The Formation Process and Characteristics of the Japanese Venture Capital Industry

Abstract

In this paper, I will discuss the formation process as well as the special characteristics of the Japanese venture capital industry. Up until the mid-1990s, Japan’s venture capital industry focused their investments on later stage firms within traditional industry domains, with organization-led venture capital firms being predominant. However, these later stage firms with experience in traditional industries being targeted as ventures had already been well under way as far as management was concerned, and there was no real need for post-investment support from the venture capitalists. This investment style was thought to be one of the reasons that Japan’s venture capitalists were unable to mature with respect to post-investment support know-how. In the latter half of the 1990s, there was an increase in investments within the venture capital industry in Japan that focused on companies that were based in the domains of new technology and were still in early stages as firms, i.e. new technology based firms. Also, at around the same time, in Japan’s venture capital industry as well as the venture capital firms in Silicon Valley, there was an increase in the number of venture capital firms with the strong trend of letting individual venture capitalists administrate a series of investment activities.