Cool Japan Fund (CJF), a government-backed VC firm, was formed with an aim to identify and invest in companies that have a compelling Japan angle. CJF, nearly 87 per cent of whose funds come from the government, has invested in 35 companies since its launch in 2013. The team was recently in Singapore to launch a new initiative called ‘Cool Japan’.
In this interview, Shinnosuke Watanabe, Director in charge of fashion/lifestyle and media content investment, talks about Cool Japan, the VC fund’s philosophy, local startup ecosystem and more.
Below are the edited excerpts:
I understand that Cool Japan Fund primarily invests in B2C businesses with a global angle and with a Japanese connection. Why so?
We do not restrict ourselves to investing only in B2C businesses, meaning that there are in fact a few B2B companies that CJF has invested in. However, since our mission is to deliver the excellence of Japanese products and services to overseas consumers, our primary focus is on investing in businesses that are more directly-connected to our target audience.
Can you share more details about CJF’s investment criteria and ticket size details? Who are your LPs?
One of the most important investment criteria of CJF is that there is a discernible “Japan angle”, meaning that even if a company is not Japanese but exhibits the capability and intent to promote Japanese products/services in overseas market (such as Singapore-based Clozette), we could recognise such a company as one suitable for consideration.
With regard to the ticket size, our sweet spot would be more than US$10 million.
Aside from the Japanese government, our LPs comprise major Japanese retailers, advertising agencies and financial institutions, most of which are doing business relevant to ‘Cool Japan’.
Why CJF was formed as a public-private partnership? What is the government’s stake? How many investment have you made from this fund so far?
Nearly 87 per cent of funds come from the Japanese government. Regardless of the shareholding ratio of CJF’s LP, all the private companies involved are always supportive of our portfolio companies, as is the Japanese government.
This is our first fund. To date, we have announced 35 investments including projects that we have already exited. We have a flexible approach towards follow-on funding, as long as it is justifiable.
Why is the government involved in a fund which invests in private companies, given that there are many high-profile VCs/enterprises who can afford to even launch multi-billion dollar funds?
One of the main purposes of CJF is to identify and invest in companies that have a reasonably compelling “Japan angle” within their businesses with a clear plan of action, even if they might not necessarily meet the investment criteria of the typical Japanese VC.
In other words, we seek opportunities to help bring to fruition ventures that have the potential to generate and drive interest amongst overseas consumers in Japanese brands, products, and culture.
You have invested in several industries, including digital media and content, which is a high-risky business. What gives you the courage to invest in digital media when most VCs are wary of investing in this space?
The stringency of our policy and views on investing in digital media and content companies are at least on par with that of private VCs, and we are extremely committed to ensuring that we exercise due diligence before making an investment.
Plenty of time and effort is taken not only by CJF’s internal team but also trusted external advisors to review and investigate all prospective investees, in order to ascertain whether or not the balance between risks and returns is acceptable.
Have you made investments in the B2B space?
Yes, we have. For instance, CJF has made an investment in a food cold chain business in Vietnam, and there are no limitations on B2B investments for us as long as they have a discernible “Japan angle” and meet our investment criteria.
What are CJF’s expansion plans? Do you plan to expand to include foreign companies founded by foreign entrepreneurs?
CJF has never limited its its portfolio based on the nationality of a business or entrepreneurs – rather, its focus is on the potential of a business to amplify “Cool Japan” across its operating countries or regions, and the influence it wields. As such, CJF is always on the lookout for suitable investment opportunities with B2C businesses, with the view of targetting foreign markets.
How Japan’s startup scene is different from that of Southeast Asia. Also, why did you choose Singapore to unveil ‘Cool Japan’? Can you share more details about this initiative?
It seems that the main VC stream in Japan is similar to that of Southeast Asia’s, meaning that the spotlight is focused mainly on newly-launched companies that leverage new technology.
“Cool Japan” is a concept and slogan adopted by the Japanese government that encompasses the view of helping Japanese companies and municipalities bring their products, services and culture overseas, and encouraging foreign people influenced by and attracted to such Japanese exports to visit Japan.
Clozette, a new media company that currently reaches an audience spanning four Southeast Asia countries, has exhibited a strong affinity for communicating and connecting with female millennials in these target markets. We are confident that our collaboration with Clozette will see Cool Japan being amplified effectively throughout the region, especially with the launch of the multi-lingual, omni-channel Cool Japan Ecosystem that will engage today’s consumers in a manner that is not only engaging, but also thoughtful and inspired.
Many Japanese VCs are now turning their focus to South and Southeast Asia. Is it because the local market is stagnated? What does the future hold for the Japan’s startup ecosystem?
There has been an increasing number of VCs that have been established in recent years, many of which are being operated by fund managers with substantial global experience who are able to communicate with foreign startup businesses. The Japanese VC and startup scene remains extremely active nevertheless, and the local ecosystem continues to grow day by day.
How is the entrepreneurship scene growing in Japan? Do you see the youth increasingly take up entrepreneurship as a career option?
The scene in Japan is fairly diverse so we definitely encounter different types of entrepreneurs locally. The one thing they do have in common, however, is that they more often than not have gained a certain amount of working experience before venturing out as an entrepreneur. There has also been a rise in young Japanese entrepreneurs establishing their own businesses – a trend that is similar to what is happening in the US.
Successful Japanese entrepreneurs probably aren’t so different from their counterparts abroad. They are ambitious, flexible, patient, humble, and hardworking, and also tend to be good communicators with strong leadership skills.
Are there any local B2C startup that have the potential to make it to the list of unicorns?
Though it has yet to expand into B2C territory, there is a biotech startup called Spiber that is pushing the boundaries of textile innovation with eco-friendly synthetic spider silk protein that we think possesses such potential.
Tokyo still remains extremely attractive for investor aided by the fact the city already has a strong startup ecosystem. Which other cities in the country have the potential to become big startup hubs?
Osaka, Kobe, and Fukuoka are definitely cities that offer a conducive environment for startups, but based on the level of activity we have observed nationwide, other major cities in Japan also carry the potential to develop their own startup ecosystems.
What are the major challenges faced by Japan’s startup ecosystem, other than an aging population?
As of right now, one key challenge would be that Japan’s startup ecosystem has yet to fully mature, especially when compared with high-concentration startup hubs such as Silicon Valley in the US and Block 71 in Singapore, where the government, prominent universities and VCs offer ample support to emerging startups by way of funding and mentorship from veterans in the scene.
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There definitely is potential for growth, but it will require time and a concerted effort from the local startup community and relevant organisations in order for the ecosystem to achieve such a milestone.