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Guide to Series A Investment Japan

Guide to Series A Investment In Japan

Series A investment marks a crucial phase in the lifecycle of startups, particularly in the dynamic and rapidly evolving business landscape of Japan. This stage of funding is more than just a financial milestone; it represents a significant leap in a company’s journey, signaling market validation and a promise of potential growth.

For many Japanese startups, Series A is the gateway to scaling operations, refining product offerings, and expanding market reach. It’s a phase where ideas and initial successes are transformed into sustainable business models. 

In Japan’s unique startup ecosystem, Series A funding has a critical role. It’s where the meticulousness of Japanese innovation meets the boldness of venture capital. This fusion brings forth an environment where startups not only gain capital but also strategic partnerships and guidance. The investors during this stage are not merely financiers; they are often mentors and industry experts who contribute significantly to shaping the direction of the startup.

What is Series A Investment 

Series A investment stands as a pivotal moment in the life of a startup. At this stage, a startup transitions from being a promising idea to a viable business entity. It’s the first major round of venture capital financing, following the initial seed stage. This funding round is crucial for startups that have developed a track record, typically through some operational history and are ready to scale up. Series A investment is characterized by a more significant injection of funds compared to seed funding, typically used to optimize products or services, expand the customer base, and enhance market presence.

In the Japanese context, where precision and long-term vision are highly valued, Series A investment is seen not just as a capital infusion but as a strategic move towards ensuring sustainable growth and a competitive edge in the market.

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How Does Series A Funding Work in the Startup Lifecycle?

Series A funding works as a catalyst in a startup’s lifecycle. After the initial phase where the focus is on developing the product and capturing the initial market (often fueled by seed capital), a startup reaches a point where it needs to scale. This is where Series A funding comes into play.

Investors at this stage are typically venture capital firms, looking to invest in startups that have shown potential through their early activities. The funding is usually exchanged for an equity stake in the company. For startups in Japan, this means not only financial backing but also gaining access to a network of seasoned professionals and industry contacts that can be invaluable for growth.

Series A Funding

The funds from a Series A round are often allocated towards expanding the team, boosting sales and marketing efforts, further product development, and potentially exploring new markets. This stage is crucial for setting up the startup for subsequent rounds of funding and eventually leading it towards a path of self-sustainability or further investment rounds like Series B and C, where the stakes are higher, and the focus shifts toward rapid market expansion and solidifying the company’s position in the industry.

Dissecting Series A, B, and C Funding

The funding stages of a startup are like embarking on a journey of growth and evolution, with each stage marked by distinct characteristics and goals. Series A, B, and C funding rounds, though all part of the equity financing model, serve different purposes and come into play at varying stages of a startup’s development.

Series A is the startup’s first significant round of venture capital financing. It’s typically sought by startups with a strong business model and some level of market validation, looking to scale their operations and expand their customer base. The focus in Series A is on refining the product-market fit and establishing a robust strategy for long-term growth.

Series B is about taking the business to the next level. At this point, the startup has gone beyond the development stage, has a solid user base, and has a proven market fit. Series B funding is directed towards expanding market reach, growing the team, and scaling operations to meet increased customer demand. It’s a stage where the business structure gets more complex, and the need for additional support in terms of human resources, capital, and market expansion becomes critical.

Series C is where scaling reaches its peak. By this stage, the startup is no longer just a ‘startup’ but is transitioning into a fully-fledged company. Companies seeking Series C funding are typically looking to develop new products, expand to new markets, or even acquire other companies. This round often involves larger sums of money and is aimed at scaling the company aggressively to dominate the market or prepare for a public offering.

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Evolution of a Startup: From Seed to Series C

The journey from seed funding to Series C is a narrative of growth, challenges, and maturation. Seed funding is where it all begins, with a focus on product development and market research. It’s about proving a concept and laying the foundation for the business.

As we transition into Series A, the focus shifts from proving the concept to proving the business. This phase is all about building a customer base and streamlining the product or service to suit market needs.

Series B marks the transition from a startup to a more established company. It’s a critical phase where the business model is scaled, processes are refined, and the startup begins to position itself as a leader in its market.

Finally, Series C is the stage of major scaling. Here, the company is preparing to go public or to make significant strategic moves like major acquisitions. It’s a phase of consolidating market position and gearing up for a global presence.

Each of these stages marks a significant milestone in a startup’s life, bringing it closer to achieving its vision and reshaping the market it operates in.

