Ultimate Guide to Japan Tech Startups

Have you ever been intrigued about the potential of investing in Japanese technologies? If your answer is yes, this article is for you. This guide to Japan tech startups is perfect for exploring distinctive characteristics that set Japan apart from the rest of the world.

Japan is currently home to a rapidly growing number of startups. The combination of a traditional business mindset and a growing number of entrepreneurs, investors, and support organizations, makes it a fertile ground for cutting-edge technology and entrepreneurial growth for both tech enthusiasts and entrepreneurs all over the world. It’s just the right spot for anyone eager to be at the forefront of technological progress.

If you are interested in knowing more about startups in Japan, check out our article on Startups in Japan. You will not only learn about what Japanese startups are like but will also learn various things from foreign startup companies to how to make a startup in Japan.

What are the Current Tech Startup Conditions in Japan? 

State of Startups in Japan Within the Tech Ecosystem

The Japanese startup, including the tech sector, exhibits unique characteristics when compared to other countries. While Japan has many successful startups with constant growth, its overall startup scene is relatively modest, especially compared to countries like the United States, Israel, or India.

Japan Startup Funding and Number of Startups Received Funding

Japan Startup Funding History and No. of startups received funding

Japan’s startup scene is on a remarkable ascent, as shown by the substantial growth in funding amounts, particularly from 2015 to 2020. This upward trajectory, despite fluctuations in the number of startups receiving funds, signals strong investor confidence and an appropriate ecosystem for investment opportunities. With increasing funding, Japan presents a promising landscape for potential investors of innovative ventures.

Total Early-Stage Entrepreneurial Activity (TEA) Index of Japan

The Total Early-Stage Entrepreneurial Activity (TEA) Index is a measure that reflects the percentage of the adult working-age population who are either in the process of starting a business or who have started a new business that is less than 3.5 years old. It is crucial for assessing a country’s entrepreneurial landscape as it provides a clear number of active and emerging business ventures that can indicate the effectiveness of support structures for new businesses.

TEA Index of Japan vs other countries

Low TEA Index in Japan: What are the causes?

• Cultural factors: Japan has a risk-averse culture which may prevent individuals from starting new ventures. 
• Economic stability: stable jobs with lifetime employment in large companies can reduce the incentive to start a business. 
• Social norms: There is a strong preference for stability and the social stigma associated with failure may discourage entrepreneurial attempts. 
• Regulatory environment: The regulatory environment can be challenging for new businesses, with strict regulations.

Advantages of a Low TEA Index for Entrepreneurs in Japan: 

• Less competition: A lower number of startups can mean less competition for those who do decide to venture into entrepreneurship. 
• Niche opportunities: Entrepreneurs can capitalize on underserved niche markets. 
• Government support: In its 2022 Basic Policy for Economic and Fiscal Management and Reform, the Japanese government selected startups as one of the five priority investment areas, reflecting a strategic focus on startups.

3 Pros of Using Venture Capital in Japan Tech Startups

For entrepreneurs eager to tap into Japanese tech startups, understanding the venture capital landscape is crucial. In Japan, VC provides not just funding but also a gateway to a network of industry experts, mentorship, and business development strategies. If you want to learn more about Venture Capital in Japan, visit our article on Venture Capital in Japan. 

1. Funding

Venture capital (VC) is a private equity investment provided to early-stage, high-growth startups, often in technology. VCs offer solutions in exchange for equity, typically as preferred stock. This funding supports management expenses, with VC’s presence growing notably in Japan.

2. Market Navigation

The strategic partnerships that come with VC investment can also help startups navigate the complexities of the Japanese market. This includes understanding regulatory frameworks, intellectual property rights, and cultural nuances critical for business success in Japan.

3. Rapid Growth Opportunity

The Entrepreneurial Activity Index suggests that Japan’s startup culture is more reserved compared to other countries. With substantial VC funding available, entrepreneurs have the chance to carve out their niche and scale rapidly.

