Japanese government venture
capital: what should we know?
Faculty of Business Administration, Ritsumeikan University, Osaka, Japan
Purpose –The purpose of this paper is to discuss the implication of Japanese government venture capital
(VC) policies for future research and to provide basis for policymakers and practitioners.
Design/methodology/approach –This is an academic literature review of available peer-reviewed
publications on government VC policies. This paper discusses andanalyses the currentstate and issues of the
Japanese government VC policies regarding three research questions: What do Japanese government VCs do?
Do they contribute to their portfolios? and Do they contribute to the development of VC market?
Findings –There are mainly two ﬁndings in this paper: It is effective to establish a complementary
relationship with private VCs for Japanese government VCs to contribute to their portfolios; Japanese
government should simultaneously continue to make and review policies for the VC market, the stock market,
the entrepreneur sector and the environment surrounding them by its strategic long-term commitment to
contribute to the development of VC market and new technology-based ﬁrms in Japan.
Originality/value –As there are only a few studies on recently strengthened Japanese government VC
policies, this paper provides an in-depth discussion on these Japanese VC policies, which can be used for
future research and as a valuable resource for policymakers and practitioners.
Keywords Government venture capital, Japanese government venture capital policy,
New technology-based ﬁrm, Venture capital market
Paper type Literature review
New technology-based ﬁrms (NTBFs) play a crucial role in the development of innovative
technologies and employment creation as well as economic growth (Audretsch, 1995).
Venture capital (VC) has a critical effect on NTBF’s growth by providing enough capital to
conduct R&D over a long period of time (Pﬁrrmann et al., 2012) and promote the
professionalization of NTBFs through a variety of value adding activities (Bygrave and
Timmons, 1992,Hellmann and Puri, 2002). The contributions of VCs are credited for the
remarkably rapid growth of NTBFs such as Apple, Google, Microsoft and Amazon, which
are referred to as US-style VC models (Gompers and Lerner, 1999). Governments of Asian-
Paciﬁc and European countries have realized thesigniﬁcance of VCs and adopted policies to
create US-style VC market as a necessary preliminary step to support the generation of
NTBFs (Colombo et al., 2010;Schertler, 2006).
The VC market development policy has mainly two approaches: the direct approach and
the indirect approach. The direct approach makes up the government VC policies and the
© Tetsuya Kirihata. Published in the Asia Paciﬁc Journal of Innovation and Entrepreneurship.
Published by Emerald Publishing Limited. This article is published under the Creative Commons
Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative
works of this article (for both commercial and non-commercial purposes), subject to full attribution to
the original publication and authors. The full terms of this licence may be seen at http://
Received 2 November2017
Revised 25 January2018
Accepted 26 January2018
Asia Paciﬁc Journal of Innovation
Vol. 12 No. 1, 2018
Emerald Publishing Limited
The current issue and full text archive of this journal is available on Emerald Insight at:
indirect approach activates the VC market by deducting capital gains tax encouraging
equity market, providing entrepreneurship training for NTBFs and implementing
intellectual property policies (Callagher et al.,2015;Milosevic and Fendt, 2016).
In Japan, government VC policies as a direct approach have been strengthened in recent
years with the launch of the Innovation Network Corporation (INC) in 2009. The INC has a
capitalization of ¥300bn, breakdown as follows: ¥286bn from the Japanese government and
¥14bn from 26 private corporations. As a further support from the Japanese government,
¥1.8tn have been provided as a government guarantee. In 2014, the government established
university spinoff funds totalling ¥100bn and promoted investment activities to fund four
universities through the Act on Strengthening Industrial Competitiveness”(Act No.98 of
Dec. 11.2013), which enables national university corporations to invest in university spinoff
funds (Prime Minister of Japan and His Cabinet, 2016). Based on these policies, the Japanese
government has set a challenging political key performance indicator (KPI) to double the
percentage from 0.028 to 0.056 of annual VC investment ratio to nominal GDP by 2022 in the
Japan Revitalization Strategy 2016 (Prime Minister of Japan and His Cabinet, 2016).
