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). He is the Managing Partner of Shizen Capital (formerly known as Tachi.ai Ventures) in Japan. You can read more on his blog at http://rude.vc or follow him on Nostr @reggae. The Japanese translation of this article is available here.
The other day a large growth equity fund in Europe reached out to me. This firm has invested across Europe as well as into North America. They contacted me because they are considering to open an office in Tokyo.
This is of course fantastic news and a testament to how some capital allocators globally are waking up to the opportunity of Japan’s digital renaissance for investment.
One anecdote that came up in my discussions with this fund relates to their search for Tokyo office space. It is a story that made me realize how Tokyo’s real estate companies are blindly missing a massive opportunity.
Apparently, the firm had submitted an inquiry via the contact form on one of the websites of a well-known real estate developer. They expressed their inquiry in English, on an English version of the real estate company’s website. Unbeknownst to them, this may have been their first misstep.
Over two months have elapsed, and the fund manager still has not received a response of any kind from the real estate company.
Hello Tokyo, is anyone home ?
Now, this is a fund with over $2 billion in assets under management, and over 100 portfolio companies spanning 10 countries. They intend to use their future Tokyo office as a launch pad both for investing in APAC and for bringing European companies into the Japanese market. Needless to say, this fund’s first interaction with Japan at the operational level has not left a favorable impression.
I’ve been fortunate to meet members of the investment and innovation teams of several real estate firms in Japan. Nearly all of the individuals I have met strike me as incredibly intelligent, open-minded, and innovative. Yet there seems to be a disconnect between the strategies of Japan’s real estate firms on one hand, and with the government’s ambition to transform Japan into a startup nation on the other.
To their credit, the Japanese government has crafted policies which have fostered incredible progress in accelerating Japan’s venture ecosystem in a short time. I tip my cap to the forward-thinking champions in the government who are driving these reforms. True, Japan trails other successful venture ecosystems like North America and Europe, however the benefit of being late is that there are successful models available for Japan to emulate.
When it comes to allocating real estate toward building global innovation hubs, I submit that lessons from the fantastically successful experiences of France, the Netherlands, and the Nordic countries could prove relevant for Japan to consider.
As our friends in Europe discovered, the best innovations tend to arise when there is a density of entrepreneurs working on a diverse array of startups within close physical proximity. This is not only true in theory; there is also empirical evidence to back this up. When the density of founders surpasses a certain threshold, the probability of unique insights and groundbreaking innovations rises exponentially.
Twenty years ago, the aforementioned European countries set out to replicate Silicon Valley in their own geographies. However, they lacked many of the fertile conditions that the San Francisco Bay Area possessed for becoming startup hubs. Following a couple false starts and failed attempts, they eventually cracked the code in creating the necessary critical density of entrepreneurs.
How to cultivate an international startup hub
So how did they do it in Europe ? One key factor is that they found a way to give free office space to startups. Some governments funded initiatives directly, whereas others nudged private sector actors, such as banks and real estate companies, to offer free office space themselves.
From the perspective of a startup founder, every 1€ spent on rent is 1€ deprived from working on innovation. So naturally, startup founders flocked to these free office space offerings: Over a short time; the critical density thresholds were surpassed and the virtuous cycle kicked in.
Moreover, these startup office hubs became some of the most sought after locations in which large enterprises desired to join as tenants. Even from the most narrow financial perspective of the property owner, offering free office space to startups more than paid for itself from the increased appeal of the property.
With Japan increasingly rising onto the radar of international investors, there is a compelling opportunity here for a real estate company to step outside of their conventional business model and become a Tokyo hub for global startups and fund managers.