Japan's Space Startup Market Blooms

Read in Japanese: 日本の宇宙スタートアップ市場が開花

When Nobu Okada founded Astroscale in 2013, there were only a few Japanese space startups. But in the past few years, as Astroscale has gained global prominence with its vision of sustainable space, Japan’s space startup industry has grown to include more than 40 ventures. Okada says that space has become more democratized in Japan and the Japanese government has promoted policies to encourage people and companies to join the space industry, leading to significant growth.

“Looking at [Japan’s] startup market, there are clear segments for IT, energy, education, [and] bio, but space was not there. But now, space is a solid pillar in Japan. I think the landscape has changed a lot,” Okada says.

During the past seven years, Okada says Japan’s space startup leaders have become a close community as each business works through similar challenges such how to fundraise, how to hire talent, or how to set up an office in another country. “We share knowledge and perspectives. I’m still learning, [but] it’s kind of my role to fill the gap to the younger generation,” he says.

Japan has a strong history in civil space — the nation had its first successful satellite launch in 1970 when the Ohsumi satellite was launched by an unguided Lambda-4S rocket developed by Nissan and the Institute of Space and Astronautical Science (ISAS). Japan was a partner in building the International Space Station (ISS), and the nation unified its civil space program in 2003 when JAXA was created through the merger of ISAS, National Aerospace Laboratory of Japan (NAL), and National Space Development Agency of Japan (NASDA).

Traditional players such as Mitsubishi Heavy Industries (MHI), Mitsubishi Electric Corporation (MELCO), and Kawasaki Heavy Industries (KHI), have contributed to the global space industry. Yet, when Okada founded Astroscale, he was nearly alone among startups. Over the past few years the Japanese government, JAXA, and private investors have invested in Japan’s New Space economy, and that investment is beginning to pay off as the number of startups increases.

Isao Kotani, J-SPARC producer for JAXA’s Business Development and Industrial Relations Department says that these new players are making an impact on the industry. “They are already changing the structure of the space supply chain and also becoming an important part of global space industry value chain by their unique business models and technical capability,” he says.

Civil Arena Fosters Commercial Space

Commercial space industry growth is a national priority for Japan, as the nation has set a goal to double the size of its current $11 billion industry by the early 2030s. This goal was set in the nation’s updated Basic Plan on Space Policy in June, an update from the original policy in 2008.

The updated policy acknowledges that Japanese space startups are active, but the space equipment industry lags behind the United States and Europe. The U.S. space industry, for example, was estimated by the Federal Aviation Administration (FAA) to be worth about $158 billion in 2016. The document sets the goals of Japan’s space policy as ensuring space security; contributing to disaster management and national resilience; creating new knowledge; realizing economic growth; and strengthening space activities on an industrial, scientific, and technological basis.

Synspective, a Synthetic Aperture Radar (SAR) Earth Observation (EO) startup that is among Japan’s highest-funded, is a concrete example of how the Japanese government has fostered innovation in the industry. Synspective came out of a high-risk R&D government program called imPACT, through the Council for Science, Technology and Innovation. CEO Dr. Motoyuki Arai explains that Synspective’s payload technology is owned by JAXA, and bus-related technology is owned by the University of Tokyo. Synspective has a mission to implement these technologies, and is making them available under a joint R&D agreement.

Arai says investors and the market have big expectations for Synspective’s business: “Investors and markets are beginning to think that the space business will become a reality and become a business,” he says.

JAXA also supports startups by entering into R&D agreements with commercial players, offering commercial utilization of the ISS Japanese Experiment Module, rideshare opportunities on the H2-A rocket, IP licensing, test facilities, and a human resource exchange.

“Space activities are getting more diverse and larger in scale. Space exploration, SSA [Space Situational Awareness], and on-orbit services, are one of the most important and meaningful areas for JAXA and for Japanese government. The Japanese government must increase their budget and human resources in order to contribute to this huge and risky development,” says JAXA producer Kotani. “At the same time, increasing and expanding the commercial players and their capability is an indispensable role for Japanese government and JAXA to accomplish in a timely manner considering the global competitiveness and presence.”

