Many Japanese companies invest in venture capital funds or sponsor startup accelerators or incubators, hoping to include open innovation into their business strategy. Yet, many are left without any tangible results. Why? Here we explain why trying to partner with startups via these routes often ends up being sunken yen for Japanese companies and what they can do instead.
What are startup accelerators & incubators?
Seed accelerators, or startup accelerators, are programs funded by corporations to get startups and business ideas off the ground. The programs offer mentorship and other educational components over a fixed period of time, usually culminating in a pitch day when prize winners are selected. Accelerators focus on specific industries, e.g. biotech, fintech, or medtech. The selection process is highly competitive to justify the considerable investment companies make in accelerator programs, in hope of meeting a startup to collaborate with as accelerators generally take no equity.
In a similar vein, a business incubator is a company or run by a singular company that provides management training, office space or other necessities for startup founders or early-stage companies to develop a new business. These are often catalyst tools focused on developing business in a certain region.
Why do Japanese companies fail to partner with startups through accelerators & incubators?
While accelerators and incubators seem like perfect places to target startups specializing in defined industries, many Japanese companies fail to make their investment, sometimes in the million-dollar range, worthwhile. Why is that? Let’s look at the typical pitfalls of the process in Japan, as per interviews conducted with our clients and industry players.
Accelerators focus on a very narrowly defined industry technology, e.g. mobility. Meaning they gather startups only specializing in mobility. A dozen or more corporations will participate in the accelerator event, all with the same goal: trying to meet a startup that matches their business. If they are lucky, they’ll meet someone, but they are competing with a large number of companies over a very narrow pool of startups represented at the event.
Yet, for this slim chance, their investment will usually be around 300,000 dollars. Accelerators are often very local and niche in their make-up. Unless you are running a project that exactly fits the bill of the accelerator, it is a very high investment for a very slim slice of the startup cake. Companies will want to look further than that. Joining accelerator programs is usually not a customized approach, often only representing local startups of a small pool and subject to chance.
Several of the companies we interviewed on their accelerator experience in Japan confirmed that they believed for a better outcome, one must embark on a global search for startups. Niche technology startups are far and few between, so they don’t recommend limiting your search to Japan only.
In a similar vein, large corporations invest 2–3 million dollars into venture capital funds, in return for information on startups with collaboration potential. Yet again, VCs don’t guarantee that the startups selected are a good match for the donor companies or that your funding will even result in any collaboration. Spending several million dollars in order to acquire information is not feasible for such a long-term investment. And with collaborations not guaranteed, it isn’t the most efficient way for companies to partner with startups.
The more successful path to partnering with a startup
Collaborating with startups on open innovation is hot topic in Japan now, yet often the results produced don’t extend beyond lifting the company’s image. However, a well-planned and executed startup search and collab can mean real growth for your company, a potential that shouldn’t be wasted.
The first pitfall here is lack of planning. Without narrowing down a specific industry, research area, project goals and other criteria about your ideal partner, you are throwing money at a needle in a haystack instead of systematically searching for it.
Divide investment strategy & partnership strategies
Investing in a VC fund can be one part of your strategy, but finding partners should be a separate process from that.
We recommend you divide the two processes completely. Don’t rely on investing in VCs or accelerators to magically manifest your dream match. Instead, plan out your partnership strategically:
1. Choose the challenge you want to solve
By narrowing down the area, technology or problem you want to focus on, your project gains clarity and direction. Challenges are virtually unlimited, but we can’t solve them all at once.
2. Build scenarios of how to solve the problem
Come to the table with a game plan that help you define your vision. What could the solution look like? These exercises will help you narrow down the type of partner you need.
3. Set criteria on what tech you need to solve the problem and what type of startup would be ideal partner
Now that you have a clear challenge, approach, and goal, you can narrow down the niche and type of company you would like to tackle this with
4. Find the right vendor who provides the startup partnership consulting for open innovation
Most companies outsource the step of finding and assessing potential startup partners to a vendor to benefit from established networks, databases, and expertise. Trusted Inc. specializes in introducing Japanese corporations to startups all over the world, but specifically to startups located in Europe which mesh well with the target industries, challenges, and work styles of Japanese companies.
5. Build a capable team with a dedicated skillset
Finally, harness your human resources by building a dedicated team that covers the skills necessary for the project you envision. Useful competencies might include English language ability, business development, management expertise, or startup experience.
Support for your company on open innovation with startups globally
Trusted Inc. offers help from assessing your situation to preparing you for business collaboration, finding a suitable startup partner all the way to the negotiation process. We offer an “innovation readiness check” that helps you understand if your company is currently in the best position to take on an open innovation project, or what pieces are still missing to get you there. Further, we fully support corporations in the process of collaborating with startups — from finding the right project, the right startup partner to negotiations and executing the project. We support your team with planning and scenario building, while also bringing in outside experts and consultants to ensure the expertise is tailored to your needs, while saving you time, money, and developing human resources in the process.
Writer: Mareike Dornhege