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The Formation Process and Characteristics of the Japanese Venture Capital Industry
Abstract
In this paper, I will discuss the formation process as well as the special characteristics of the Japanese venture capital industry.
Up until the mid-1990s, Japan’s venture capital industry focused their investments on later stage firms within traditional industry domains, with organization-led venture capital firms being predominant. However, these later stage firms with experience in traditional industries being targeted as ventures had already been well under way as far as management was concerned, and there was no real need for post-investment support from the venture capitalists. This investment style was thought to be one of the reasons that Japan’s venture capitalists were unable to mature with respect to post-investment support know-how.
In the latter half of the 1990s, there was an increase in investments within the venture capital industry in Japan that focused on companies that were based in the domains of new technology and were still in early stages as firms, i.e. new technology based firms. Also, at around the same time, in Japan’s venture capital industry as well as the venture capital firms in Silicon Valley, there was an increase in the number of venture capital firms with the strong trend of letting individual venture capitalists administrate a series of investment activities.
... Similarly, the government of Taiwan and India created venture funds, primarily, to invest in technology ventures. In Japan, Hasegawa (2004) and Kirihata (2010) found that Venture Capital Firms were established by banks, securities companies, trading companies, and large industrial groups to pursue high-tech start-ups (Ray and Turpin, 1993). ...
... University Supported Venture Capital: White et al. (2005) and Kirihata (2008) identifies that during the developmental phase of VC in China in the 1980's, research institutions and universities played the most important role at the start-up stage, providing both the original technology and seed capital for TEFs. Kirihata (2008) posits that substantial numbers of VC funds for university spin-offs which are critical sources of financing for nascent technologies, was set up by Hokkaido University's "Hokudai Ambitious Fund" established in 1997 and until today has shown a continuous increase (Kirihata, 2010). It was emphasized that majority of the technologies financed during that era emanated from the universities and research institutions. ...
Technology entrepreneurship is a form of business leadership based on the process of recognizing high-potential, technology-intensive business opportunities, gathering resources such as talent and cash, and managing rapid growth using principled, real-time decision making skills. Technology based entrepreneurial firms account for a substantial number of essential inventions and innovations in successful countries. Such firms have become an integral part of the development of the global and regional economy. However, they are often characterized by the paradigms liability of newness and resource poverty, coupled with suffering from inadequate technical and marketing know-how, inexperience management, inability to discover initial financing and huge overheads. In view of this, startups in the technology sector encounter the problem of sourcing technical and financial resources and commercialization capabilities required to take their products to market. This study adopts a secondary approach to research methodology through the review of existing articles in this domain of investigation. Articles are sourced from conference and journal papers from reputable database, internet sources, brochures and newspapers. This study concludes that investment and financial decisions play an increasing vital role in economic growth and entrepreneurial new venture creation. Hence, investment and financial policies are part of the main operational resolutions in emerging nations to support investment by domestic firms, particularly technology entrepreneurial firms. Hence, policy makers in Nigeria and other developing countries could evolve ambitious policy framework aimed at developing the equity financing sector through venture capital, particularly for technology entrepreneurs. Also they could build substantial amount of skilled and experienced venture capitalists to identify high potential investments opportunities and be able to nurture and support them to an exit.
... Ainsi, nos données semblent corroborer les observations effectuées au sein de la littérature financière et relatives aux besoins en financement des entreprises innovantes en phase de démarrage dans les secteurs high-tech(Guerini et Quas, 2016;Hottenrott et Richstein, 2020) et biotechnologiques(Baum et Silverman, 2004;Bertoni et Tykvová, 2015;Awounou-N'Dri et Boufaden, 2020;Kirihata, 2021). En conséquence, ces secteurs sont considérés d'une part, comme un lieu de forteconcentration entrepreneuriale, technologique et innovante et d'autre part, comme un espace d'opportunités où certains projets incarnent une rentabilité financière espérée qui attirent les CR (Dubocage et Galindo, 2008; Bertoni et Tykvová, 2015; Schoonmaker et al., 2017; Awounou-N'Dri et Boufaden, 2020; Kirihata, 2021). ...