This paper studies the government VC policies in Japan that have recently become a fast-
growing source of ﬁnancing for NTBFs. It discusses in detail what Japanese policymakers
should know about government VCs and how they should effectively draft, amend and
implement policies on government VC policies. This paper could also serve as a reference for
future research on government VCs in the academe. Section 2 gives an overview of
government VCs and Section 3 describes the current state and issues of the Japanese VC
market, as well as government VCs in Japan. After describing the method of research in this
paper in Section 4, Section 5 examines the characteristics of government VCs, the
contributions to their portfolios and the VC market based on previous research. In Section 6,
this paper will discuss the implication of Japanese government VCs policies and provide
basis for policymakers and practitioners. Although it is intended to provide basis for
Japanese government VC policies, this paper can also contribute to the government VC
policies of countries in the Asia-Paciﬁc region other than Japan.
What is government venture capital?
Government VC is a government-funded entity that makesequity or equity-like investments
in young ﬁrms to encourage other intermediaries to make such investments in the VC
market (Lerner, 2002).There are three main categories of government VC:
(1) Direct government funds managed by government entity funded by 100 per cent
(2) Hybrid funds that are funded by both government and private ﬁrms and invested
in cooperation with the private sector.
(3) Fund of funds schemes that the government does not invest in NTBFs directly;
instead, it invests in private VC funds concentrating on investment in NTBFs
(Colombo et al., 2016a).
Governments have established government VCs to bridge the ﬁnancial gap that occurs when
VC markets fail to supply much-needed capital for NTBFs. In the aftermath of the 2008-2009
global ﬁnancial crisis, private VCs in many countries have become more risk averse and have
focusedonthematuredlatestageﬁrms rather on the early stage and high-tech ﬁrms (OECD,
2016;Block and Sandner, 2009). One way to close in the ﬁnancial gap of NTBFs and private
VCs is for the government VCs to participate in the VC market to supply needed credit and
investment in NTBFs and crowd-in private VCs. The other way is for the government to take
the lead to invest in NTBFs and encourage private VCs to have high-skills as scouts and
coaches enough to invest in NTBFs. Originally, VC has been expected to be a ﬁnancial
intermediator that provides social and economic welfare to help alleviate the problems of moral
hazard and adverse selection by intensively scrutinizing ﬁrms before providing capital and
monitoring them afterwards (Chan, 1983). However, it is difﬁcult for VCs to acquire such high
expertise immediately. That is why, the government should encourage private VCs to develop
such high-level skills by intervening in the VC market or providing valuable inputs in various
Japanese venture capital market and government venture capitals
According to Organisation for Economic Co-operation and Development (OECD), the annual
investment in Japanese VC market in 2015 is US$1.105bn, the 4th largest in the world after the
US, Canada and Israel. Japan’s annual VC investment ratio to GDP is 0.02405 points, which is
about from one out of 16 to one fourth compared with Israel’s 0.38113, US’0.33264 and
Canada’s 0.11760 (OECD, 2016). Compared with countries such as Germany and France, which
are considered as bank-centred capital market, Japan ranked even lower (Black and Gilson,
1998,Milosevic and Fendt, 2016). It is noted that the Japanese VC market is not as well-
developed as its counterparts when it comes to its ratio to the country’s GDP. This situation is
the main reason why Japanese government has set a challenging political KPI.
The Japanese VC market has a sluggish development. This can be attributed to the VC
market’s lack of knowledge and experience in selecting portfolio ﬁrms as well as providing
value-adding support to NTBFs. Japanese VCs put emphasis on experience rather than on
the ﬁnancial theories during the portfolio ﬁrm selection process (Kirihata,2008a, 2008b).
During the post-investment period, Japanese VCs lack the knowledge and skill to provide
value-adding support to NTBFs. (Kirihata, 2009,Kirihata, 2017). In addition, other
challenges surrounding Japanese VCs were also noted as follows: new-generation
independent VCs do not form funds because of their shortage of credit and board members
of start-up ﬁrms in Japan are not used to equity ﬁnancing (Ishii, 2011).
There are three main government VC funds set up by the Japanese government:
University Spinoff Funds, the funding granted to four major research universities namely,
University of Tokyo, Kyoto University, Osaka University and Tohoku University; the INC,
the funding set up by the Japanese government and private corporations amounting to a
capitalization of ¥300bn; and fund of funds-type investment projects by Organization for
Small & Medium Enterprises and Regional Innovation, the funding for investment in
innovative start-up ﬁrms through private VCs and local government VC policies. These
funds are aimed at facilitating the supply of growth funds to NTBFs and expanding
management supportsfor them to eliminate the speciﬁc difﬁculties of the commercialisation
process in NTBFs (Ministry of Economy,Trade and Industry, 2016a, 2016b;Kirihata, 2009).
