Shining Light on the Startup Environment in the Land of the Rising Sun

Although Japan develops some of the most cutting-edge space technology in the world, it’s fair to say the country’s commercial space sector has been largely restrained. Much like the United States has historically relied on established partners like Boeing and Lockheed Martin, a small clique of major players has long dominated Japan’s commercial sector, including Mitsubishi Heavy Industries (MHI) for launch and NEC for satellite manufacturing.

But like other countries with advanced space capabilities, Japan has begun to realize and appreciate the value private entities can bring to its national industry. In March, the Japanese government announced it will set aside nearly $1 billion in public funds to invest in burgeoning space startups, with hopes of doubling the country’s space revenues to $22.4 by the early 2030s.

Given that Japan currently has less than two dozen active space startups, the investment could potentially trigger an explosion of entrepreneurial activity — not unlike the U.S.’ own ongoing transition to a more balanced space economy.

A Shift in Startup Culture

For a long time, the Japanese space sector has more or less revolved around science and research, with JAXA and academic institutions playing core roles. While the government has been quite supportive of such endeavors, “the idea of a private, venture-driven space ecosystem was not on the cards,” says Astroscale Chief Operating Officer (COO) Chris Blackerby.

At the same time, Japan traditionally doesn’t really embody the same level of entrepreneurialism that has become the hallmark of locales like Silicon Valley, Blackerby says. Due to social pressure, for years young Japanese engineers either stayed in academia, or pursued careers at one of the select few established commercial juggernauts.

But over the last five to 10 years, that narrative has begun to morph. According to Blackerby, “there’s more of a prioritization from the government on industrialization and commercialization” of advanced space capabilities, as Japan hopes to inject some life into its stagnant economy. That shift has coalesced with a changing mindset in the younger generation, who “want to do something different … and not work for a big conglomerate,” Blackerby says.

Blackerby, who worked as a NASA representative in Japan for five years before joining the Astroscale team, said he had heard musings of these new policy initiatives for a while. “We could see it coming,” he says — so the $1 billion announcement was not necessarily a surprise. The Japanese government, it seems, has taken cues from the success of companies such as SpaceX, and is willing to take big steps to ensure it remains competitive in the global space ecosystem.

It’s true that there isn’t really a Japanese equivalent to Elon Musk or Richard Branson or Jeff Bezos, who hefted their considerable wealth to drive innovation in the private sector. Japanese venture capitalists do exist, but adventurous young engineers are generally the driving force behind these startups — not uber-wealthy idols with nearly limitless pockets. “You don’t find those huge personalities driving the investment [in Japan] as much as in the United States,” Blackerby says. “All of these space companies … are basically driven by passionate, smart younger people who really want to make a difference.”

Realigning Japan’s Top-Heavy Economy

A familiar touchstone in Japanese culture is an innate aversion to risk. Of course, it is an easier road to join an existing company rather than start one from the ground up. Unfortunately, some of the biggest tech players in the region have been running in place for years, struggling to align their bottom lines with the rapid pace of technology evolution. It’s why Sony, for example, is working to diversify its business empire: in April, the company announced it would begin manufacturing optical communications devices for small satellites, marking its first foray into the space sector.

But even as the financials of these larger companies have stagnated, the barriers to the growth of Small and Medium Enterprises (SMEs) remain significant. According to a 2017 white paper published by Japan’s Ministry of Economy, Trade and Industry (METI), “entrepreneurial hopefuls … face different concerns according to gender, age, and other such attributes, but even those who have become entrepreneurs had not been able to receive the startup support they needed, in many cases.”

Many young businesses in Japan only receive attention from investors in their later years of development — and this in turn has restricted the country’s rate of startup market entries compared to the U.S. or China, the Ministry has observed.

With the health of the broader Japanese economy in mind, Prime Minister Shinzo Abe recently created tax incentives for larger businesses to invest in venture capital, the Financial Times reported. It seems to be helping. According to a Japan Venture Research survey, Japanese startups raised more than $2.5 billion in total last year, almost a four-fold increase from 2012, and a 20 percent increase from 2016. Approximately $661 million of that total came directly from corporate venture capital funds such as SoftBank.

The upshot of this funding is that, while Japan still maintains its lower business entry rate, “people attempting to start up enterprises in Japan are likelier to actually succeed,” METI reports in the 2017 white paper. Companies such as Infostellar, which is developing a platform to track satellites and download telemetry data for operators, have already begun to benefit. According to Chief Executive Officer (CEO) and co-founder Naomi Kurahara, Infostellar relied on a mix of venture capital, strategic investments and government support for its initial fundraising. “We received a $474,000 grant from the Ministry of Internal Affairs and Communication (MIC) through the Information and Communications Technology (ICT) Innovation Challenge Program in 2016,” Kurahara says. “However, this grant wasn’t specifically designed for space companies.”

Astroscale, which is experimenting with solutions related to active orbital debris, drew funds from similarly diverse sources in its first three rounds of funding. A large portion of the $53 million total raised so far came from JAFCO and the Innovation Network Corporation of Japan (INCJ), an investment Public-Private Partnership (PPP) that is partially funded by the Japanese government, says Blackerby.

As time goes on, the Japanese government has shown increasing confidence in the viability and value of startups across the board. Simultaneously, major Japanese corporations are becoming more receptive to the idea of leveraging smaller businesses’ capabilities. The $1 billion investment pool announced by the Japanese government is just a “natural progression” of this convergence, Blackerby says.

Cracking the Space Opportunity Wide Open

When it comes to NewSpace, Japan is already in a good position to maintain its technological dominance. It was one of the first countries to begin launching CubeSats in the early 2000s, “so the facilities and know-how for CubeSat development are all here and accessible,” Kurahara says.

But while funding remains the most critical factor, Kurahara points out that there are other forms of support that can be helpful supplements. “For example, the government’s willingness to give contracts to startups,” she says. Blackerby agreed, saying that he hopes to see more Public-Private Partnerships (PPPs) between the government and young companies, similar to how data analytics company Spire eased its way into commercial relevance in the U.S. Blackerby says he’d also like to see joint funding between the Japanese government and foreign governments for certain space projects, as well as demonstrations of Japanese technology in orbit with operators from other regions.

Kurahara says she’s looking forward to simpler processes in terms of regulation. “Organizations performing satellite communications are required to submit frequency allocation requests and license applications. I’d like to see more transparency around this process so that the information is more readily available to businesses just breaking into the industry. The processes also need to be updated to suit the current state of the industry,” she says.

As for new entrepreneurs, Blackerby stresses the importance of finding and working alongside patient investors. “The Return on Investment (ROI) on space projects is still long-term, and the people that are getting involved are ones that have a larger vision for what they want their money to do. They’re not looking for a near-term, quick turnaround profit here,” he says. “They’re looking for something — not to sound too grandiose — that will impact society for generations.” VS