This guest post is authored by Mark Bivens. Mark is a Silicon Valley native and former entrepreneur, having started three companies before “turning to the dark side of VC.” He is a venture capitalist that travels between Paris and Tokyo (aka the RudeVC). You can read more on his blog at http://rude.vc or follow him @markbivens. The Japanese translation of this article is available here.
Several weeks ago I summarized my first impressions of Japan’s burgeoning Fintech sector. Now that I’ve had an opportunity to meet more of the key actors, I’m relatively bullish on this market for both innovation and venture investment.
Perhaps reinforcing my appetite, this recent piece in TechCrunch offers a worthwhile primer on the Fintech world beyond Silicon Valley and Europe but ostensibly neglects to mention Japan.
The Japanese government’s support of innovation in Fintech, such as by way of its modernizing of financial regulations and offering business incentives to firms that encourage the creation of startup incubators — is one contributing factor. Another is the average Japanese consumer’s substantial investable asset base, especially after the mid-life step function I explained earlier. Although I would not quite characterize the Japanese consumer of holding the same degree of mistrust for banks the way we do in the West, investing experience of the average household is relatively more limited in Japan than say in the U.S. In fact, I observe a more kindred mindset of conservatism (or prudence) with European households.
That is not to suggest that Japanese consumers are close-minded to creative financial products. On the contrary, some very promising young firms are tapping into a consumer appetite for solutions ranging from robo-advisory (Money Design) to peer-to-peer small business lending (Crowdcredit). The recent Microsoft Innovation Day featured some other compelling entrepreneurs with global ambitions.
Financial institutions in Japan are determined to not just remain bystanders. To their credit, many acknowledge that innovation can take place outside their corporate walls… and sometimes even outside the country’s borders.
Increasingly, these established corporations are taking small stakes in Fintech startups. A new draft measure in Japan’s parliament will ease the restrictions on banks’ ability to invest in operating companies.
Many are also setting up dedicated venture capital units. Although historically corporate venture capital funds underperform independent VC firms on a purely financial return basis, a corporation’s objectives also encompass strategic considerations, so making direct investments in startups can make sense.
By last tally, I’ve counted over 20 corporate venture capital funds in Japan who make Fintech investments. This list is by no means exhaustive, but includes (listed alphabetically):
- Adways Ventures
- Credit Saison Ventures
- DBJ Capital
- GCI Capital
- GMO Venture Partners
- Gree Ventures
- Intel Capital
- Itochu Corporation
- Mitsubishi UFJ Capital
- Mitsui Fudosan
- Mizuho Venture Capital
- Monex Ventures
- Opt Ventures
- Rakuten Ventures
- Recruit Strategic Partners
- SBI Holdings
- SMBC Venture Capital
- YJ Capital
Although I haven’t met all of them yet, the relatively few of this group with whom I’ve coinvested have behaved much like a purely financial VC would expect of them. By this I mean that these funds have issued relatively market-standard term sheets, have not demanded any special privileges, and have at least in my experience properly balanced the financial objectives of the investment with their own strategic agenda. Far from viewing them as competitors, I welcome the opportunity to coinvest with CVCs because of their complementarity with independent, financially-driven VCs.
In addition to open innovation initiatives or establishing in house CVC units, I submit that another option exists which merits serious consideration for Japanese corporations and financial institutions. More on that soon…