Devise effective measures to ensure smooth flow of funds

Editorial

11:40 JST, April 18, 2022

Fostering emerging companies, also known as start-ups, is essential to boosting the vitality of Japan’s economy, which continues to experience low growth. The public and private sectors are urged to work together to fundamentally strengthen the support system.

The government has positioned this year as the “first year of start-up creation” and intends to formulate a five-year plan in June to nurture start-ups. The plan will include concrete measures such as a bold push for raising funds and the securing of human resources with strong ideas and skills.

It is said to be difficult for start-ups to grow in Japan compared to the United States and China, where tech giants involved in such fields as search services, social media and video streaming are being established one after another.

Newly created companies account for about 4% of all firms in Japan, much lower than the about 10% in the United States and Europe. The Japanese government has implemented various measures so far, including the deregulation of new businesses through special zones and support for research and development, but these steps have not produced results.

It is important for the government to thoroughly examine the causes of this situation and expand its measures.

Many start-ups have complained about difficulties in raising funds.

The amount of venture capital invested in start-ups in Japan is 1% or less than that in the United States. Investment in start-ups by existing major companies is also low.

The government is considering ways to attract funds from overseas investment firms that have expertise in nurturing start-ups and is trying to devise other measures as well, including a plan to utilize a portion of investment funds such as public pension funds.

Efforts also must be made to create a mechanism for the smooth flow of funds by diversifying the risk of investment in emerging companies, which can sometimes fail.

It would likewise be effective to deepen the relationship between large, well-financed companies and start-ups that are undertaking challenges in new fields.

The government has made it a priority to promote “open innovation,” which brings together knowledge from different fields and industries. It is hoped that measures are implemented to accelerate technological innovation by successfully pairing large corporations with emerging companies that have proprietary technologies but limited financial resources.

In Japan, rapidly growing emerging companies are gradually becoming conspicuous. Mercari, Inc., which operates an online flea market app, and Sansan, Inc., a provider of a business card data management service, have gone public.

Artificial intelligence developer Preferred Networks, Inc. and Spiber Inc., which uses microorganisms to create next-generation materials such as thread and resin, are also attracting attention.

It is important to analyze the factors that led these companies to growth, and view such start-ups as precedents.

(From The Yomiuri Shimbun, April 18, 2022)