This thesis focuses on the unexplored issues of the relationship between public and private venture capitalists in France. This research mobilizes agency and incentive theory as well as cognitive theories of governance, in particular the Resource Based View. These theoretical frameworks are considered from the perspective of complex network theory and public-private partnerships. Our empirical analysis is divided into three stages. After a qualitative study with an exploratory dimension, carried out with venture capitalists and actors of innovation networks, we carried out a first quantitative study covering the period from 2005 to 2019, based on 516 financings carried out in 283 French companies. Subsequently, we conducted a second quantitative study that counts 585 financings carried out in 322 companies over the same period. The first part of this study focuses on deals completed in the early stages of financing: Seed, Early and Expansion; the second, focuses on those completed in the Development stage. The objective here is twofold: first, to study the effects of syndication financing and also of public and private actors on the innovation of companies, measured here by R&D expenditures and patent filings (Input and Output). The other purpose of this research is to observe whether the issues of innovation financing in terms of financial performance are the same for private and public venture capital. To test all our hypotheses, we use a dynamic panel approach (OLS, fixed effects, MMG).The first part of our study allows us to propose a more precise definition of the relationship between public and private venture capitalists and to reveal the existence of a specific phenomenon linked to the presence and intervention of public actors, identified as a crowding-out effect. The second and third parts of this work highlight several other results. First of all, the choice of using variables dependent on R&D expenditure and patent registrations in our study is of interest. Indeed, these measures of innovation make it possible to distinguish between the financing methods specific to certain types of actors. Thus, this study shows that the financial resources granted by public or private investors as leader of a syndication can have an influence on the innovation strategy of firms. This doctoral work proposes a contribution by highlighting the role played by public and private actors in the governance of private equity-backed firms. Indeed, the overlap between results confirms the interest for a private equity firm to position itself as a leader within a syndication. This research also indicates that the investment strategy pursued in mixed syndication seems to be the most efficient. Finally, our results show that the use of mixed syndication financing led by a private equity investor tends to "optimize" both the effects on innovation and the financial performance of the firm. In the opposite case, we observe that the financing of public capital-investors has a negative and significant effect on patent filings and on the ROA variable. In the end, our conclusions are nuanced, highlighting investment logics between public and private venture capitalists that are neither perfectly similar nor completely opposed, but complementary under certain conditions.
... providing debt funding) with their clients than seeking capital gains (Pascha and Mocek 2002;Cumming, Fleming, and Schwienbacher 2008). Japan thus lacks venture capitalists and other professionals, who are skilled in assessing and managing nascent firms, which means that there is less investment activity in young, technology-based ventures (Hamao, Packer, and Ritter 2000;Feigenbaun and Brunner 2002;Rowen and Toyada 2002;Hamada 2009;Kirihata 2010). ...
This study explores the impact of the national institutional environment on the listing of firms on stock exchanges in Japan, the US, and the UK. In particular, the study compares the incidence of: (1) independent firm initial public offerings (IPOs); and (2) the subsidiaries of established corporations being spun-off to stock markets. An empirical analysis is conducted on a sample of 9118 IPOs extracted from the Securities Data Company New Issue Database. The results show that Japan and the UK are more active in incubating new innovative ventures within large corporations and spinning them to the stock markets than their general entrepreneurial activity would suggest. These results direct our attention to different forms of industrial renewal in different institutional environments.
