaacson’s book, Steve Jobs.
Yes, I was on vacation and, yes, on my honeymoon. But tech is ubiquitous, and when you’re in a place you’ve never been before, you starkly see what’s the same and what’s different. Like seeing Kingdom of the Planet of the Apes in “ScreenX,” a movie theater that projects in an awkward 270 degrees (I don’t think it’ll catch on). Or the legendary Japanese toilets, which really should catch on. Or simply the fact that the top Nippon Baseball team is the Fukuoka SoftBank Hawks.
And eventually, my mind was drawn back to work, wondering how things are done similarly—or differently—in Japan when it comes to the country’s venture and startup ecosystem. What’s up with Japan’s tech startups?
The answer starts with data. So you get a sense of the size of the marketplace: In 2023, total VC deal activity in Japan shook out to $5.1 billion in value, across 1,213 deals, according to PitchBook. In the 2021 boom, that number was $6.8 billion in deal value, across 1,476 deals. Though small compared to the U.S. market, Japan’s venture ecosystem is on the upswing right now, said Emre Yuasa, general partner at Globis Capital Partners.
“It is quite booming,” Yuasa told Term Sheet via email. “The startup funding has grown 10x in the last ten years and the dip of 2023 was relatively mild (20% down) compared to other markets. On top of VCs, many corporates as well as the government are actively providing risk capital to the market.”
Among LPs, the private markets are gaining momentum, and venture is especially attracting interest.
“VC is rapidly gaining traction in a traditionally private equity-dominated market,” said Harsha Narayan, Preqin AVP of content, via email. “The proportion of active plans for VC investment by Japan-based LPs over the next 12 months increased from 30% in 2023 to 35% in 2024, just a close second to buyouts.”
Accordingly, the number of VCs is also in expansion mode, and “the number of Japan-based investors tracked by Preqin has increased by 1.7x over the past five years,” Narayan added.
Sector-wise, SaaS and digital transformation are top of the heap, while “deep techs are on the rise,” said Yuasa. Additionally, space is having a bit of a moment: In 2023, lunar lander maker ispace went public, and, this month, satellite servicer Astroscale announced plans to go public.
And, of course, AI is a big part of the equation.
“I cannot think of any software startups that do not try to leverage the latest development in AI,” said Yuasa via email. “That being said, we don’t have a lot of ‘AI startups’ per se. AI is an enabler to create a product that meets customer and consumer needs so they are mostly behind the curtain.”
This all sounds somewhat familiar, right? But there are some key differences. Japan’s ecosystem is historically far smaller than the U.S.’s and the government’s influence is notably strong. For example, the most influential LPs include the Government Pension Investment Fund and Japan Post Bank (and they’re in the process of increasing their private capital exposure), said Narayan.
As you might expect, the most notable names were a whole new cast of characters for me. Cross-referenced between Preqin and PitchBook, names that came up repeatedly as the most influential Japan-based VC firms include: Mitsubishi UFJ Capital, SMBC Venture Capital, SBI Investment, JAFCO, SPARX Group, Globis, Incubate Fund, and University of Tokyo Edge Capital Partners.
There’s also a culture gap. Consider the yuru-chara, Japan’s many mascots. They’re like Pokémon, sort of. Everyone’s got one: In Kyoto, for example, there was a parking lot mascot, a winking turtle—at least, I think he was winking, he may have been missing an eye.
I’m personally fond of Kumamon, the red-cheeked bear-like creature representing the Kumamoto Prefecture. Kumamon’s prone to tripping over himself in front of public figures, and his take on BTS’ Dynamite genuinely thrilled me. (Watch from the top, I promise it pays off.)
And though Kumamon seems goofy, this bear reportedly generated $1.2 billion for his district in his first few years of…being Kumamon. The reason, in part, is that a Japanese audience doesn’t see characters as inherently for children, but rather as a broader culture of what’s called kawaii, which mostly refers to “short, roundish figures with large eyes, like a Jigglypuff,” said Aaron Wilson, associate at ShapeWin, a Japan-based PR firm.
ShapeWin has even helped San Francisco-based startup Novakid create its own mascots exclusively to “get eyes in the Japanese market,” ShapeWin founder Yusuke Kamimura told me.