“Accelerators are vital in preparing startups for investment rounds. Our article ‘Top 10 Start-up Accelerators in Japan‘ lists the top accelerators in the country, detailing their programs, success stories, and the role they play in equipping startups for Series A funding. This is an essential guide for startups seeking support and mentorship in the early stages of their journey.”

How to Prepare for Series A Funding?

  1. Establish a Clear Business Model: Before seeking Series A funding, ensure your business model is robust, scalable, and well-defined. This involves a deep understanding of your target market, customer base, and the unique value proposition of your product or service.
  1. Showcase Market Traction: Demonstrate to investors that your startup is not just a concept but a viable business. This can be through user growth, revenue figures, significant partnerships, or market share expansion.
  1. Develop a Strong Team: Investors invest in people as much as in ideas. Ensure your team has diverse skills, relevant experience, and a shared commitment to the startup’s success.
  1. Prepare a Detailed Growth Strategy: Clearly articulate how you plan to use the Series A funding. This should include strategies for market expansion, product development, hiring plans, and other key growth areas.
  1. Financial Projections and Milestones: Provide realistic financial projections and set achievable, measurable milestones for your business post-funding.
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Crafting Compelling Pitches for Japanese Investors

  • Focus on Relationship-Building: In Japan, business relationships are built on trust and respect. Begin by establishing a connection with your investors, understanding their portfolio strategy, and aligning your pitch accordingly.
  • Detail-Oriented Presentation: Japanese investors appreciate thorough, detailed pitches. Be prepared to delve into specifics about your business model, market data, competitive analysis, and financials.
  • Emphasize Long-Term Vision: Japanese investment culture often favors long-term stability and sustained growth. Highlight how your startup has the potential for long-term success and stability.
  • Understand Culture: Be aware of the cultural nuances, including formal business etiquette, in your presentation and interactions. A respectful and professional demeanor goes a long way. 
  • Be Clear and Concise: While detail is important, clarity and the ability to convey your business idea succinctly are equally vital. Practice delivering your pitch in a way that is both comprehensive and easily understandable.

What Happens After Series A Funding? 

Securing Series A Funding in Japan’s Competitive Market:

Achieving Series A funding in Japan marks a pivotal moment for startups, signaling the start of accelerated growth. With this new funding, startups prioritize team expansion, product development, and enhanced marketing to increase market share. This phase is also crucial for refining the business model with market feedback and planning for future investment rounds.

Post-Series A Phase: Scaling and Strategic Growth:

After Series A, startups in Japan focus on balancing rapid growth with sustainability. This involves expanding market reach, possibly through new segments or technological enhancements, and improving operational efficiency. Investing in technology and talent is key to boosting productivity. The goal is to strengthen market position and lay the groundwork for future scaling, including IPOs or acquisitions.

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10 Steps on How to Secure Series A Funding in Japan

Securing Series A funding in Japan requires a strategic approach that aligns with the unique facets of the Japanese investment landscape. Here are some actionable steps to guide entrepreneurs through this process:

  1. Engage with Specialized Consultants: Connect with financial consultants or firms that specialize in Japanese market entry and fundraising. They can offer tailored advice on navigating the local investment climate.
  1. Leverage Incubators and Accelerators: Participate in incubator or accelerator programs in Japan. These programs often provide direct access to investor networks, mentorship, and valuable market insights.
  1. Participate in Local Pitch Events: Enroll in pitch events and startup competitions held in Japan. These events are frequented by potential investors and can serve as platforms for direct exposure.
  1. Collaborate with Japanese Corporations: Explore partnerships with Japanese corporations. Many large companies in Japan have venture arms or invest in startups, and a partnership can increase your credibility.
  1. Utilize Online Investment Platforms: Take advantage of online platforms geared towards connecting startups with investors in Japan. These platforms can provide an avenue to pitch to a wider audience of potential investors.
  2. Network through Industry Associations: Join industry-specific associations or groups in Japan. Networking within these groups can lead to introductions with potential investors who have an interest in your sector.
  3. Secure Local Legal Expertise: Employ the services of a local law firm experienced in startup financing. They can assist with navigating legal requirements and investment agreements in line with Japanese regulations.
  1. Cultivate a Strong Online Presence: Maintain an active and professional online presence, showcasing your business’s achievements and potential. A strong digital footprint can attract investors searching for promising startups in Japan.
  1. Develop a Japan-focused Marketing Strategy: Craft marketing materials and a business plan that highlight your startup’s potential impact and growth in the Japanese market. Tailor your messaging to resonate with Japanese cultural and business sensibilities.
  2. Seek Endorsements from Established Entrepreneurs: Gain endorsements or references from successful entrepreneurs or business leaders in Japan. Such endorsements can enhance your startup’s credibility and attractiveness to investors.

