The Case of the Missing Startups
University and government venture funds play a much larger role in Japan than they do in Western countries. Yet we see fewer biotechnology startups here compared with, say, the United States, which is home to eight of the top 10 highest-funded ventures. Why?
Why biotechs find it hard to get going in Japan
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University and government venture funds play a much larger role in Japan than they do in Western countries. Yet we see fewer biotechnology startups here compared with, say, the United States, which is home to eight of the top 10 highest-funded ventures. Why?
I explored this with Dr. Hiroaki Suga, co-founder of biotech company PeptiDream Inc., in a recent episode of my podcast Disrupting Japan. A professor at the University of Tokyo, Suga did his post-doctoral study under Nobel Prize-winning biologist Jack Szostak at Harvard Medical School. As an academic and a researcher, Suga knows well the dynamics at play in biotech development and application in Japan.
With PeptiDream, which has created a platform for the discovery of highly diverse, non-standard peptide libraries that can be developed into peptide-based therapeutics, Suga has taken a different approach to funding. And it has paid off.
Founded in 2006, PeptiDream is now worth more than $3 billion and collaborates with many of the world’s largest pharmaceutical companies, including American Chamber of Commerce in Japan (ACCJ) members Eli Lilly Japan K.K., Bayer Yakuhin, Ltd., AstraZeneca K.K., and Novartis.
Less is More
What I learned from our discussion is that, in this situation, smaller investments may lead to better results.
“If you have $10 million, you will just burn through it,” Suga said, adding that less capital will keep you focused and get results that can lead to bigger things.
In PeptiDream’s seed round, it received $1 million from The University of Tokyo Edge Capital Partners Co., Ltd., a Japan-based seed- and early-stage deep-tech venture capital firm.
With limited funds, “You need to really develop technology that will allow you to collaborate with big pharmaceutical companies,” Suga explained. These companies set criteria, and don’t give you money immediately. “Once you reach [one set of] criteria, you can get money. Then you get to another stage and you get more money,” he said.
This approach carries less risk for pharmaceutical companies, and Suga sees little risk for PeptiDream, because he is confident that they can meet the criteria.
Obstacles
This unusual approach has worked well for PeptiDream, so why don’t we see more biotech startups succeeding this way in Japan?
Suga said there are several reasons.
“Venture capitalists are not investing in risky companies, and biopharmaceutical companies are high risk,” he explained. “If you are developing business software, after six months, you know if it isn’t working. But drug development is a long-term commitment.”
“The first is that venture capitalists are not investing in risky companies, and biopharmaceutical companies are high risk,” he explained. “If you are developing business software, after six months, you know if it isn’t working. But drug development is a long-term commitment. Venture capitalists have to wait, and they may not be able to do so. They may need to wait 10 years to realize the potential, but they are looking for five.”
“The second reason is that Japanese society prefers to go with what’s known,” he continued. In this case, it means that talent heads for the largest pharmaceutical companies, which are seen as stronger and a safe harbor. “For example, all my students go to big pharma. They don’t go to PeptiDream.”
But this isn’t so much a case of risk aversion—often cited as an obstacle to success in Japan—as one of familiarity. Their parents know the names of the big players, but not of small ones such as PeptiDream.
Large Japanese companies tend to have little interest in helping smaller ones. This chasm is one that the ACCJ is attempting to bridge with its Healthcare x Digital initiative, which completed its second annual competition in November.
Spin-off vs. Startup
The third obstacle that Suga cited is the fact that many startups in Japan are research units that have been spun off from large companies that chose to leave Japan. “They had a very good team here, so they decided to spin off. They already have a background from big pharma and continue doing [what they were doing],” he explained. “That means that they aren’t hugely different from the big companies.”
In the end, Suga said that the biggest change that needs to take place for Japan to become more fertile ground for biotech startups must be made at the university level.
“Professors really need to work hard to get technology to be very practical, to be very robust. You really have to put forth effort to get to the end,” he said. “Then, the Japanese government needs to support this type of research. That’s very critical.”