In Table I, the university spinoff VC in Japan increased from 0 per cent in 2014 to 4.1 per
cent in 2015. Five years since the establishment of the INC in 2009, the share of the
government VC in the Japanese VC market, which consists of central and local government
VC and university spinoff VC, was 17.4 per cent in 2015 from almost none in 2009 (Table II).
This study uses the academic literature design to answer the following research questions:
RQ1. What do Japanese government VCs do?
RQ2. Do they contribute to their portfolios?
RQ3. Do they contribute to the development of VC market?
This study has reviewed the major databases such as ABI/INFORM, Business Source Premier
and Science Direct, Web of Science and Google Scholar and run keyword queries to identify
scholarly articles published by the ﬁrsthalfof2017inpeerreviewedjournalsrelatedto
government VC policies. The following keywords and their combinations were used to retrieve
relevant articles: “government venture capital,”“government backed venture capital,”
“government supported venture capital,”“public venture capital,”“public backed venture
capital,”“public supported venture capital”and “university seed fund.”This study has ﬁltered
and evaluated the initial pool of more than 210 peer-reviewed papers, which study government
VC conceptually or empirically. Then relevant 45 papers have been extracted, which focus on
what government VCs do, their contributions to both their portfolios and the development of
With regard to the analysis of current state and issues of the Japanese VC market, as well
as government VCs, this paper studied the ofﬁcial documents of the Japanese government
and government VCs in addition to the interviews with practitioners and policymakers in
both central and local government in Japan.
Academic literature review on government venture capital
What do government venture capitals do?
This section examines what government VCs do during, pre- and post-investment period
based on a total of 22 related peer-reviewed papers (Table II). During the pre-investment
pre- and post-
Research topic investment activties Studies
Small and early stage investment Pintado et al. (2007),Cumming and Johan (2009),Bertoni et al.
Dahlstrand and Cetindamar (2000)
High-tech investment Cumming (2007),Bertoni et al. (2015),Knockaert et al. (2010)
Cumming and Johan (2009)
Local investment Cumming and Johan (2009),Bertoni et al. (2015)
Stable investment Bertoni et al. (2015),Leleux and Surlemont (2003)
Johan et al. (2014)
Post investment activities
Active value adding activities Cumming and Johan (2009),Cumming (2007)
Knockaert et al. (2006),Bottazzi et al. (2008),Luukkonen et al. (2013)
Long term of investment Buzzacchi et al. (2013),Jeng and Wells (2000)
Cumming and Johan (2010)
Share of investment
by VC-type in Japan
VC-Type 2014 (%) 2015 (%)
Independent VC 29.7 34.0
Bank-afﬁliated VC 20.9 18.2
Securities and insurance-afﬁliated VC 19.0 21.1
Corporate VC 5.8 6.7
Central and local government VC 18.3 13.3
University spinoff VC 0.0 4.1
Others 6.4 2.7
Source: Venture enterprise centre (2016)
period, government VCs tend to invest in early stage high-tech ﬁrms (Pintado et al.,2007;
Cumming and Johan, 2009;Bertoni et al., 2015;Cumming, 2007), such as biotechnology
(Cumming, 2007;Bertoni et al., 2015) and university start-ups (Knockaert et al.,2010).
Although there are some contradictory research results such as investment in mature
industries in the case of Sweden (Dahlstrand and Cetindamar, 2000) and non-high-tech
investment in the case of Pre-Seed Funds in Australia (Cumming and Johan, 2009), this
study has veriﬁed the tendency of government VCs focusingon investing in early stage and
technology based NTBFs (Table II).
In previous studies, it is conﬁrmed that government VCs tend to invest in local ﬁrms
(Cumming and Johan, 2009;Bertoni et al., 2015). This is because there are many
government VCs that have special purpose of stimulating regional economy as
mandated by law and regulation (Mason and Pierrakis, 2013;Murray, 1998).
Government VCs appear to be the most distinct type of VC investor and their
investment patterns are stable over time (Bertoni et al., 2015). Oppositely, in the case of
labour-sponsored venture capital corporations in Ontario, Canada, Johan et al, (2014)
ﬁnd that the investment stance changed signiﬁcantly because of the elimination of
government tax incentives (Table II).