Who are the Major Investors in Japan’s Series A Rounds?

The Japanese startup ecosystem sees significant contributions from a range of investors specializing in Series A funding. These investors are known for their active engagement and the number of investments they make in Japanese companies. As of November 2023, the top 5 investors in this category are​​:

East Ventures: With 98 investments, East Ventures is a prominent player in the Japanese startup scene, known for its keen interest in early-stage companies and a broad portfolio spanning various sectors.

ANRI: Matching East Ventures with 98 investments, ANRI is a key investor focusing on early to mid-stage startups. Their strategic investments play a crucial role in nurturing burgeoning companies in Japan.

Mizuho Capital: With 94 investments, Mizuho Capital is a major contributor to Japan’s startup growth. This venture capital firm has a history of investing in a wide range of industries, supporting startups at various stages of their development.

SMBC Venture Capital: Close behind with 93 investments, SMBC Venture Capital is another significant player, offering financial support and guidance to startups poised for growth and expansion.

Incubate Fund: With 86 investments, Incubate Fund has a strong presence in the Japanese market, known for its strategic investments in early-stage startups and a keen eye for innovative business models.

“A key component of Series A funding is venture capital, and our feature ‘Venture Capital in Japan‘ and ‘Corporate Venture Capital’ shed light on this aspect, discusses the intricacies of the venture capital market in Japan, offering insights into how VC firms operate, what they look for in startups, and how they influence the trajectory of early-stage companies.”

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How can I succeed in getting Series A Funding for my company? 

To succeed in attracting Series A investment in Japan, a clear and actionable plan is essential. Here are some strategies to help you navigate this process effectively:

Identify Suitable VCs: Research to determine which venture capitalists are the best fit for your company, considering their investment history and focus areas​​.

Secure Meetings with VC Partners: Establishing connections with partners at reputable Japanese VC firms is crucial. Leverage your network, attend industry events, and engage in platforms where these investors are present​​.

Effective Pitching: Know how to pitch your business in the most compelling way. This involves understanding the specifics of your market, clearly articulating your value proposition, and demonstrating your potential for growth and scalability​​.

Closing the Round: Have strategies in place to move from initial discussions to actually closing the funding round. This means being prepared for negotiations, understanding the terms of the deal, and having a clear plan for the use of funds​​.

Leverage Recommendations from Portfolio Companies: One of the most effective ways to secure a meeting with a Japanese investor is to get a recommendation from one of their existing portfolio companies. This approach is more impactful than simple introductions and can significantly increase your chances of securing a meeting​​.

Understand Investors’ Decision Factors: Knowing what factors influence Japanese VCs to meet with founders and hear their pitches is vital. Consider conducting surveys or research to understand these factors, which can inform how you approach and communicate with potential investors​​.

Case Studies Series A

Case Studies: Japanese Startups’ Series A Success Stories

Several Japanese startups have achieved notable success in securing Series A funding. These case studies provide insights into different strategies and approaches that have proven effective:

株式会社UPSIDER: Specializing in corporate cards and payment solutions, UPSIDER raised 15 billion yen in May 2022. Investors included DST Global Partners, Arena Holdings, Tybourne Capital Management, Saison Ventures, and Mitsubishi UFJ Capital. The funding is aimed at recruitment activities, diversifying products, and international expansion​​.

株式会社LegalForce: A developer of software services for contract management, LegalForce raised 13.7 billion yen in June 2022. Investors included SoftBank Vision Fund 2, Sequoia China, Goldman Sachs, WiL, LLC, Mitsubishi UFJ Capital, and Mizuho Capital​​.

株式会社Synspective: Focusing on satellite data analysis and the development of small SAR satellites, Synspective secured 11.9 billion yen in March 2022. Investors included Sompo Japan, Japan Growth Capital Investment Corporation, and Pavilion Capital Pte. Ltd​​.

Spiber株式会社: Working on the development of next-generation biomaterials, Spiber raised 10.51 billion yen in March 2022. The funds are designated for the mass production of ‘Brewed Protein’ in the US and new material R&D​​.