ビジネスエンジェルは，家族のつながりのないスタートアップ企業にリスクマ ネーを提供する裕福な個人である。本論文は，ビジネスエンジェルが，投資先企 業の業績に与える影響について分析する。東欧・エストニアの全非上場企業から， 傾向スコアマッチングの手法で抽出した“双子”非投資先企業群とビジネスエン ジェル投資先企業の業績を比較分析する。分析の結果，ビジネスエンジェルは， 投資先企業の増加した売上から利益を絞り出させるのではなく，投資先企業の将 来的な成長のための支出を容認する忍耐を有している。これは，投資先企業の売 上が伸びる中での意図的な忍耐である。また，ビジネスエンジェルは，投資資金 によって，投資先企業の従業員数，売上増加に正の影響を与えている。一方，彼 らの投資後関与が，投資先企業の業績に正の影響を与えているかどうかについて は確認できなかった。本論文は，エストニアにおけるビジネスエンジェル投資草 創期の 2006 年から 2015 年を分析の対象とした。本論文の結果は，ビジネスエン ジェル促進によるスタートアップ支援施策を検討する新興国の政策立案者にとっ て参考になろう。
本論文は、ベンチャーキャピタルに対する質問票調査をもとに、投資スタイルの模索が続くと考えられる我が国ベンチャーキャピタルの投資前及び投資後活動の現況について述べた。投資前活動を巡っては、Kirihata(2008)の質問票調査結果と比較すると、(8)事業計画（事業計画全体の首尾一貫性）、(12)事業計画（１年以上先の事業予測）等、事業計画に関連する情報を重視する姿勢が高まっていることがうかがえる。一方、評価手法については、(1)株価収益率(P/E)マルチプル(計画ベース)が最も高くなるなど、Kirihata(2008)の調査結果と大きな変化は、見られなかった。
一方、投資後活動を巡っては、Kirihata(2009)の調査結果と比較すると、支援経験の有無について、比較可能な10項目の平均値をみると、本論文における調査結果が、7パーセント程度高くなる等、我が国のベンチャーキャピタルは、より多くの支援項目で、投資先企業を支援している。その一方、支援力評価については、比較可能な10項目の平均値をみると、ほぼ変化は見られなかった。
今回の調査結果については、今後、さらに分析を進める必要があろうが、我が国ベンチャーキャピタルにおいて、より幅広く投資先の支援を提供する傾向がうかがえる点は、注目点として指摘することができよう。
本論文は，我が国の大学発ベンチャーを対象とした質問表調査をもとに，我が国の大学発ベンチャーにおける成長のための主要な課題として、我が国大学発ベンチャーにおける外部資源活用の現状と課題について検討した。
まず、我が国の大学発ベンチャーの経営支援ニーズとして、「業界や顧客への橋渡し、紹介」「マーケティング計画」「業界競合情報の提供」等、顧客開拓、マーケティング関連のニーズが高いことを特徴として挙げることができる。
一方、外部資源については、大学、ベンチャーキャピタリスト、公認会計士，会計事務所、弁理士，特許事務所、弁護士，法律事務所という大学発ベンチャーの主要な外部資源において、ベンチャーキャピタリストが、経営支援13項目に関する支援の有無、支援頻度、支援力の平均値の平均値を求めたところ、いずれも最も高い値となった。ベンチャーキャピタリストは、その支援の幅、頻度、支援力において、大学発ベンチャーから高く評価されている。その一方、大学発ベンチャーにおいて、支援ニーズが高い「業界や顧客への橋渡し、紹介」「マーケティング計画」「業界競合情報の提供」の3項目については、あまり提供されていない。ベンチャーキャピタリストは、「資本金・借入金のアレンジ」「ファイナンスに関するアドバイス」を中心とする、ファイナンス関連の支援が中心となっている。大学については、支援の有無で、ベンチャーキャピタリストに次ぐ高い平均値となっている。「他の専門家の紹介・橋渡し」「経営者・社員のモティベーション付け」「業界や顧客への橋渡し、紹介」の各項目で、大学発ベンチャーから高い支援力の評価を得ており、実際の支援もこの3項目を中心になされている。公認会計士，会計事務所は、支援力の評価で、ベンチャーキャピタリストに次ぐ、第2位に位置している。支援の有無、支援力の評価において、「ファイナンスに関するアドバイス」「資本金・借入金のアレンジ」「内部統制を含めた社内規定の整備」が上位となる等、ファイナンス及び内部統制関連の支援が中心となっている。弁理士，特許事務所については、支援頻度で、ベンチャーキャピタリストに次ぐ第2位となっている。また、支援の有無、支援力の評価において、「一時的な企業危機への対応」「内部統制を含めた社内規定の整備」が上位となり、危機対応、内部統制を中心とした支援を行っている。支援の有無、支援力の評価において、「業界競合情報の提供」が上位に位置しているが、今回の13項目においては、いずれも下位となっている。
アメリカにおける大学発ベンチャーと大学，ベンチャーキャピタリスト，公認会計士，会計事務所、弁理士，特許事務所、弁護士，法律事務所等の外部資源とのインタラクションは、大学発ベンチャーの経営に寄与しているとされる(Roberts and Malone, 1996, Hsu and Bernstein, l997, DiGregorio and Shane, 2003, Shane and Start, 2002, Johnson, 2000, Atwell, 2000 他). 我が国大学発ベンチャーのさらなる成長に向けては、こうした正のインタラクションが求められている。今回の調査結果については、さらに分析を進める必要がろうが、我が国大学発ベンチャーが、現状、支援ニーズとして挙げている顧客開拓、マーケティング関連のニーズについて、今回着目した主要外部資源において、その期待に沿った支援、及び、支援能力評価が見られなかった点を、注目点として挙げることができよう。
Nanotechnology companies have to engage in a large array of collaborative projects as the technology itself can be applied in a variety of sectors. This nature pushes companies to collaborate with other companies (and institutions) in a variety of industries to commercialize products that use nanotechnology. At this point of course, we need to ask ourselves as to what would be an effective corporate form as such collaborations would require a complex technology to be transferred across company boundaries and often from universities to companies. Ronald Coase exquisitely explains in his pathbreaking work as to how these boundaries between the markets and the firm are drawn based on efficiency. It is recently that we discuss these issues based on the characteristics of different industries related particularly to their knowledge assets. For companies that intend to commercialize nanotechnology, interdisciplinary collaboration in private markets has to be almost second nature. However, as mentioned above for the two or several companies with different organizational structures, different ways of handling the products and processes and different heuristics to collaborate might prove itself rather difficult. So pertaining to this fact what would be the best way to collaborate? Should two or more companies engage in long-term contracts, should they build a joint venture or could it be the case that licensing could solve the issue? As it turns out, the answer to this question may not be so simple, and in the case of nanotechnology industries, a wide array of institutional arrangements might be needed.