As to the post-investment activities, government VCs involve their portfolios less
than private VCs as observed by Knockaert et al. (2006),Bottazzi et al. (2008) and
Luukkonen et al. (2013). However, there are also studies that conﬁrm the government
VCs are quite active to involve in their portfolio ﬁrm’smanagement(Table II). It is
noted that Australian Pre-Seed Funds have smaller portfolios (number of investees) per
manager (Cumming and Johan, 2009,Cumming, 2007). Furthermore, government VCs
have longer duration of investment (Buzzacchi et al.,2013) and have different
sensitivities to the determinants of investment than non-government VCs, which are
more sensitive to IPOs (Jeng and Wells, 2000). Though, an exception is noted in the case
of labour-sponsored venture capital corporations. They have shorter period of
investment duration to IPOs (Cumming and Johan, 2010).
With regard to the research question aboutwhatgovernmentVCsdo,government
VCs may have the tendency to invest in early stage, high-tech and local ﬁrms compared
to private VCs regarding their pre-investment period. Instead, contradictory research
results are observed regarding the government VCs involvement in their portfolio ﬁrms
and the duration of their investment during the post-investment period.
Do government venture capitals contribute to their portfolios?
This section discusses the contribution of government VCs to the portfolios based on a total
of 30 related peer-reviewed papers (Table III). Regarding the exits of their portfolios, many
studies observe that government VCs do not have positive correlation with their portfolio’s
exits (Munari et al.,2015;Cumming and Johan, 2010;Cumming and Johan, 2008;Munari and
Toschi, 2015;Cumming et al.,2014;Tykvova and Walz, 2007). It seems that government
VCs have not encouraged their portfolios to have successful exits compared to private VCs.
There are also negative results of government VC’s contribution to the improvement of
productivity and efﬁciency (Alperovych et al., 2015) and to the employment of their portfolio
ﬁrms (Standaert and Manigart, 2018). On the contrary, there are positive results on the
ﬁrm’s growth (Lerner, 1999) and employment increase (Link and Scott, 2012), as indicated in
the cases of SBIR in the US and Innovation Investment Funds in Australia (Cumming and
Concerning the contribution to the ﬁnancial aspect of the portfolio ﬁrms, researchers ﬁnd
that government VC funding increases the likelihood that ﬁrms will receive private VCs
(Guerini and Quas, 2016;Munari et al.,2015;Cumming, 2007;Lerner, 1999;Toole and
Czarnitzki, 2007). In other research papers by Brander et al. (2014),Cumming and Johan
(2009) and Munari and Toschi (2015), it has been said that ﬁrms funded by government VCs
get signiﬁcantly less total funding than other ones. As to the syndication with private VCs,
there are contradicting results in some cases that the government VCs perform better than
private VCs (Munari et al.,2015;Cumming, 2007) and vice versa (Cumming and Johan, 2009,
Munari and Toschi, 2015).
Regarding the technological contribution to the portfolios, researchers observe that
government VCs contribute to portfolio’s innovation, which is acquiring patents or
R&D partners (Toole and Czarnitzki, 2007;Cumming and Johan, 2014;Colombo et al.,
2016b;Toole and Czarnitzki, 2007). In contrast, Pierrakis and Saridakis (2017) ﬁnd that
obtaining investment from government VCs reduces the probability of the portfolio
ﬁrms to apply for a patent compared with ﬁrms that receive investments from private
VCs (Table III).
What is noteworthy in prior research on the contribution of government VCs to their
portfolios is positive results on syndication investment with private VCs (Table IV). In
syndication with private VCs, six related peer-reviewed papers conﬁrm a positive
correlation with exits (Brander et al.,2014;Cumming et al.,2014), growth of portfolios (Grilli
and Murtinu, 2014a;Grilli and Murtinu, 2014b), innovation (Bertoni and Tykvová, 2015) and
staging (Brander et al.,2014).