ソフトバンクロボティクスグループ株式会社: Overseeing SoftBank Group’s robotics ventures, they raised 10 billion yen in February 2022, partnering with Iris Ohyama Inc. The funding aims to address societal issues like labor shortages due to aging populations through robotization​​.

“To gain a comprehensive understanding of the current startup landscape in Japan, a crucial watch our Scaling Your Company Podcast titled ‘Japan Startup Ecosystem in 2023 with Joshua Flannery’. 

What is the Future Outlook for Series A Investment in Japan?

The future of Series A investment in Japan is shaped by several emerging trends and market changes. Insights from 2023 data indicate a dynamic shift in the investment landscape:

Decrease in Total Funding Amount: In the first half of 2023, startups in Japan raised 3,354 billion yen, a decrease from the 4,160 billion yen raised in the same period in 2022. This decline follows a record high in 2022, where funding reached 9,459 billion yen​​​​.

Increase in Number of Companies Receiving Funding: Despite the overall decrease in funding amount, the number of companies securing funding increased by 17% in the first half of 2023 compared to the first half of 2022​​.

Shift in Funding Patterns: There has been a notable reduction in large funding deals of 10 billion yen or more. This trend is particularly evident in the 10 to 50 billion yen range​​.

Evaluation Metrics Changing: The market downturn has shifted the focus from PSR (Price to Sales Ratio) to PER (Price to Earnings Ratio), especially in later-stage funding rounds like Series D and beyond. This indicates a growing emphasis on profitability over revenue​​.

Utilization of Debt Financing: Startups are increasingly resorting to debt financing, a trend that has become more prominent since 2022. This shift is partly due to the challenges in maintaining high valuations in equity financing​​.

Increase in Down Rounds: The number of down rounds, where funding is secured at a lower valuation than previous rounds, has increased. This trend was particularly pronounced in Series B rounds in the first half of 2023, a shift from the previous dominance of Series A in down rounds​​.

Focus on R&D Startups: Startups involved in research and development, such as Kyoto Fusioneering and Astroscale Holdings, have secured significant funding, indicating a growing investor interest in innovative and high-tech sectors​​.

Involvement of Business Corporations and Financial Institutions: There is a noticeable presence of direct investments by business corporations and financial institutions, with several conglomerates participating in large funding rounds​​​​.

Interest from Overseas Investors: Despite a decrease in the volume of investments from overseas VCs, there remains a high level of interest from foreign institutional investors in Japanese startups​​.

IPO Trends: The number of startups going public has decreased, but the median initial public offering (IPO) valuation has shown a recovery trend, indicating a cautious but growing market confidence​​.

New Frontiers: Sectors Poised for Series A Growth

Given these trends, certain sectors in Japan are likely to see a surge in Series A investment:

High-Tech and R&D-Focused Startups: Companies engaged in advanced research and development, especially in technology and space industries, are likely to attract significant Series A funding.

Green Technology and Sustainable Solutions: With a growing global focus on sustainability, startups offering green technology solutions, renewable energy, and environmental-friendly products may see increased interest from investors.

Healthcare and Biotechnology: The healthcare sector, particularly biotechnology and medical technology startups, could emerge as a key area for Series A investments due to the continuous need for healthcare innovation.

Digital and Financial Technologies: The fintech and digital technology sectors, including companies developing innovative payment solutions and digital platforms, are expected to remain attractive for Series A investors.

Consumer-Focused Technology: Startups that offer consumer-centric technologies and services that address everyday needs and lifestyle enhancements are likely to gain traction in the Series A funding landscape.

Concluding Thoughts

As we reflect on the dynamic landscape of Series A investment in Japan, it’s clear that this stage represents much more than just a financial milestone for startups. It is a testament to innovation, resilience, and strategic foresight. For those embarking on this challenging yet exhilarating journey, the path to Series A investment is not just about securing funds; it’s about proving the mettle of your business idea in a highly competitive and meticulous market.

Japanese startups stand at the crossroads of traditional diligence and cutting-edge innovation. Series A investment opens doors to not only financial resources but also invaluable mentorship, strategic partnerships, and an expanded network. This phase in your startup’s life is crucial—it’s where you transition from a promising venture to a robust, market-ready entity.

To every entrepreneur setting sights on this crucial phase, remember: Series A is more than a round of funding—it’s a rite of passage in the startup world, a validation of your hard work, and a harbinger of your potential. Embrace this opportunity with determination and optimism. The journey may be daunting, but the rewards are transformative, both for your startup and for the innovative landscape of Japan.

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