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Japan’s Startup Villages 20 Years After Bit Valley

Rick Masuzawa [Profile]

[2018.08.29]

Nearly 20 years ago, in March 1999, Nishikawa Kiyoshi, president of Netage Inc., announced the Bit Valley concept. Nishikawa was a pioneer in creating a community of Internet startups, a community that gave rise to many of Japan’s current Internet companies. The author sits down with Kawabe Kentarō, president of Yahoo Japan Corp., and Hori Shin’ichirō, CEO of YJ Capital Inc., to discuss the changes to and the current situation in the system linking startup entrepreneurs and investors.

Kawabe Kentarō

Kawabe KentarōPresident and CEO of Yahoo Japan Corp. Born in 1974 in Tokyo. Graduate of Aoyama Gakuin University. Founded the Internet startup, Dennōtai, in 1995 while still at university. After managing Yahoo News, became vice-president of rht firm in 2014 and assumed his current position in 2018.

Hori Shin’ichirō

Hori Shin’ichirōCEO of YJ Capital Inc. Born in 1977. Graduated from Keiō University. Joined Yahoo Japan in 2013. After serving as COO of YJ Capital, assumed his current position in 2016.

Hundredfold Growth for 20 Companies in 20 Years

MASUZAWA SADAMASA  Nearly twenty years have passed since the announcement of Bit Valley. The number of IT startups has grown considerably since then, as has the number of people who work there. These people created a community centered on the Shibuya area of Tokyo, which came to be called a “startup village.” I’d like to begin by looking back on how Japan’s startup villages began and developed.

KAWABE KENTARŌ  Why do startup villages form? This is the important point. Based on my experience of participating in a startup village, I think there are three forces that bring these villages together. The first is when startup companies in the same area create a place for exchanging information and work. The second is when venture capital establishes a place for encountering companies to invest in. There continue to be many examples of this one. The third force is the location of a potential village in the vicinity of universities.

I think Bit Valley’s genesis lay somewhere between the first and second case. Nishikawa Kiyoshi’s Netage, launched in 1998, was a startup. We were also located in Shibuya and connected as peers in the space. Then Netage began to invest in startups, and other investors like JAFCO turned up.

Venture-capital-led examples are the New Industry Leaders Summit and the Infinity Ventures Summit. These cases were then followed by Industry Co-Creation and B Dash Ventures.

I imagine there were examples of manufacturing firms being established near engineering universities in the past. In the case of Internet startups, Keiō University founding the Shōnan Fujisawa Campus led to the creation of a startup community in the Fujisawa area of Kanagawa Prefecture. Since then, similar communities have formed in the vicinity of the University of Tokyo and Kyoto University.

Kawabe Kentarō.

MASUZAWA  How many people would you say participate in Japan’s startup villages?

HORI SHIN’ICHIRŌ  Some 600 to 800 people participate in the events held by IVS and B Dash. This figure, however, is the total only for entrepreneurs, investors, and representatives of large companies. If we include the people who work at these organizations, I believe the number is several tens of thousands of people.

KAWABE  There were twenty to thirty startups at the beginning of Bit Valley. Now there are 2,000 to 3,000 startups.

A Startup-Friendly Ecosystem

MASUZAWA  Now that 20 years have passed, I believe an ecosystem has developed where entrepreneurs become investors and cultivate new startups.

KAWABE  Currently we see people exiting the business they started to become angel investors or to launch or invest in venture capital firms. Yamada Shintarō, the CEO of Mercari, is a typical example. The startup community is becoming an incubator of new businesses where entrepreneurs exit one startup to launch another or where they take their ideas public to raise funds. The startup community is also useful for acquiring talent and is taking the shape of an ecosystem.

Mercari CEO Yamada Shintarō (left) with Prime Minister Abe Shinzō at the award ceremony for the Fourth Nippon Venture Awards on February 26, 2018, at the Prime Minister’s Office. (© Jiji)

In the past, people wanting to start a business would either have their parents provide the money or borrow it from a bank. Now we can start businesses with risk money. This is a completely different situation.

MASUZAWA  Japan’s venture villages are still small compared to those in the United States. They may be smaller by an order of magnitude.

HORI  This is a major contrast. I think the reason is the difference in unlisted and listed companies. The total market value of Internet-related companies listed on the Tokyo Stock Exchange or Mothers is not that large. Since the companies that led the way are not so large, companies that follow don’t tend to become big either.

KAWABE  In other words, the number of challengers remains low. The total market value of companies taking on challenges and succeeding is small. As a result, investment funds are also small.

HORI  There’s also a difference in the population targeted by Japanese and US companies. The United States can deploy services globally, but services developed in Japan are nearly all intended for the domestic market, meaning that earnings are also limited. US investors are currently bypassing Japan and investing in China, India, and Southeast Asia.

  • [2018.08.29]

Graduated in 1997 from Kyoto University’s Faculty of Agriculture. Was involved in the creation of a mobile site for Recruit Co., Ltd. in 1999. Established the company Gigaflops in 2000 and managed its mobile portal site. In 2003, sold the company to Cybird Corp. Joined Cybird and handled M&A for its Overseas Division. Created Sigel Corp. in 2006, which specializes in production of mobile content and related consulting. Joined Kamakura Shinsho, Ltd. in 2014, where he serves as a corporate officer. Member of the Nippon.com editorial committee.

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