contribution to the
Research topic: contribution
to portfolio firms Studies
Exit Munari et al. (2015),Cumming and Johan (2010),Cumming and Johan (2008),
Munari and Toschi (2015),Cumming et al. (2014),Tykvova and Walz (2007)
Growth Lerner (1999),Cumming and Johan (2014)
Employment Link and Scott (2012)
Standaert and Manigart (2018)
Productivity Alperovych et al. (2015)
Staging Guerini and Quas (2016),Munari et al. (2015),Cumming (2007),Lerner (1999),
Toole and Czarnitzki (2007)
Brander et al. (2014),Cumming and Johan (2009),Munari and Toschi (2015)
Syndication Munari et al. (2015),Cumming (2007)
Cumming and Johan (2009),Munari and Toschi(2015)
Debt ﬁnancing Meuleman and De Maeseneire (2012)
Patenting (innovation) Toole and Czarnitzki (2007),Cumming and Johan (2014)
Pierrakis and Saridakis (2017)
R&D partnership Colombo et al. (2016b), Toole and Czarnitzki (2007)
Certiﬁcation Lerner (1999)
syndication effects of
Research topic: syndication effects on
portfolio firms Studies
Exit Brander et al. (2014),Cumming et al. (2014)
Growth Grilli and Murtinu (2014a), Grilli and Murtinu (2014b)
Innovation Bertoni and Tykvová (2015)
Staging Brander et al. (2014)
On the overview of previous research, it can be noted that many government VCs seem
to contribute to less exits of portfolios. Discussions are divided on ﬁnancial and
technical contributions to portfolios. Instead, research studies on SBIR in the US
(Lerner, 1999;Link and Scott, 2012) and innovation investment funds in Australia
(Cumming and Johan, 2014)conﬁrm contribution to growth and employment in
addition to ﬁnance and technology. The contribution of government VC’s differs
depending on research areas. Moreover, in terms of syndication with private VCs,
researchers have conﬁrmed positive results of exit, growth, innovation and staging
without any negative results.
Do government venture capitals contribute to the development of the venture
This section discusses the contribution of government VCs to the VC market based on a
total of 15 related peer-reviewed papers (Table V). There are positive results among
previous research papers that the establishment of government VCs has led to the
development of the VC market (Wonglimpiyarat, 2016;del-Palacio, Zhang and Sole, 2012;
Avnimelech and Teubal, 2006;Avnimelech and Teubal, 2004) and it has partially
contributed to the VC market (Owen and Mason, 2017;Baldock, 2016;Avots et al.,2013;Lim
and Kim, 2015).
While there are studies that government VCs crowd-in private VCs in the market
(Brander et al., 2014;Cumming and Li, 2013), they crowd-out private VCs (Cumming
and MacIntosh, 2006) or crowd-out other government VCs (Cumming and Johan, 2009).
Also, there are researches that it is not sure if government VC crowd-in or -out other
VCs (Leleux and Surlemont, 2003), that they do not crowd-out at least (Cumming, 2014),
and that they only can solve relatively modest market failures (Jääskeläinen et al.,
In the overview of the prior research, many researchers ﬁnd that government VC’s
contribute to the development of the VC market, even if its contribution is just partial.
However, there are conﬂicting results on whether or not government VCs crowd-in
or -out other VCs.
Implication of government venture capitals in Japan
What do Japanese government venture capitals do?
Major government VCs in Japan such as the INC, university spinoff funds and investment
projects by Organisation for Small & Medium Enterprises and Regional Innovation, aim to
contribution to the
Research topic: contribution to
the VC market Studies
Development of VC Wonglimpiyarat (2016),del-Palacio et al. (2012),Avnimelech and
Teubal (2006),Avnimelech and Teubal (2004)
Owen and Mason (2017),Baldock (2016),Avots et al. (2013),Lim and
Leleux and Surlemont (2003)
Jääskeläinen et al. (2007)
Crowding-in or -out Brander et al. (2014),Cumming and Li (2013)
Cumming and MacIntosh (2006),Cumming and Johan (2009)
provide ﬁnance for NTBFs and hands-on supports as scouts and coaches. For instance,
according to the business plan submitted to Ministry of Economy Trade and Industry by
Osaka University Venture Capital (OUVC), which is one of the university spinoff funds in
Japan, it mentions that:
OUVC provides not only related technologies in campus or peripheral private ﬁrms but also
business knowledge to commercialise for core technologies in Osaka University. On top of funds
and commercialization supports, OUVC oﬀers hands-on supports of VC managers on high-tech
research, something which is rarely provided by private VCs (Ministry of Economy, Trade and
This makes OUVC a unique case of a VC offering such technology-based supports to its
As a direction of its entrepreneurship policy, the Japanese government aims to support a
“cycle of start-up creation”which means autonomous and continuous creation of innovative
start-ups in Japanese economy (Ministry of Economy,Trade and Industry, 2016a, 2016b).