Venture capital (literally “high–risk capital”) is designated for the financing of small companies that by themselves lack sufficient resources, but whose activities indicate potentially high profits in the future. It can play a special role in the development of the technologically advanced industries as well as in the growth of entrepreneurship understood as a readiness to establish new companies (“start–ups”). Two factors: First, the relatively small number of new companies as well as the number of companies subject to liquidation over the year (“firm turnover”) in Japan, and second, the insignificant prestige associated with the profession of entrepreneur do not foster growth in the dynamics of this form of financing ventures. The cited indicator for Japan in among the lowest in comparison with other highly developed countries1, while the profession of entrepreneur is not the foremost dream of college graduates. They would much rather prefer realizing their professional careers as members of the government bureaucracy or employees of a major corporation2. However, this mindset is slowly changing, if for no other reason then, in spite of popular conviction, because most small companies are not established during periods of prosperity, but near the end of the downward phase of the economic cycle. That is exactly the phase Japan has been dealing with for several years now. Young, creative people, recruited from the unemployed, are seeking self–employment, using all possible opportunities embedded in the “again starting up” machinery of the economy3.
In this paper, I discuss critical success factors at each of the three stages of commercialization process of intellectual property by new technology based firms (NTBFs) in Japan. To examine this, the commercialization process is classified into three stages: the basic research, the product development, and the commercialization stages.
A questionnaire survey of NTBFs reveals that they recognize serious managerial difficulties at the commercialization stage. The survey found that “human resources” and “vision extraction and demand conceptualization” are perceived to be the main managerial issues/challenges in all stages. My analysis found that there are some positive correlations between success in management and “clarification and sharing of market needs” at the basic research stage; “top-down management” and “clarification and sharing of market needs” at the product development stage; and “cooperation with external specialists (such as certified public accountants, venture capitalists, and lawyers)” at the commercialization stage.
Finally, I conclude with some recommendations for overcoming the managerial difficulties at each of the three-stages of commercialization in NTBFs in Japan.
In Japan, there has been recent notable growth in the percentage of investments made by venture capitalists (VCists) in new technology-based firms (NTBFs), as well as an increase in the active involvement of VCists in the management of their portfolio firms (PFFs). On the basis of the results of a questionnaire survey, this paper examines the post-investment activities that Japanese VCists conduct for early stage and technology-based PFFs. The results of this study show that VCists who invest in early stage firms seem to be partially characterized by closer involvement with firms and the utilization of their own value-adding abilities. Furthermore, while it was observed that the more VCists tended to invest in early stage firms, the more they also invested in technology-based firms, it seemed that the value-adding abilities of these VCists that were necessary for the commercialization of technological innovation may still be at the developing stage.
