Senpai culture is killing innovation in Japan

Fifteen years ago, University-run venture funds were all but illegal here in Japan, but today a higher percentage of major Japanese universities have VC funds than in the US or Europe.

Today we sit down with Kei Furukawa, a partner at the University of Tokyo IPC, a $300M venture fund, and we talk about the unique role these funds play in Japan, how they drive innovation in rural areas, and why he has to talk professors out of becoming startup CEOs.

It's a great conversation, and I think you'll enjoy it.

Show Notes

UTokyo IPC'a mission and investment strategy How the Japanese government is trying to accelerate university innovation Why the government plans to stop funding university VC funds The unique role of University funds in Japan How IPC is helping startups work with large enterprises Why Japanese CVCs are more founder-friendly than American VCs Why Japanese CVC investment increased during covid How to talk a professor out of being a startup CEO Can startup interaction reform Japan’s universities? The challenge in developing innovators outside of the major cities Which startup sectors are most promising in Japan How senpai culture is holding Japan back

Links from our Guest

Everything you ever wanted to know about UTokyo IPC IPCs 1st Round program Follow Kei on X @keisukefurukawa Friend him on Facebook Connect on LinkedIn

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Transcript Welcome to Disrupting Japan, Straight Talk from Japan's most innovative founders and VCs. I'm Tim Romero and thanks for joining me. University Venture Funds play a much larger role in the startup ecosystem and in startup finance in Japan than they do in the US or Europe. Japanese university funds also operate differently, and fill a different niche than most of their Western counterparts. Their oversized impact is all the more amazing when you consider that 15 years ago, it was basically illegal for Japanese universities to invest directly in startups, but now they've become a driving force. Well, today we sit down with Kei Furukawa, a partner at the University of Tokyo IPC. A $300 million University fund, and we dive into how Japanese university VCs invest today and how that's going to be changing in the near future. Oh, and for our overseas listeners in this conversation at different times, Kei and I talk about the University of Tokyo and Todai and UTokyo. It's all the same place. It just goes by many names. So Kei and I talk about how you can get investment from IPC, even if you're not a University of Tokyo student or faculty. The single biggest challenge to getting university professors on board with what's required to commercialize their research and how the different investment strategies in Japan are leading to a different kind of startup enterprise collaboration than we see in the rest of the world. But, you know, Kei tells that story much better than I can. So, let's get right to the interview.

Interview Tim: We're sitting here with Kei Furukawa, a partner at the UTokyo Innovation Platform or IPC. So, thanks for sitting down with me. Kei: Thank you for having me on. Tim: In the introduction, I gave a brief description of what IPC is and what you're doing, but could you explain a little bit more? So like, what's your thesis? What are you investing in? Kei: So, we are a university of Tokyo Innovation platform company. In short, we are called in Japanese Todai IPC. I think there's three major points in our activities. Number one, we are a hundred percent subsidy of the University of Tokyo, which until a few years ago, it was a pretty rare case because national universities were not allowed to have, let's say, investment companies or let's say companies itself under the organization. But we were created for a more government policy point, we are a hundred percent subsidy, which is pretty, I think, unique model around the world that there's a venture capital right under the organization of university. Point number two is our main activity is investment. So, we have three funds right now. Todai is about 400 million in USD. And we do direct investment into startups, and we actually also do fund funds. So, we actually invest into other venture capital funds. Tim: Well, actually, your three funds, it's really interesting, and I hope we have time to dive into each of them, because each of them kind of represents a different strategic importance for the university. Kei: That's very true. Okay, let's dive into the three funds right now. So, we have three funds IPC one fund, AOI one fund, and ASA fund that we're working on right now. So, the IPC one fund is a fund that we invest into other venture capital funds, and also we do direct investment into startup into a more middle to later stage. ASA fund we invest into more early, let's say, seed round or very early stage funds. And we also do our car out spinouts from large corporations. And this is why we do it. I'll talk later. ASA is a complete fund of funds. It only does fund of funds which we are working together with the Tokyo Metropolitan Government. Tim: So, throughout the course in this interview, let's talk about each one of those individually. Because they're all really interesting to themselves, but focusing on IPC and the direct investments. So, what's your thesis? What kind of startups are you investing in? Kei: The thesis of startup investment for IPC fund and the AOI fund, there's a minor difference, but in general, we invest into startups that are utilizing research coming out from the university. So, that is the investment criteria that we have when we make investment into startups, that they're utilizing the research coming out from university in some way. It can be an IP from the university, or it can be like core research done together with the startup events and the university, which then we can call university related. And then there's other parts where it's like the professor comes in as an advisor. So, there's many ways we can form the way. Tim: Yeah, that's pretty broad. So, it's not necessarily just professors spinning out their research or students forming it. It could be founders with no particular connection to Todai who want to use the IP. Kei: That's exactly right. So, the most beautiful story will be that all startups are using the IP or research coming out from, let's say, just completely done in university. But one thing is that we want startups around the world to utilize the research coming from UTokyo not just the IP. So, we have actually about 10% of our portfolio is global companies. I don't know one about one third of the companies that we invest into is non UTokyo at day one, but we make that UTokyo connection in, let's say, academic or research way. And then they utilizing the UTokyo asset. And then we make investment, which is also a great way, I think, to enlarge the ecosystem around UTokyo. So we welcome other companies coming into UTokyo and utilizing the asset. Number two, if we restrict ourselves to just spin us from, we'll be restricting our investments. And the important thing is that we bring back return to the investors. So we broaden our, let's say, investment thesis so that we have a balanced portfolio in that way. Tim: Yeah. Are you focused on just the initial seed investment, or do you follow on the later stages? Kei: We are a follow on fund. So our fund size for IPC and ASA is both 200 million USD. So, we have a fairly big fund, and of course, it depends on the project itself, but we tend to do all our investments. Tim: So research at the University of Tokyo is really wide ranging. But for the IPC funds, is there a particular sector or a number of sectors that are particularly active, whether it's like healthcare or energy, or… Kei: About one third of our portfolio is healthcare, which is drug discovery, medical devices, and a bit of agritech. We do put a lot of power on biotech because it is important for humanity. We think it's important for investments. So, we do a lot of biotech. About 20 percentish goes into hardware including space, aerospace, materials, semiconductor and robotics. And about, let's say, one rest of the one third 40 percentish goes into AI and IT. We hardly do two consumer because we know in the market there's a lot of venture capitals that do two consumer kind of investment. And we do the more difficult AI and IT related between enterprise related startups in that sense. Tim: There are a huge number of foreign students here at the University of Tokyo. Are there a fair number of foreign founders in the fund? Kei: We have about 80 companies now, and I think we have about three or four companies that are non-Japanese founders of founding companies in Japan. Tim: Excellent. So you mentioned IPC started in 2016, and part of the motivation was the national government trying to get the national universities to be more active in supporting startups. At the time they did provide a lot of funds for that investment. So, who are your LPs? Is it all Todai money? Is it a little external money? Is it…? Kei: Good question. So most of the fund comes from Todai, but it comes from the government. For the first fund most of it comes from the government, but we have a little bit coming from major banks. For the second fund, about 60% comes from the government, but the rest comes from private sector. So that's financial institutions and enterprises. So half and half. Tim: So every fund is more and more private money. Kei: Yes. So, we have to go complete private most probably we are no longer yet, but for the next one, maybe we have to go more complete private on that. Tim: Well, I mean, that's a good trend. I think that was what the government was hoping for, right? Prime the pump and then let private money take it over. So, let's talk about university funds in Japan in general.