The Journal The Authority on Global Business in Japan

The venture spirit in Japan is growing stronger. Japanese start-ups and entrepreneurs need support, but how to get larger Japanese companies interested in investing is something many do not yet understand.

On May 30 at Tokyo American Club, Draper Nexus Ventures Managing Director Akira Kurabayashi spoke to members of the American Chamber of Commerce in Japan about how his company bridges the cultural gap between large Japanese corporations and Japanese start-ups.

Draper Nexus Ventures is an early-stage venture capital firm based in Silicon Valley and Tokyo that aims to “match, and help collaboration between, start-ups and large companies,” Kurabayashi explained.

He suggested there is a specific area that Japanese entrepreneurs need to pay attention to: enterprise technology. This includes the ever growing fields of artificial intelligence, the Internet of Things, Big Data, cybersecurity, and the emerging hardware market.

Although these technologies are dominated by the United States and China, “on the application side, Japanese companies can build the best applications for Japanese customers,” Kurabayashi explained, saying this is where the focus should be.

The challenge is to get support and investment from large Japanese companies. There is a tangible difference in business culture between start-ups and traditional Japanese companies, and this becomes a point of disconnect.

“That kind of open innovation style conflicts with the Japanese long-term, seniority-based, lifetime employment system,” he said.

“Post acquisition, the start-up CEO cannot get the authority to scale the business.” This is due to the many layers of supervisors that exist in large Japanese corporations, meaning that coming to a decision can take a lot longer than expected.

This idea of open innovation is well known in Japan. However, according to Kurabayashi, Japanese corporations “could not implement those business practices.”

He recalled one story in which a limited partnership (LP) company brought 10 employees to a conference room, but only one person spoke. “That’s scary from a US start-up CEO standpoint,” he said. With no questions asked by the Japanese corporation, he added that it is difficult to really understand what these large Japanese corporations are thinking. This can create mounting pressure on a start-up’s CEO and slow the decision-making process.

Draper Nexus Ventures is trying to solve this practice and have LPs work with them to learn how to accelerate the growth of start-ups. “It’s kind of like venture capital training,” Kurabayashi explained. “We need to provide education to the Japanese start-up community.”

Every month, the company releases a white paper covering the enterprise technology market. “Based on that, we make decisions on what areas to look into, and we share that with our LPs.”

The company’s business acceleration program is another initiative designed to further this education.

“Some Japanese companies are very good at building new business, but typically they aren’t,” he suggested. Understanding a proper strategy is crucial.

He said many manufacturing companies have a “product-out” mindset—not looking at the market—and instead focus too much on the product and technology.

The Draper University Executive Program is one way to help entrepreneurs break out of this, and part of the program is to encourage people to take risks, something to which traditional businesses in Japan have great aversion.

“Japanese corporate employees are educated not to make a mistake,” he explained.

Overall, Kurabayashi believes that the quality of Japanese entrepreneurs is improving, although guidance is still needed. “In the long term, we want to influence and change their mind from farmer to hunter, which is necessary for entrepreneurs to succeed.”

Maxine Cheyney is a staff writer at The Journal.