2 Success Stories of Japanese Tech Startups

Moneytree

Moneytree is a personal finance management app founded by Paul Chapman, an entrepreneur from Melbourne. The application can link to your bank account to track your income and expenses. Chapman saw an opportunity in Japan’s lagging financial digitization and established Moneytree in Tokyo in 2012. The company has grown rapidly and now serves as a financial identity service for 35 corporate partners in Japan. Moneytree’s success story is about its consistent growth and evolution into a global software company, highlighting the potential for foreign-led startups in Japan.

PayPay

PayPay is a fintech company that rapidly became a leading mobile payment provider after its launch in 2018. PayPay’s app has leveraged the digital payments wave in Japan, becoming one of the country’s most popular applications. Notably, PayPay supports smaller startups through an acceleration program, allowing them to use PayPay’s resources to develop mini-apps. This initiative not only aids PayPay’s growth but also nurtures the fintech ecosystem, demonstrating the collaborative spirit within the Japanese startup community.

5 Emerging Tech Sectors in Japan

Japan’s tech startup scene is currently experiencing growth, facilitated by a skilled workforce, strong governmental support, and the country’s technological advancement. A technically proficient workforce, government support, and technology, particularly in areas like technology and engineering, provide a robust foundation for the growth of tech startups. 

There are currently several interesting technology sectors in Japan. We will explore 5 of the rapidly growing sectors of Japanese technology.

1. Green Tech and Sustainable Innovations

Japan is focusing heavily on environmentally friendly technologies, such as solar panels and hydrogen fuel cells. Companies like Chemican offer solutions to minimize harmful chemical use in industrial processes. Other notable companies include ListenField in agricultural tech and MYMIZU, which aims to reduce plastic waste.

2. Artificial Intelligence (AI)

AI technology is rapidly expanding in Japan, with applications ranging from home assistant robots to advanced media editing tools like CapCut. AI is increasingly integrated into everyday life, improving tasks and user experiences.

3. Robotics

Japan is a global leader in robotics, with companies like SoftBank developing emotionally intelligent robots like Pepper. Robotics is also being researched for delivery services and healthcare applications, as seen with companies like Rakuten and Cyberdyne.

4. Life Sciences

The life sciences sector in Japan is receiving substantial government support, especially from foreign companies. This sector includes a focus on healthcare startups and regenerative medicine, with Kyoto University being a notable center for this research.

5. Fintech

The fintech sector in Japan is expected to grow significantly, driven by government initiatives to promote Tokyo as a fintech hub and the rising popularity of cashless transactions. Companies like Kyash and Money Design are making strides in mobile banking and automated investment advice.

5 Ways Japanese Tech Startup Culture Differs From Western Countries

Japan has a unique culture that differs from Western countries. When it comes to starting a tech company in Japan, understanding the culture and adhering to traditional manners is not just a formality; it’s a fundamental aspect of success. In Japan, tech startup culture differs from Western countries in several ways. 

1. Risk Aversion

Japanese startup culture tends to be more risk-averse compared to Western cultures. There is a higher intolerance of failure, which can make it challenging for startups to thrive as there is often a fear of taking risks.

2. Hierarchy and Structure

Japanese businesses, including startups, often maintain a strong hierarchical structure. Decision-making can be slower, and startups may need to navigate a more formalized process.

3. Emphasis on Harmony and Respect

Building and maintaining strong relationships (known as “Kizuna” or “絆”) are crucial in Japanese business culture. Strong respect and consideration are also the essence of Japanese culture to facilitate better relationships in business networking in Japan.

4. Long-Term Perspective

Japanese startups may focus more on long-term sustainability rather than rapid growth. This can result in a more stable but potentially slower-paced startup ecosystem.

5. Innovation within Tradition 

Japanese startups often integrate traditional cultural elements into their products and services, creating a unique blend of innovation and tradition.

