Japanese government to back investment in start-ups

The government plans to establish a new investment scheme by the end of fiscal 2016 to make it easier for large companies to provide financial support to venture businesses.

Under the scheme, the New Energy and Industrial Technology Development Organization, a national research organization known as NEDO, will invest in ventures when major companies financially support these start-ups or conduct joint development projects.

Graphics: The Yomiuri Shimbun

The government hopes the plan will help venture businesses achieve stable growth by taking advantage of large companies’ human resources, capital and management skills, and that NEDO’s joint capital investments will inspire big businesses to invest in start-ups.

The government plans to request several billion yen in the second supplementary budget for this fiscal year.

Creating new markets is a key element of the government’s growth strategy. It aims to promote the creation of more and more businesses in specialized fields, such as health care, medical services and developing new materials, as success in these areas is expected to bring high growth and boost the nation’s economy.

Large companies’ investment in new businesses is seen as crucial because research and development requires a huge amount of capital. It also takes a long time to commercialize products.

Of the total investment in venture businesses in fiscal 2015, IT-related companies received 51.9 percent, according to Venture Enterprise Center, a general incorporated foundation. This was followed by 18.7 percent to companies related to biotechnology, medical services and health care, and 13.7 percent to businesses related to products and services.

Investors tend to shy away from ventures in highly specialized fields such as medical services, as it is difficult to assess the risks involved in these areas. The government hopes its envisioned scheme will encourage more investment in a wider range of fields.

In recent years, investment in venture businesses has once again been boosted by rapid growth in IT-related companies, but it has failed to regain its past momentum.

The nation’s venture capital totaled ¥130.2 billion in fiscal 2015, up 11.2 percent year-on-year, according to the center. However, the latest figure was less than half the amounts for fiscal 2000 and fiscal 2006, when total investment stood at around ¥280 billion each year.

Momentum is even weaker in companies’ investment in start-ups, because they have to seek short-term earnings amid growing pressure to return their profits to shareholders.

“It’s hard [for companies] to allocate their capital to invest in venture businesses because it takes a long time before they get a result,” according to an expert in the field.

(THE YOMIURI SHIMBUN)