According to Ministry of Economy,Trade and Industry (2016a, 2016b), there are three
priority policies. The ﬁrst one is support for NTBFs by means of VC as scout and coach, as
well as supply of risk money by government VC initiatives and tax incentives to promote
VC investment. Entrepreneurship training is the second, which make use of international
exchange and awards programs. The third one is improvement of start-up-friendly
environment by purchase promotion of start-up’s products and services in government
procurement in addition to construction of start-up platform (Ministry of Economy,Trade
and Industry, 2016a, 2016b).
Japanese government has an intention to improve the skills of private VCs and supply of
risk money by government VC’s initiatives in the VC market. Also, it has intended to
position government VC as a preliminary step of the “cycle of start-up creation”and to
implement along with multiple policies simultaneously, such as supports for NTBFs,
entrepreneurship training and start-up-friendly environment at the same time.
Do Japanese government venture capitals contribute to the portfolios?
To contribute to the portfolios for Japanese government VCs, the complementary
relationship with private VCs seems to be the key, according to previous research. The
syndication with private VCs has not been widely implemented in Japan. However, prior
research conﬁrms that it has positive correlation with portfolio’s exit, growth, innovation
and staging. Moreover, Colombo and Murtinu (2017) ﬁnd that syndication between
independent VCs and corporate VCs is not correlated with the performance of the investee
ﬁrms. These ﬁndings conﬁrm that the syndication between government and private is more
effective than the one between independent and corporate within the private sector. The
effectiveness of the collaboration with private VCs is also indicated in government fund of
funds schemes. According to Standaert and Manigart (2018), government VC investment in
private VCs under thisscheme has positive correlation with portfolio’s employment growth.
In the previous section, it was mentioned that the Japanese government has an intention
to improve the skills of private VC as scout and coach, as well as supply of risk money for
NTBFs by government VC’s initiatives in the market. For instance, OUVC states that one of
its investment policies is to provide hands-on support of VC managers on high tech research,
something which is rarely provided by private VCs (Ministry of Economy, Trade and
Industry, 2013). However, as far as the previous research is concerned, it seems that
investments based on complementary relations with the private VCs have achieved
remarkably higher results than ones invested by government VC alone. It seems critical for
government VCs to improve the abilities of selection of portfolios and value adding activities
by the syndication schemes.
Prior research points out that the following are essential measures for government VCs
to improve their investment performance: the selection of the VC managers to consider
business aspects and technical criteria and management of intellectual property assets,
external relationships, knowledge and human capital, performance-sensitive compensation
in addition to the specialisation focusing on certain industrial sectors (Lerner, 2002;Le Bas
and Picard, 2006;Cumming and Johan, 2009;Lim and Kim, 2015). For Japanese government
VCs, it is necessary to refer to and make use of the implications of these prior studies based
on the syndication with private VCs.
Do Japanese government venture capitals contribute to the development of the venture
In an overview of the prior research based on a total of 15 related peer-reviewed papers,
there are conﬂicting results on whether government VCs crowd-in or -out other VCs. In other
words, there is no clear conclusion if they have contributed directly to the VC market. In this
situation, it seems to be necessary to expand research areas to NTBF policies including
government VCs policies. The prior research conﬁrms the necessity of execution of multiple
policies simultaneously. Black and Gilson (1998) highlights its necessity by using chicken
and egg analogy based onthe case of Germany:
Germany today faces a chicken and egg problem: a venture capital market requires a stock
market, but a stock market requires a supply of entrepreneurs and deals which, in turn, require a
venture capital market. In addition, German entrepreneurs who care about future control of their
company must trust venture capitalists to return control to them some years hence and must
further trust that the stock market window will be open when they are ready to go public. The
institutional design issue is how to simultaneously create both a set of mutually dependent
institutions and the trust that these institutions will work as expected when called upon.
This paper examines prior research studies of NTBF policies based on the cycle of Black
and Gilson (1998), which comprises VC market, stock market and entrepreneur sectors.
