Ltd.

Takaki Demichi

Japan Growth Pathfinder

We believe that Japan's venture capital (VC) market offers a significant investment opportunity going forward. Although the total value of venture-related investments made in the U.S. is much higher than in Japan, we see this massive difference as an opportunity. In 2022, U.S. startups raised 194.4 billion dollars compared to only 6.7 billion dollars by Japanese startups, which is about 3 percent of the U.S. total. Experts usually cite a lower number of startups and the fact that Japanese startups typically only focus on the Japanese market as two main reasons for this funding disparity. When comparing U.S. and Japanese startups operating within the same industry, valuations for U.S. startups are multiple times higher than for their Japanese peers. We believe that many Japanese startups are extremely undervalued.

Signs that this gap has the potential to narrow in the future have begun to emerge. The first sign of this is a change in the mindsets of the younger generation in Japan. Traditionally, large corporations and the government were the best employment options for talented students and young people. However, in recent years, many talented young people have started their businesses. Furthermore, these new businesses are focusing more on the global economy. These young founders realize that Japan has become a mature country, and if they want their companies to grow, they have no choice but to look to the international markets.

Secondly, compared to the rest of the world, the cost of hiring talented Japanese engineers is relatively cheaper. In the latter half of the 20th century, Japan transformed into a major exporter fueled by a cheap labor force producing high-quality goods. The recent depreciation of the yen, combined with dramatic changes in its industrial structure, has increased the likelihood that Japan's global role will evolve. We believe that its startups will play a major role.

Lastly, the Japanese government is more proactive. One of the priorities of Prime Minister Kishida’s cabinet is to increase support for startups. The importance of such governmental involvement is critical, as evident in the case of neighboring China, India, as well South Korea, where government support has helped the venture capital industry to flourish in each of these countries.

Understanding SPARX Private Equity Strategies

Since its founding in 1989, SPARX has created new investment strategies for our global investors seeking to capitalize on opportunities in Japan’s stock markets. As the navigator of the world’s capital, we aim to play the same role in Japan’s private equity market.

With support from our cornerstone investors, Toyota Motor Corporation and Sumitomo Mitsui Banking Corporation, we started the Mirai Creation strategy (“Mirai” means “future” in Japanese), which invests in startups around the world (mainly Japan). We continue to expand our business, which now includes a fund that invests in startups focused on space, and another fund that buys manufacturing companies with superior technology and aims to increase their corporate value.

Over the past few years, our private equity strategies have grown to become some of the largest in Japan with total assets under management of approximately 1.5 billion dollars.