My sense is that innovation is a complex thing in Japan. It’s a country that often feels futuristic and has been at the vanguard of all sorts of technological advancement. At the same time, some reports argue that Japan’s long-time negative interest rates have also adversely impacted innovation. The Japanese economy is also in a tricky spot right now—the country’s declining birth rate is well-documented, and the yen is weak. I kept asking people I met how they felt about the economy, and the answer was invariably some form of “not good.” (Yes, I actually asked—in cabs, at temples, at reception desks, and in spas.)
And if Michael Lewis’ Pacific Rift is to be believed, it’s also a place that prizes the status quo, both socially and economically, which is inherently at odds with Silicon Valley’s worship of disruption. It’s a place with reverence for what’s old and engaged with what’s new. And it’s sometimes incongruous, like finding a book about Steve Jobs amid ancient maps.
Or maybe they link up perfectly. If there’s one thing I learned as my husband and I traversed Kyoto, hiking from one luminous (and old) Buddhist temple to another it is this: You can make a place sacred by deciding it is so, and building. And when you build something, if it’s resilient and if it’s beautiful, it’ll stand the test of time.
See you tomorrow,
Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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Joe Abrams curated the deals section of today’s newsletter.
VENTURE DEALS
- Xcimer Energy, a Redwood City, Calif.-based fusion energy company, raised $100 million in Series A funding. Hedosophia led the round and was joined by Breakthrough Energy Ventures, Lowercarbon Capital, Prelude Ventures, Emerson Collective, Gigascale Capital, and Starlight Ventures.
- Storyblok, a Linz, Austria-based content management system, raised $80 million in Series C funding. Brighton Park Capital led the round and was joined by existing investors HV Capital, Mubadala Capital, 3VC, and firstminute capital.
- imagino, a Paris, France-based marketing technology company, raised €25 million ($27.2 million) in Series A funding. Cathay Innovation led the round and was joined by henQ.
- Gireve, a Sèvres, France-based company that connects mobility stakeholders with EV charging stations, raised €20 million ($21.8 million) from Partech and existing investors Groupe EDF, ENEDIS, and others.
- Ixana, a West Lafayette, Ind.-based company developing AI-powered semiconductor chips designed for high speed human-computer interactions, raised $10 million in a Series A round. 10X Founders led the round and were joined by Ultratech Capital Partners, Konvoy Ventures, Scrum Ventures, and others.
PRIVATE EQUITY
- Alpin Unlimited, backed by LongRange Capital, acquired a 31.85% stake in KitzSki, a Kitzbühel, Austria-based ski resort. Financial terms were not disclosed.
- Suave Brands Company, a portfolio company of Yellow Wood Partners, acquired the ChapStick brand, a Warren, N.J.-based lip balm company, from Haleon (NYSE: HLN). Financial terms were not disclosed.
- Thermal Technology Distribution Solutions, backed by Gryphon Investors, acquired Southwest Heater and Controls, a Dallas, Texas-based distributor of industrial electric heaters, sensors, controls, and technical support to manufacturers. Financial terms were not disclosed.
- US Signal Company, a portfolio company of Igneo Infrastructure Partners, agreed to acquire OneNeck, a Madison, Wis.-based provider of IT infrastructure and data center solutions. Financial terms were not disclosed.
EXITS
- Greenbriar Equity Group acquired Renuity, a Coral Gables, Fla.-based home services platform, from York Private Equity. Financial terms were not disclosed.
- Intesa Sanpaolo acquired First Bank Romania, a Bucharest, Romania-based retail bank, from J.C. Flowers. Financial terms were not disclosed.
IPOS
- Rapport Therapeutics, a Boston, Mass.-based developer of medicines for patients with central nervous system disorders, plans to raise up to $144 million in an offering of 8 million shares priced between $16 and $18 on the Nasdaq. ARCH Venture Partners, Cormorant, Johnson & Johnson, Fidelity, Capital Research and Management Company, Third Rock Ventures, and Sofinnova Venture Partners back the company.
PEOPLE
- Coalesce Capital, a New York City-based private equity firm, hired Curtis Roby as managing director, James Hearty as managing director and head of business development, and Christian Diez as managing director and chief financial officer. Formerly, Roby was with Audax Private Equity, Hearty was with FoW Partners, and Diez was with Two Sigma’s private investment businesses.