Regarding the importance of manners, understanding and respecting traditional Japanese business etiquette and practices is crucial for startups. This includes bowing, exchanging business cards (“meishi”), and using polite language. Failing to observe these customs can harm relationships and hinder business opportunities within Japanese business culture.

Adapting to Japanese Corporate culture can be difficult, especially when you’re a foreigner and Japanese is not your first language. To get the latest tips on how to merge yourself in a Japanese corporate environment, check out our article on Japanese corporate culture. Or, head to our episode on Japanese Business Manners With Rochelle Kopp if an audio format suits you better!

What is It Like Working in a Japan Tech Startup?

Working in a Japanese tech startup presents a unique set of opportunities and challenges, shaped by the country’s rich culture and distinct business environment. Let’s explore the challenges and opportunities in Japan Tech Startups.

Challenges and Cultural Nuances

1. Language Barrier: One of the most significant challenges for foreign professionals in Japanese tech startups is the language barrier. While many Japanese companies are becoming more open to hiring non-Japanese talent, few companies have their daily operations, communication, and documentation conducted in English. This can give difficulties for non-Japanese employees who may not be fluent in the language. 

2. Cultural Nuances: Japanese corporate culture is known for its adherence to traditional values and customs. Understanding and respecting these cultural nuances is crucial. For example, hierarchy and seniority are highly regarded, and employees are expected to show deference to their superiors. Meetings and decision-making processes often involve consensus-building, which may differ from the individualism in Western countries.

3. Complex Legal Environment: Japan has intricate legal regulations, especially in the tech industry. Navigating these legal requirements, including intellectual property laws and regulations governing foreign businesses, can be challenging. Startups need to seek legal counsel to ensure compliance with local laws.

Opportunities and Equal Treatment

1. Opportunities in English-Focused Companies: To overcome language barriers, some tech startups in Japan are adopting English as their primary language. These companies can attract a more diverse workforce and tap into the global market more easily. 

2. Equal Treatment: Japanese tech startups typically treat foreign employees equally in terms of compensation and opportunities for growth. Discrimination based on nationality is generally not tolerated, allowing professionals with high skills to be able to grow independently.

2 Japan Tech Startup Cities You Should Know

Japan’s urban centers, particularly Shibuya and Nagoya, are not just embracing the startup culture; they are actively promoting it through a series of innovative strategies. These cities host numerous conferences, workshops, and networking events, creating platforms where entrepreneurs can exchange ideas, learn, and collaborate. This proactive approach is turning these metropolitan areas into thriving hubs for startups, attracting both local and foreign entrepreneurs with their unique blend of opportunities and challenges.

Shibuya: A Melting Pot of Innovation

In the heart of Tokyo, Shibuya is more than a symbol of youth and technology; it is a nucleus for startup growth. Government initiatives here are geared towards nurturing an innovative ecosystem. Areas like Hikarie and Dogenzaka are now vibrant startup clusters, hosting a variety of new ventures and venture capital firms. 

Shibuya extends a warm welcome to foreign entrepreneurs with its inclusive policies and international events. Services like the Shibuya Startup Support are tailored to ease the integration of foreign businesses into the local market, offering essential services from legal aid to networking opportunities.

In Shibuya, there are also government-backed initiatives that boost startups with diverse support systems:

• The Tokyo Metropolitan Government: Runs “Startup Tokyo” and awards fintech achievements that contribute to Tokyo’s financial ecosystem.
• J-Startup Program: Promotes high-potential startups and eases expansion efforts.
• HUB Tokyo: Serves as a nurturing space for entrepreneurial advice and community building

Nagoya: Engineering the Future

Nagoya’s legacy in manufacturing and engineering is the foundation of its emerging startup scene, especially in fields like robotics and automotive technology. The city’s collaborative efforts between government, academia, and industry foster an environment for technological breakthroughs. Startups here benefit from a robust support system, together with the city’s industrial expertise and research capabilities.

