Newsletter #1 - Hello from Japan!

Hello World!

Thanks for signing up for our brand-spanking-new, aspirationally weekly newsletter about the Japanese startup ecosystem!

Over the last year or so, we’ve noticed a significant uptick in interest from around the world about startups here - and so we decided to put this together in an attempt to provide some answers to questions that we’ve been hearing.

If you subscribe to this newsletter, you can expect the following:

• Curated headlines relevant to startups and investors

• Startup fundraising announcements from the past week, with a focus on post-Series A rounds

• A detailed breakdown of news headlines

• Highlight social media posts by the chattering classes

• Links to thoughtful longer-form articles relating to tech in Japan (and more!)

• A bit of commentary from yours truly, hopefully with a dash of insight

Hope you stick around with us on this pilot - and let us know what you think!

- Jeremy and Kenneth

The Headlines

The year is kicking off with some activity in the broader ecosystem! Here are some of the highlights:

1. Initial released its 2023 flagship annual report on Japan startup financing trends
   

2. Keisuke Honda - angel investor and former national football player - announces plans to raise a 15B JPY ($101M) venture fund to support globally-ambitious startups based in Japan
   

3. Japan’s Foreign Worker Tally Tops Two Million For First Time

4. Sakana Ai Raises Record-Breaking 30M Seed Round

Fundraising Highlights

• Power X, a startup that sells stationary and marine storage batteries, including the ultra-rapid EV charging storage battery "PowerX Hypercharger, raised ¥9.5B JPY(~$64M USD) in a Series B round. Mitsubishi UFJ, and Morgan Stanley led the round with Mitsubishi HC Capital, JA Mitsui Leasing, Iyo Bank, Shoko Chukin Bank, and The Chugoku Bank participating.

• Hacarus, A university-based startup that develops and provides an AI ​​visual inspection system, raised at least ¥199M JPY (~$1.3M USD) + an undisclosed amount in a Series C round. Mitsubishi Electric, and Daikin Industries were involved.

• Integral Geometry Science, a developer of a novel next-generation security gate raised ¥2B JPY (~$13M USD) in a Series C round from SBI Investment and the New Energy and Industrial Technology Development Organization.

• Sustech, an operator of “Carbonix” a decarbonization support platform. raised an undisclosed Series B round raised by Sumitomo Mitsui Trust Bank.

• Ingage, A startup that provides "Re:lation", a customer service cloud that can centrally manage inquiries such as emails and chats raised a ¥400M JPY (~$2.7M USD) Series D round from Mitsubishi UFJ Bank, Kyoto Bank, and Shoko Chukin Bank

• Spiber, A Keio University startup that develops “Brewed Protein” a structural protein material, raised an undisclosed amount from Kanematsu.

Deep Dives

Japanese startup funding declines in 2023

We’ll be doing a much deeper dive into Initial’s Startup Report next week, but here are some key highlights:

• Startups raised a total of ¥753.6B JPY ($5.12B USD) in 2023, down 22% from the previous year's record high of ¥966.4B JPY ($6.55B USD).

• In comparison, US funding fell 51% from $348B in 2021 to $171 billion in 2023, and 48% in Europe from €109.8B in 2021 to €57.1B in 2023.

• There were 118 newly established funds observed in 2023, of which the ¥596.9B JPY has been identified.

• The overall number of total IPOs in 2023 was 124, representing an increase from 2022. However, the number of tech startup IPOs declined.

• Looking at the top 10 companies with the largest initial market capitalization, the largest IPO over 100 billion yen (~$675M) was Cover, which operates the VTuber production service "Hololive Production."

Keisuke Honda's startup fund focuses on nurturing 'decacorns'

Keisuke Honda, a former player on the Japanese national soccer team, is launching a fund to invest in Japanese startups, with deployment of capital expected to start as early as February.

• The fund aims to raise ¥15B JPY ($101M USD) by the end of the year, primarily from domestic and foreign institutional investors.

• Three partners in the fund have been announced: Honda, who serves as general partner at X&KSK, which operates the fund; Kohei Yamamoto, managing partner; and Justin Waldron, the co-founder of Zynga and PlayCo, serves as a partner.

• The fund announced plans to invest in about 30 companies, at ticket sizes ranging from ¥100M JPY (~$675,000) to ¥300M JPY ($2M USD) each, mainly those in the seed stage to the Series A stage.

• Honda: “Many Japanese startups do not have the mettle to tackle the challenges of a changing Japanese society and world. They have potential, but remain incapable of going outside of themselves. Or they may have had no choice but to withdraw into their shells in the Japanese ecosystem. We want to change their mindset.”

Japan’s Foreign Worker Tally Tops Two Million For First Time

Japan’s foreign worker population broke the two million mark for the first time ever - reaching 2.05 million workers - underlining the nation’s growing reliance on external manpower to mitigate its deepening labor shortage.

• The nation’s working-age population has been shrinking since it peaked in 1995. A think-tank study last year projected that the country will face a shortage of more than 11 million workers by 2040.

• Small and medium-sized enterprises are among those most severely affected. The number of bankruptcies attributed to manpower constraints reached a record high last year, with 75% of those businesses employing fewer than 10 people, according to a report by Teikoku Databank.

• According to the latest tally, the manufacturing sector had the largest number of foreign workers, followed by the service and retail industries.

• Workers from other Asian nations, including Indonesia, Myanmar and Nepal, also surged last year, especially in the unskilled labor category, suggesting Japan remained a relatively attractive destination despite the weak yen

AI Startup Sakana Raises $30M USD to Build Smaller AI Models

Sakana AI, an artificial intelligence startup taking inspiration from the ways animals like fish and bees work together, has raised $30M USD in a seed funding round from several high-profile investors

• Sakana AI was founded in 2023 by David Ha and Llion Jones - two well-known AI researchers from Google. Llion Jones is known across the industry as one of the co-authors of Google’s pivotal 2017 “Attention is all you need” paper on Transformers.

• The financing round, announced Tuesday, values the Tokyo-based startup at about $200M USD.

• The round was led by Lux Capital, with participation from Khosla Ventures, Sony Group Corp., NTT Global, Miyako Capital, Basis Set Ventures, JAFCO, July Fund, Geodesic Capital, and Learn Capital.

Word on the Street

More Food for Thought

Some additional reads:

• Japan Smart News was growing so fast, what happened?

• The deeper meaning behind Japan’s unique UX design culture

• As China’s Markets Stumble, Japan Rises Toward Record

• Impressions from a Longer Stay in Tokyo - Ben Casnocha (Co-founder @ Village Global)

Notes from the Team

Thanks for reading and hope to see you around around the sidewalks of Tokyo!

P.S. - Add additional personal commentary/easter eggs etc. here

Have a question or any feedback? Let us know!

Jeremy (Investor @ GHOVC) / Kenneth (Product @ Moon Creative Lab)