In Japan, there has been a notable growth in the percentage of investment in new technology based firms by venture capitalists (here after abbreviated VCists). I analyze Japanese VCists investment decision making based on a questionnaire survey and attempt to seek answers for the following research questions: “How do Japanese VCists valuate their potential investments?” and, more specifically, “How do VCists who invest in new technology based firms valuate their potential investments”.
The questionnaire survey reveals that a relatively high proportion of Japanese VCists place a special importance on the interview with entrepreneurs, and curriculum vitae of management in valuating the potential investments. At the same time, they use capitalized maintainable earning (P/E multiples) as the valuation method. However, it seems that VCists who allocate a higher proportion of their investment in the new technology based firms do not focus particularly on any source of information or valuation method even though there has been a rapid growth in an investment in the new technology based firms in the recent years.
In this paper, I analyze post-investment activities of venture capital firms (VCFs) based on a questionnaire survey and discuss the issues and challenges of post-investment activities of VCFs with new technology based firms (NTBFs) in Japan.
The questionnaire survey reveals that business supports desired by NTBFs can be classified into four groups—“business strategies adjustment and motivation”, “business advice and networking”, “finance and crisis management”, and “recruitment assistance”. The questionnaire found that the business support most needed by NTBFs is “business strategies adjustment and motivation”, followed by assistance in “business advice and networking”, “recruitment assistance”, and, lastly, “finance and crisis management”. On the other hand, the actual support most provided by VCFs is “business advice and networking”, followed by supports in terms of “finance and crisis management”, “business strategies adjustmentand motivation”, and “recruitment assistance”.
In Japan, there is a low percentage of VCFs engaging in post-investment activities involving recruitment assistance. Providing supports in recruitment activities may be an effective way for VCFs to differentiate their support services for NTBFs. To contribute to the growth of NTBFs in Japan, it seems important to provide a support environment for recruitment assistance.
In concluding this study, we would like to make some remarks on the differences found in VEC’s and our studies.
First of all, in the study by VEC, the number of cases choosing IPO as their exit gate was 265 out of 537 cases, or approximately 50%, which was extremely high. In comparison to that, the numbers in our study were lower at only 29% for VCFs and 25% for VCists. The two studies were carried out roughly one and a half year difference in time span. However, IPO atmosphere was fairly similar during these periods of time (between 2004 and the middle of 2006). The numbers of IPO were 175 cases in 2004, 158 cases in 2005, and 200 cases in 2006, showing no significant difference as well. It is, therefore, difficult to mark time as a crucial cause of this discrepancy.
As a consequent, it can possibly be assumed that this large gap of IPO rates was caused by the difference in variety of samples used in the two studies. The companies we conducted this research with were relatively younger than those in VEC’s report. They seemed to still be in the stage of holding their shares, waiting and preparing for IPO. There were also some differences in the ratio of industry breakdown. Although IT field captured the largest share of samples in both reports, it was 28% in VEC’s but 38% in our study. In contrary, the ratio of bio-technology was 22% in VEC’s and 17% in ours. The reason is similar to the one above. It is because our respondents were relatively younger. VCFs with short career path are likely to select IT over bio-technology because of the amount of investment capital required (IT industry requires relatively smaller amount of money). Additionally, because bio-technological industry does not grow as fast as being expected, the gap is then filled by the traditional sector. This implies that our research reflected a more realistic side of the coin.
In reality, there are actually not many investment opportunities in the field of bio-technology. IT field, on the other hand, is growing and increasing in both Nikkei and VEC. The total investment in IT increased to 77.3 billion yen, equivalent to 2.2 times the number in 2004. The amount of bio-technology, in contrary, declined for the first time in seven years at the rate of 7%, to the amount of 19.8 billion yen. This number could reflect the decline in the growth of ventures originated from universities, which is one of the driving forces of bio-technology.
Even though there has nothing to do with the study by VEC, the problem of moral hazard should be touched upon. As being mentioned by Mr.Tetsuo Kadowaki and some others, this problem is known as a problem in the structure of Japanese VCFs . In this study, there were only 2-3 firms that were actually claimed by investors. Despite that, these companies revealed that it was only because of their already established internal standard on how to allocate investments. Considering this fact, it can possibly be stated that there is no particular problem in this respect at the surface.
