How Japan is revolutionizing the AI and deep-tech startups landscape

• Miyako Capital’s new 20 billion yen fund boosts Japan’s deep-tech in biology and AI.
• Amid APAC’s expanding biotech market, Miyako Capital infuses 20 billion yen into deep-tech.

Miyako Capital, a venture capital firm associated with Kyoto University, is setting up a fund projected to amass around 20 billion yen (US$141 million). The fund’s objective is to support startups engaged in deep-tech biology and artificial intelligence (AI).

Deloitte’s report indicates that the APAC biotech market is on a growth trajectory, with a compound annual growth rate (CAGR) of 10.9% predicted between 2020 and 2025. The anticipated market value stands at US$318.8 billion by 2025, driven by factors such as escalating demand for novel therapies and drugs, advancements in precision medicine, and technological progression.

The availability of funds is a critical catalyst for biotech investments in the APAC region. Both governments and private investors have shown considerable interest in biotech investments, acknowledging this industry’s growth and innovation potential. For instance, in 2020, Singapore’s government pledged a US$500 million fund for its biotech industry, paralleling China’s substantial investment plans in the same field.

The growth of precision medicine is yet another factor propelling biotech investments in the APAC region. Progress in genomics, proteomics and other areas has empowered researchers to design more customized therapies, improving patient outcomes. This has increased interest in precision medicine, with companies like Astellas from Japan and South Korea’s Celltrion spearheading this field.

Moreover, technological advancements, particularly in artificial intelligence, machine learning, and big data analytics, are steering biotech investments in the APAC region. The ability to sift through copious amounts of data for new drug targets and more efficacious therapies has given rise to a new generation of biotech startups. These startups are concentrating on creating state-of-the-art technologies to boost innovation in the industry.

Concerning Kyoto University’s contribution, it’s projected to be among Japan’s largest funds, injecting between 500 million yen and 1 billion yen into each startup.

A boost for AI and biology startups

The fund is slated to split its resources, dedicating half to biology and other life science startups, and the remaining half to AI and electronics. Miyako Capital plans to expand its team with members experienced in evaluating these advanced tech sectors.

The firm will also forge allegiances with other educational institutions to scout for potential investments nationwide.

The 20 billion yen fund is expected to be sourced partly (about 50%) from two state-backed funds, the Japan Investment Corp. and the Organization for Small and Medium Enterprises and Regional Innovation, Japan. Other investors like Japan Post Bank and Shiga Bank will contribute to the remaining funds.

Deep tech startups are typically characterized by pursuing fundamental innovation, necessitating growth time and long-term investor commitment.

Miyako Capital plans to leverage its Silicon Valley office to aid startups in their global expansion efforts.

Similarly, University of Tokyo Edge Capital Partners, another VC firm tied to the University of Tokyo, initiated a fund exceeding 30 billion yen in 2021 for deep tech investments.

Since its inception in 2013, Miyako Capital has backed over 50 companies, primarily those leveraging research from Kyoto University. Notable successes include recouping investments from five such companies, one of them being regenerative medicine startup StemRIM.

About 30% of the firm’s managed funds are invested in research startups not affiliated with Kyoto University.

Japanese Prime Minister Fumio Kishida intends to promote the country’s deep tech startups under a five-year plan announced last November. The plan emphasizes the creation of a framework enabling these startups to collaborate with large corporations, focusing on production and distribution.

The promising future of Japan’s deep-tech scene

The future of deep tech in Japan appears bright and expansive, propelled by the concerted efforts of various stakeholders such as venture capital firms, academic institutions, the government, and the startups themselves. Key considerations include:

• Strong financial backing: Both venture capital firms like Miyako Capital and government bodies are substantially supporting deep tech startups. This support encompasses financial assistance, mentorship, networking opportunities, and support for international expansion. With initiatives like the five-year plan announced by Prime Minister Fumio Kishida and significant contributions from state-backed funds, the government is fostering a favorable environment for these startups.
• University collaborations and role of VC firms: Universities often serve as innovation incubators, and Japan is no exception. Partnerships between venture capital firms and universities, especially firms like Miyako Capital, with a track record of backing research-led startups, are poised to sustain the growth of deep tech startups. This will ensure a continuous flow of innovative ideas and entrepreneurial talent.
• Focus on key future-oriented sectors: Japan is determined to progress in crucial future-oriented sectors such as biology, AI, and electronics. Progress in AI and machine learning equips researchers with the tools to process extensive data for identifying new drug targets and developing more effective therapies. This focus is anticipated to drive Japan’s next technological revolution.

Given the robust financial backing, government support, academic partnerships, and emphasis on key future-oriented sectors, the future of deep-tech startups in Japan appears promising. The stage is set for a flourishing deep-tech startup ecosystem, complemented by a framework for partnerships with large corporations.

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