Investing in Smart Agriculture
AI gets a lot of attention these days, but its application to farming is not often in the spotlight. Sagri Co., Ltd. uses AI, machine learning, and mapping technologies to solve social problems. I had the opportunity to talk with CEO Shunsuke Tsuboi about the challenges that agricultural technology startups in Japan face when it comes to funding, as well as the benefits of their technology.
Japan startup Sagri is transforming family farming with AI
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Artificial intelligence (AI) gets a lot of attention these days, but its application to farming is not often in the spotlight.
Recently, I had the opportunity to talk with Shunsuke Tsuboi, chief executive officer of Sagri Co., Ltd., which uses AI, machine learning, and mapping technologies to solve social problems.
On my podcast, Disrupting Japan, Tsuboi and I discussed the challenges that agricultural technology (agtech) startups in Japan face when it comes to funding, as well as the benefits of their technology.
Taking Root
Sagri was founded in June 2018 and uses satellite imaging and data to analyze farmland. The technology scans areas of up to 10 hectares in size, making it particularly suited to Japan, where farms are generally small. The data can be accessed using a smartphone app, and the goal is to help farmers better understand the condition of their soil and identify the best time for harvesting.
The idea for the company took shape in a laboratory at Yokohama National University, where Tsuboi is a mechanical engineering graduate student. His lab is using space-based technology to examine soil, and he and his business partners have been able to apply some of this to their platform, which shares the name of the company.
Applications
If you’ve walked around the Japanese countryside, you’ve probably seen small plots of abandoned farmland. Sometimes these even intermingle with residences in neighborhoods not far outside the capital.
Whether farmland is in use or abandoned makes a difference from a tax perspective, so the government manually checks the status of land each year. The AI behind Sagri’s analysis can determine with 90-percent accuracy whether a field is abandoned, drastically reducing the amount of work required of government staff.
Apart from taxation, the government is also interested in identifying farmland that can be revitalized. Satellite data that provides soil analysis can make that process easier.
Tsuboi noted that a big reason for the abandonment is that the farmers are getting older and are unable to maintain the land. One benefit of the Sagri platform is that machines can receive the data analysis and automatically perform tasks such as applying fertilizer.
Beyond Japan
Agtech is an area in which Japan has a great opportunity to be a world leader, and Sagri is putting its technology to work in India, where there are also many small farms. But getting the financing needed to keep operations going can be difficult. Sagri believes it has a solution.
“Many Indian farmers need loans, but they don’t have the chance to get them,” Tsuboi said. Because there are so many farmers, it is difficult for banks to spread enough money around. To have a better chance of funding, farmers want to show banks that they are a good investment, he explained. Banks cannot get that sort of information using present methods, but the satellite data analysis provided by Sagri can allow them to check the farmland’s condition and potential yields.
Tsuboi sees Africa as the company’s next market, noting potential in countries such as Kenya and Rwanda. Areas of Southeast Asia are also within Sagri’s sights.
Funding
There are not many agtech startups in Japan, but it seems that there should be. With lots of small farms, lots of creative people working on agtech at universities, and venture capitalists (VCs) with money to invest, why don’t we see more?
Tsuboi feels one reason is that VCs and the government both see farmland as low-growth opportunities. And attracting money from abroad, such as from Silicon Valley VCs, is not easy because they are focused on large-scale industrial farming. The farms on which Sagri is focused in Japan and India are too small to attract their interest.
But Sagri has had some success inside Japan, and announced in June that they have secured ¥155 million ($1.4 million) in funding from a group led by Real Tech Holdings Co., Ltd., who was joined by Minato Capital Co., Ltd., Senshu Ikeda Capital Co., Ltd., and Hiroshima Venture Capital Co., Ltd. Also participating is Bonds Investment Group Co., Ltd., whose Hyogo Kobe Startup Fund, established in March, is making its first investment.
Sagri is a great example of a Japanese startup that can assist people at home and also have a much bigger impact—and earn a much bigger profit—abroad. Globally, the company can help millions of small family farms thrive, and they can bring great returns for investors in the process.