Kotani is a producer for J-SPARC, one of JAXA’s most notable programs to encourage commercial ventures. The program, which stands for JAXA Space Innovation through Partnership and Co-creation, is an R&D program that was started in 2018. Through J-SPARC, JAXA and private enterprises dialogue to consider space business concepts, development and demonstrations. Kotani says more than 20 plans are underway, and JAXA has been communicating with more than 200 companies for the program.

GITAI is one such startup company with a J-SPARC partnership. GITAI’s vision is to create robots to perform work in space, providing a cheap and safe labor force to build cities on Mars and the moon by 2040. GITAI Founder and CEO Sho Nakanose said the company has a particularly close relationship with JAXA, and recently conducted a robot demonstration on board JAXA's mock ISS Kibo module, through a research agreement with the agency.

Nakanose says that the Japanese government is aggressively funding startups, but also notes that JAXA has not embraced the concept of anchor tenancy — serving as the primary customer for new ventures — like NASA has in the U.S.

“While NASA strategically nurtures space startups in the United States based on the concept of anchor tenancy, such a concept does not exist at JAXA. Many Japanese space startups are struggling to make sales, or no sales at all,” Nakanose says. “As a result, many Japanese space startups have almost no revenue and rely solely on funding from VCs and CVCs for their operating funds.”

A Look at the Investment Landscape

The global space investment landscape is changing as the industry has seen more activity in the past few years. According to Bryce Space and Technology’s 2020 Start-Up Space report, the number of non-U.S. investors in the space industry is rising. From 2018 to 2019, non-U.S. investors increased from 53 percent to 63 percent of all investors, and most of these non-U.S. investors were from China and Japan.

According to the report, the startup space industry has been dominated by the U.S., but China is making a leap, followed by other countries. In 2019, China surpassed all other countries outside the U.S. in the number of companies receiving financing, the amount of money invested, the number of deals made, and participating investors. China led non-U.S. space centers, but then Japan, the United Kingdom, and India tied for space ventures receiving investment in 2019.

All of the startups Via Satellite spoke to for this article said their funding has come mostly or entirely from Japanese investors, but all said they are looking to expand to international investors. Yet COVID has caused issues for these companies. Nakanose of GITAI says he often hears of space startups in difficult financial situations as a result of difficulty in raising funds from VCs and CVCs due to the pandemic.

Skygate Technologies, an early stage Japanese Ground-Station-as-a-Service (GSaaS) startup, recently received seed investments from the Keio University-based venture capital firm Keio Innovation Initiative. But CEO Takanori Awatsu admits that finding investors during the COVID crisis has been a challenge, mentioning that “meeting” investors online is more challenging than in-person, and one reason why is that he can’t use a whiteboard to illustrate his plans for the company.

Astroscale just closed its Series E funding round with additional funding of $51 million. Before the close of the round, Okada said the company would finish on target, but that it was tough amid the pandemic.

“COVID-19 impacts a lot of the investment community. Financial investors are shifting toward a return in a shorter period. The institutional investors, their businesses [have been] affected a lot, so they're worried,” he said. “To have fundraising for a space company in Japan right now, it’s really tough. Everybody is facing this issue.”

Japan’s Basic Space Plan was updated with an eye to the COVID-19 crisis, recognizing that startups have been damaged and the government needs to support the industry so space systems can have sustainable development.

In August, a group of Japanese investment firms invested in a new arm of Airbus Ventures to focus on aerospace technology in Japan. The Development Bank of Japan Inc. (DBJ), Mitsubishi UFJ Lease & Finance Company Limited (Mitsubishi UFJ Lease) and Fuyo General Lease Co., Ltd. (FGL) invested in Airbus Ventures Fund III LP, a new venture capital fund from Airbus Ventures. Airbus Ventures has set up an office in Tokyo and is actively looking to invest in Japanese aerospace startup companies that need support to expand their businesses overseas.