First, it is necessary for the VC market policies to consider the indirect approach as well
as the direct approach by government VCs to contribute the development of VC market,
according to Callagher et al. (2015). As the indirect approach, investor protection and
corporate governance regulation, capital gains tax reduction and deregulation of labour
laws are pointed out as effective measures according to Da Rin et al. (2006),Groh et al. (2010)
and Milosevic and Fendt (2016).
Second, the stock market sector has played a major role as an exit for the VC market.
Lerner and Tåg (2013) indicate the delay in the development of the ﬁnance market in
addition to the heavy taxation on entrepreneurs were the factors that the development of the
Swedish VC market lagged behind the US. The effectiveness of stock market is not conﬁned
to Sweden alone. It has also been mentioned in cases of other countries such as Israel and the
US (Avnimelech and Teubal, 2006;Avnimelech and Teubal, 2004;Avnimelech and Teubal,
Third, the entrepreneur sector has opened investment opportunities for the VC market.
Rosiello et al. (2011) identify the signiﬁcance of the sector by mentioning that government
policies such as government VCs should be based on the development of high-tech clusters
consisting of entrepreneurs, scientists, engineers, incubators and universities.
Venkataraman (2004) states that if only seed capital is provided, it ﬂows straight to low-
quality ventures. He underlines the qualities of entrepreneurs by mentioning that it must be
accompanied by seven other intangibles, including, access to novel ideas, role models,
informal forums, region-speciﬁc opportunities, safety nets, access to large markets and
executive leadership (Venkataraman, 2004). In addition to those mentioned above, the
regional innovation environment, personal bankruptcy legislation, protection of
entrepreneur as shareholder and tax system for entrepreneur are pointed out in previous
research as necessary policy measures for entrepreneur sector (Munari and Toschi, 2015,
Armour and Cumming, 2006;Vanacker et al., 2014;Revest and Sapio, 2012).
Avnimelech et al. (2010) uphold an evolutionary approach based on the case studies of
Israel, which is well recognized as a haven for the VC market and start-ups. They indicate
the signiﬁcance of long-term commitment and strategic target setting for the development of
VC market, high-tech cluster formation as well as policy implementation using a case-to-
case approach based on the development phase of high-tech cluster. Other papers also refer
to the signiﬁcance of long-term strategic government commitments for the development of
the VC market, stock markets and entrepreneur sector (Lerner and Watson, 2008;Hood,
2000). Jacob et al. (2016) ﬁnd that the change in the policy of government VCs made
investors and entrepreneurs pay a higher cost because of the elimination of government tax
incentives. Government policies should be well-grounded for a long period of time for a
stable VC market.
In the previous section, the Japanese government has intended to position government
VC policy as a necessary preliminary step of the “cycle of start-up creation”and to
implement along with multiple policies simultaneously, including supports for NTBFs,
entrepreneurship training and start-up-friendly environment at the same time. These
policies are consistent with the results of previous studies. It is noted that it is not enough for
the Japanese government to make VC policies. It should simultaneously continue to make
policies not only for the VC market but also for other sectors and the environment
surrounding them by its strategic long-term commitment to form the “cycle of start-up
creation”in Japanese economy. This simultaneous policy mix leads to the activation of the
VC market, as well as NTBFs.
Based on the academic literature review on a total of 45 related peer-reviewed papers, this
paper analysed the current state and issues of the Japanese government VC policies
regarding these research questions: RQ1, RQ2 and RQ3.
First, this research has highlighted the complementary relationship between private VCs
and government VCs. Although it has not been widely implemented in Japan, extracted six
peer-reviewed papers ﬁnd that syndications with private VCs have positive correlation with
portfolio’s exit, growth, innovation and staging. Moreover, the positive correlation is also
obtained in government fund of funds. Japanese government VCs should be based on the
complementary relationship with private VCs.
Next, this research has also discussed the development policies of Japanese VC market
by government VCs. According to a total of 15 related peer-reviewed papers, it is not sure
whether government VCs has contributed directly to the VC market. However, according to
the research on NTBF policies including government VC policies, many researchers pointed
out the prominence of execution of multiple policies simultaneously. Furthermore, it is also
revealed that the effectiveness of strategic government commitments to these sectors for a
long period. It is noted that the Japanese government should simultaneously continue to
implement policies for the VC market, stock market, entrepreneur sector and the
environment surrounding them in addition to the government VC policies by its strategic
long-term commitment. The success of the Japanese VC market and NTBFs depends on the
implementation of these policies.
