Japan’s leading national universities are leaning on affiliated venture funds to boost spin-outs and start-ups in the face of declining government funding.
Japan boasts one of the “most advanced university venture funding ecosystems” in Asia, with 85 per cent of its top academic institutions having a dedicated university venture fund, according to analysis by Global Venturing.
This makes the country an “outlier” in the Asia region, where less than a quarter of top universities have access to a “dedicated venture fund”, a report by the organisation found.
Venture funding, a form of early stage investment, can be harnessed by universities to support the monetisation of research and innovation. In the UK, an estimated 92 per cent of Russell Group universities have such a fund, while around a third of US research universities have one.
Today, Japanese institutions including the University of Tokyo, Kyoto University, Osaka University and Waseda University have these funds, which tend to focus particularly on deep tech.
As these funding bodies have grown, the number of Japanese university spin-outs – companies created from institutional research – has also increased, rising from 131 in 2014 to 1,335 in 2022.
According to Tohru Yoshioka-Kobayash, associate professor at Hitotsubashi University’s Institute of Innovation Research, government deregulation has been crucial to these developments.
Over the past two decades, policymakers have changed rules to allow national universities to invest in venture funds and, in 2019, allowed institutions to receive stocks or stock options as a technology licensing fee, meaning less upfront cash investment is needed.
Japanese policymakers have also invested heavily in university start-ups and spin-outs in a bid to boost the country’s economic development and innovation ecosystem.
“All of these policy supports particularly push leading national research universities to have their venture funds,” Yoshioka-Kobayash said.
This trend has also been driven by the success of UTEC, the first Japanese venture fund associated with a university. Initially established in 2005, the fund is affiliated with the University of Tokyo but is not actually a university subsidiary, as this was not permitted at the time.
It took the organisation almost 10 years to break even and it has since gone on to launch five funds.
“I would say that the successful track record of UTEC stimulated the government, and then other universities were inspired by the government movement,” said Katsuya Hasegawa, project professor and general manager of start-up support and entrepreneurship education at the University of Tokyo.
He said the fund had been crucial to the success of the university’s start-ups: “Their support is not limited to the investment to the university-related start-ups, but they also have a programme to provide non-equity grants to support [a] feasibility study before starting a company.”
Additionally, UTEC’s fund managers will talk to researchers before they start a company to help academics “understand the investor’s viewpoint and learn how businesspeople evaluate the technology”.
For universities, venture funds are seen as “a useful tool to fill the gap between academic research and its commercialisation”, as well as a potential revenue source for the institution, he continued.
Last year, the Japan Association of National Universities (JANU) said the sector had reached its “limit”, following “tighter” national budgets and rising costs. Despite these concerns, public university funding remained at the same level in the country’s January budget.
JANU said universities had been “making efforts to increase our own income”. For research-intensive universities, venture funds are seen as one way of doing this.
However, the success of these requires long-term commitment to nurturing talent, argued Yoshioka-Kobayash.
“Money, talents, and technological seeds are all essential. Talents include star scientists, excellent fund managers, and qualified business managers,” he said, adding that it can be difficult to train “excellent” fund managers in the context of university spin-outs.
“Many fund managers are not always good at evaluating emerging technologies,” he said, adding that UTEC made an “enormous effort” to align academic research with financial risk.
“Such effort will take long years. Policymakers should have the patience to nurture their ecosystem.”
