“How can startups be nurtured?” The answer to this question is very simple. All you need are people who want to launch a startup (place and attitude), appropriate education for potential startup launchers (people), the inflow of adequate funding (money), an ecosystem that makes it easy for startups to grow (companies and the government). The notion of “supporting” startups doesn’t actually lead to their emergence. The important thing is to nurture the ecosystem.
1. Place and Attitude: Nurture a Culture and Values that Praise Risk-taking Startup Entrepreneurs
In the U.S., people believe that “excellent people should take risks and create new value.” Startup entrepreneurs stand at the top of the career pyramid, and the values and culture are one in which everyone admires successful entrepreneurs. If a similar career pyramid can be established in Japan, and a culture and values that encourage “the best and brightest to take on risks and aspire to launch startups” can be established, individuals will begin to want to become entrepreneurs and resources such as people, money, and knowledge will shift into new industries.
They key for nurturing such values will be the words and actions of the nation’s leaders. In 2014 the Ministry of Economy, Trade and Industry launched the Expert Meeting on Venture Business and established the Nippon Venture Awards (the recipient of the Prime Minister’s Award was Mitsuru Izumo of Euglena). More important than assistance measures is the nurturing of culture that praises risk taking and the embrace of challenge.
2. People: Improve Education for Entrepreneurs, Nurture Startup Launchers, and make Human Resources more Mobile
To nurture entrepreneurs and corporate managers, MBA programs are essential. We are entering an era in which not only ideas and drive, but also brainpower, are required, so a high-level entrepreneurial spirit and high-level intellectual abilities will be the source of competitive strength. Moreover, to create an environment in which it is easy for startups to emerge, human resources in the industrial world need to be made more mobile. It is essential that human resources are able to come and go freely with a safety net below them, i.e. that there is dynamic human resources mobility.
3. Money: Increase the Supply of Risk Money and Improve the Exit Environment (Recovery of Funds Invested)
In the U.S., the three main providers of venture capital are pension funds, college funds, and charitable foundations. In Japan, on the other hand, the only providers are banks, companies, and wealthy individuals. Due to restrictions such as the Basel Accords, it is difficult for banks to provide money, while companies are under pressure from shareholders to invest only in their core operations. This forces startup entrepreneurs to turn to wealthy individuals, the only remaining option for funding. This is the nature of venture capital in Japan. A fundamental strengthening of the supply of the risk money is essential.
Japan’s capital markets also don’t make it easy to exit startups (i.e. recover the funds invested), and this interferes with the inflow and circulation of funds. It will therefore be important to make the capital markets more attractive by encouraging startups to merge with one another and increase in size and by strengthening their corporate governance through involvement in management by financial institutions and institutional investors and also through pressure from the market.
4. Companies and the Government: Create an Ecosystem that Gives Rise to and Nurtures Startups
If large companies forge alliances to bring in-house the capabilities of startup entrepreneurs, i.e. the ability to boldly take on the challenge of new businesses, this will bring great benefits to both the large companies and the startups. So, big corporations should proactively seek out alliances. The establishment of relationships through open innovation eases the movement of people, money, and knowhow, and this lays the groundwork for the creation and nurturing of new ventures.
Meanwhile, what the government needs to do is to ease regulations and create opportunities. It is said that “the number of big businesses that are sleeping is the same as the number of ministries and agencies.” If each ministry/agency aggressively implements deregulation, big businesses will emerge. In addition, the national government and local governments ought to allocate around 10-20% of their budgets to startup companies.