Finally, this paper has laid down the issues on government VCs that are being faced by
policymakers and practitioners, whichcan be the focus of future research.
First, government VCs require complementary relationship with private VCs to get
positive investment results, according to previous studies. Nevertheless, there is not
sufﬁcient research on proper and practical design of the scheme: What kind of knowledge
and skills should government VCs and private VCs provide in the syndication or fund of
funds? What criteria do both government and private VCs use in the portfolio selection?
What activities do both government and private VCs provide as a support during post-
investment period? In this issue, a more detailed research is required. There is no sufﬁcient
research on individual fund managers of government VCs such as the correlation between
individual fund manager’s experiences or rewards and the performance. Such research
studies are highly requested on the practitioner side and also are promising research themes.
Furthermore, there are few studies on interdisciplinary research on government VCs
between economics, management and politics. Here are examples of three interdisciplinary
research themes that future researchers can work on the correlation of the performance of
government VCs and regional business environment and innovation level (Munari and
Toschi, 2015), speciﬁc mandate of government VC which is directed to contribute to the VC
market and the regional economy in addition to purely private business objectives (Colombo
et al., 2016b) and political intervention (Lerner, 2002). Progress on interdisciplinary
researches on government VCs should be expected.
Second, regarding the contribution to the development of the VC market, it is unclear
whether government VCs crowd-in or -out other VCs. This phenomenon should be examined
in detail. If government VCs crowd-in other VCs, how do they contribute to the success of
the VC market? If government VCs crowd-out other VCs, do they still contribute to the
success of the VC market? If not, how can the VC market still be successful? The VC
market’s success can also be attributed to other factors such as stock market, entrepreneur
sector and institutional or environmental factors. That is why research on the correlation
between the development of the VC market and other factors should be conducted.
Because of the success of the US-style VC market, governments all over the world have
started putting up their own government VCsfor the past ten years. It should bethe time for
policymakers and practitioners to brush up their policy schemes. For researchers, it is
needed not only to increase sensitivity on government VC research but also to expand their
focus even to interdisciplinary research areas.
1. In the Japan Revitalization Strategy 2016, VC investment ratio to nominal GDP in Japan is 0.028,
which is based on 3-year average between 2012 and 2014 (Prime Minister of Japan and His
2. Organization for Small & Medium Enterprises and Regional Innovation provides various
support measures to promote growth for 3.8 million Japanese SMEs that account for 99.7 per cent
of total ﬁrms in the country, operating within the competence of Ministry of Economy, Trade and
Industry (METI) of Japan.
3. As Japanese government VCs have been strengthened just in recent years, there are few
researches on them with the exception of Ishii (2011), which researched on fund of funds projects
by Organization for Small & Medium Enterprises and Regional Innovation. For this reason, the
previous literature review in this paper is composed of researches on government VCs from
countries other than Japan.
4. Lerner (1999)ﬁnds that government VC investment adds value to the reputation of the portfolio
5. Meuleman and De Maeseneire (2012) ﬁnd that there is the correlation between government VC
investment and long-term debt.
6. As for the syndication with private VCs, there are contradicting opinions among
practitioners in Japan. A board member of one of the biggest private VC ﬁrms expressed
concern about the government university spinoﬀfunds by mentioning that “they will
compete with private VCs to get prominent investee ﬁrms, as they become more active in the
market”. In contrast, a fund manager of a government university spinoﬀfund said that”
private VCs gradually have come back to invest in biotechnology ﬁrms, which were thought
to be high-risk, as we take the initiative to invest in these investments. This makes it easier
for us to have syndication with private VCs. It seems that private VCs consider the
syndication with government VCs as risk sharing and the provision of stable and long-time
commitment for their portfolios”. Policymakers should adopt measures to promote mutual
understanding among practitioners
7. On the Japanese government VC policies, a former policymaker said that “it is eﬀective to do
target setting. It is in this sense that the Japanese government has set a target of doubling the
ration of VC investment to GDP by 2022. It became easier for policymakers to implement wider
range of necessary policies to achieve its KPI on or before 2022”.
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