For international entrepreneurs, Nagoya is an inviting destination. The city’s global business events and trade fairs are not just showcases but also interactive platforms for forging vital business connections. Initiatives like the Greater Nagoya Initiative ease the process of setting up and thriving in this vibrant city.

Similar to Shibuya, there are also government initiatives that aim to support startups in Nagoya:

• Aichi Startup Support Program: Offers contests, seminars, networking, funding, and support centers for startups.
• Nagoya Startup Garage & Innovation Hub: Provides coworking spaces, mentoring, and investor pitching opportunities; facilitates business model refinement and growth.
• Startup Visa Program in Nagoya: Grants foreign entrepreneurs residency to start businesses, supporting Japan’s national entrepreneurship and innovation strategy.

Shibuya and Nagoya illustrate Japan’s commitment to nurturing a startup ecosystem. There are more details about startup cities and other emerging cities. If you’re interested, check out our article on Challenges And Opportunities in Japan Startup cities.

How To Network in Japan Tech Ecosystem?

Business Networking in Japan: Strategies and Platforms For Effective Networking Within the Japanese Tech Startup Community

Strategies For Networking: 

When networking in Japan, it’s essential to follow Japanese business etiquette. This includes punctuality, formal greetings, and the respectful exchange of business cards, known as “meishi.” Building relationships often involves indirect communication and may require personal introductions or referrals. Engaging in “nomikai,” informal social gatherings, can be a valuable way to connect more personally with potential business partners. 

Networking Platforms: 

Various online platforms and communities serve as networking hubs within the Japanese tech startup ecosystem. Eventbrite and Meetup list numerous events catering to professionals, entrepreneurs, and students. Organizations like Venture Café Tokyo and Startup Lady specifically support startup networking, providing spaces for innovators to meet and exchange ideas. 

Ever wonder where exactly you can find all the networking events in Japan? Head to our Guide to Business Networking in Japan and check out our picks for the top 15 places for your next networking destination.

How Do Incubators and Accelerators Help Japan Tech Startups Thrive and Innovate?

In Japan, startup incubators and accelerators play a pivotal role in supporting entrepreneurial growth and innovation. Incubators tend to focus on startups at the idea phase, offering support such as free office space, specialized facilities, and guidance without the need for an existing product or team. In contrast, accelerators usually target startups that have developed a minimum viable product, providing seed funding and a structured program, typically running for 3-6 months. 

As a corporate startup accelerator, Creww offers a wide range of services to support various startup needs, including open innovation programs and a startup studio for those seeking to begin a new business and find collaborators. The Aoyama Startup Acceleration Center provides acceleration programs, co-working spaces, and fundraising advice, making it an important place for new businesses.

Some incubators and accelerators focus specifically on the tech industry, such as TECHFUND, which assists tech startups through “technology investment,” and Mainichi Mirai Sozo Lab, which supports company development through collaboration with external partners. 

These incubators and accelerators are essential as they provide the infrastructure, resources, and networks necessary for startups to scale and thrive. By offering a blend of mentorship, financial support, and strategic advice, these programs help startups navigate the complex business landscape, drive innovation, and contribute to the growth of Japan’s economy. They can be particularly valuable in overcoming the barriers of the Japanese market’s environment and business culture for foreign startups.

If you want to learn more about incubators and accelerators in Japan, we recommend going to our article “Incubators and Accelerators in Japan” and “Top 10 Start-up Incubators in Japan” for other interesting Incubators and Accelerators.

Final Thoughts: Guide to Japan Tech Startups

Japan’s tech startup scene, while not the largest, is on a promising trajectory due to increasing government support and initiatives from organizations dedicated to fostering growth. Entrepreneurs can tap into a wealth of resources including incubators, accelerators, and venture capital, particularly in startup cities with various supports. These ecosystems welcome ventures in diverse sectors from fintech to life sciences. Success relies on effective networking, a willingness to navigate wide-ranging sectors, and an understanding of Japanese cultural nuances, all of which are integral to thriving in Japan’s dynamic tech landscape.