This analysis still yet needs to be revised using data from follow-up surveys. However, in a lot of cases at this point, it seems that the shareholders of VCFs and their main investors of funds reside in the same persons. If this holds true, it implies that VC has not yet been popularized among public. According to a study by VEC, a ratio of individual investors raised from nearly none to 77 out of 391 persons during one year before 2005. This number is equivalent to 14% of total investment amount at that time. This remarkable increase in the number of individual investor is sufficient to predict more apparent problems of moral hazard in the near future.
Venture capital (VC) has had a profound impact on the U.S and world economies. The landmarks of venture capitalism are the formation of the venture capital fund ARD in 1946 and the establishment of small business investment companies by the U.S. Small Business Administration in 1958. After a boom in the 1960s, the VC industry all but collapsed between 1970 and 1977. The VC industry revived in the 1980s and reached a peak in 1987 from which it declined. At the moment of its decline in 1990, the industry was radically altered and transformed and was at a crossroads from its recent shake-out. This book examines the state of the VC industry at this point in 1990, examining current trends, developments, and practices, and looking at future prospects for the industry, suppliers, and users of risk capital, as well as the nation's economy as a whole. The VC industry has been transformed by two changes. (1) New and specialized financial and investment strategies emphasize deal making, transaction crafting and closing, fee generating, and short-term gains. This "merchant capital" approach is oriented to investing in established firms, as opposed to the classic VC approach of providing equity financing in new, emerging, innovating, and technology-based firms. This change may be due to professionals entering the field from MBA backgrounds rather than business-building backgrounds. (2) The altered market has resulted in reduced opportunities, globalization, increase in available capital, and dominance of institutional money, and the VC industry is losing its classic company-building skills. The major virtue of the traditional VC industry, which has been a wellspring of innovation and great rewards, is the skills brought by the venture capitalists that add value in the firm's forming, building, and harvesting. Changes in the VC industry are seen in an explosion of investing activity, heterogeneity of industry structure, niche funds, declines in rate of return, and increased competition and shake-out. Examples of classic revolutionary industries financed by VC are the semiconductor, computer, and biotechnology industries. Some lessons from these industries are drawn. Lessons are also drawn from the case of the Winchester disc-drive industry, which represents a case of "capital market myopia." Historical VC returns have been in the 10% to 20% range, occasionally in the 20% to 30% range, and rarely higher. The main reason for the unsatisfactory returns on VC since 1983 has been the initial public offering (IPO) drought. The benefits and implications for the VC industry of syndicated investments are examined. The contribution of VC to economic development is explored in terms of internal and external factors. Some high-tech regions were not planned; some planned regional centers have failed. Three factors affect the flow of VC: investors who put up the money, entrepreneurs who form the company, and the venture capitalists. The value-added of classic VC investment lies in the guidance, contracts, know-how, and support of the backers. The relationship between the venture capitalist and management team critically affects the success of the venture. Also examined are relationships between flows of VC and public policy, capital markets, new technologies, and changes in industries. Most important in fostering VC are government policies. Since VC is vital element to entrepreneurship, the U.S. must actively foster classic venture capital by changing some national attitudes and policies in culture, education, and role of government, for which recommendations and suggestions are offered. (TNM)
This article examines the representation of venture capitalists on the boards of private firms in their portfolios. If venture capitalists are intensive monitors of managers, their involvement as directors should be more intense when the need for oversight is greater. The authors shows that venture capitalists' representation on the board increases around the time of chief executive officer turnover, while the number of other outsiders remains constant. He also shows that distance to the firm is an important determinant of the board membership of venture capitalists, as might be anticipated if the oversight of local firms is less costly than more distant businesses. Copyright 1995 by American Finance Association.
Done Deals Venture Capitalists tell their stories
- Gupta Udayan
Gupta Udayan eds. (2000) Done Deals Venture Capitalists tell their stories, Boston, Mass.: Harvard
Business School Press.
- Nikkei Ryutsu Shinbun
Nikkei Ryutsu Shinbun (Nikkei Marketing Journal), Sep.6th in 1972.