JSAT, the leading commercial satellite operator in Japan and an early traditional player in Japan’s commercial space industry, has also invested in the startup market and pursued strategic partnerships, with an eye toward its own future. Little has been made public, but JSAT has also signed a partnership agreement with GITAI to discuss a business alliance focusing on the future space businesses. JSAT has also invested in Japanese microsatellite developer Axelspace.

The operator has invested in the U.S.-based EO company Orbital Insights and has partnered with Planet, looking to expand its business into EO for national security, national land conservation, and environmental monitoring. “Data intelligence market will be a key market in the future. We believe this has a great potential for satellite operators, JSAT said in a statement to Via Satellite.

The Scope of Expansion

Tokyo-based Infostellar, which was founded in 2016 and has been dubbed the “Airbnb of ground stations,” is looking to expand globally. The company recently closed a funding round led by Airbus Ventures, and hired American space industry veteran Tom Pirrone as chief strategy officer. CEO Dr. Naomi Kurahara says Infostellar is looking to expand with an office in the U.S. in the next year, and hopes to target more U.S. customers with the hire of Pirrone. She says Infostellar, which also has a U.K. office, has a customer base that is about half Japanese, half European.

As one of the few female CEOs in the space industry, not to mention the Japanese space industry, Kurahara says sometimes she feels strange at conferences or startup events, when all the other participants are male. She doesn’t feel that it has held her back in her business, but believes it has affected how some see her.

“It wasn’t so much of a challenge for me to be a woman and a CEO in the business, but when I am in a business meeting, I sometimes feel that the business person or customer doesn’t see me at the same level,” she says. “I need to make a relationship with business partners and customers. If I can [create] trust with them, then there is no difference. But the starting point is different.”

The English/Japanese language barrier is a challenge to growing international customers, Kurahara says. She said it’s easier to grow the business with Japanese customers because of the shared language, culture, and time zone. She expects recent hire Pirrone to help Infostellar in this way.

There is a strong language divide between Japan and the English-speaking business world, one that is not unique to the space industry. An informal study from Japanese UX design company Mitsue-Links reported that less than 10 percent of Japanese have professional working proficiency in English.

Okada agrees with Kurahara, and says the language barrier is a major challenge for Japanese companies. At Astroscale, it was a challenge he overcame to create an English environment for the company, for engineers to have discussions and documentation in English.

“Japan is a great language to describe the beauty of nature, but it's not convenient for business. There’s a strict language barrier,” he says.

Okada has walked the path of global expansion with Astroscale, and the company now has offices in five countries — in Japan, the U.K., U.S., Israel, and Singapore. In fact, Okada says he considers Astroscale more of a global company versus a Japanese company, and cites that only three of the eight members of the company’s executive team are Japanese.

Okada talks about a global “war for talent” in the space industry, that it creates a need to hire in multiple geographic areas. For Astroscale, that has been Japan, Europe, and the U.S. Okada says expanding to the U.S. was a key part of Astroscale’s growth. The company has two offices in the U.S. — in Washington, D.C., and Denver, Colorado. Having an office in D.C. has given Astroscale direct relationship with regulatory authorities, NGOs, and academia. This has been particularly relevant as part of Astroscale’s mission is to influence public policy on space sustainability.

“America is the center [for policy] and D.C. is the center of the center. It’s very convenient for us to have a direct relationship with regulatory authorities,” Okada says. “In short —without America — we cannot play the game.”

Synspective CEO Arai also says Japanese startups must aggressively expand overseas, but pointed out that Japan is geographically a little far from the target market of Asia. “It is more difficult to move under the influence of the current COVID situation,” Arai says.

As Japan’s New Space industry has seen tremendous growth in new players in recent years, the market is in a time of change, and these businesses will have to surpass language and cultural barriers to prove themselves on a global stage.

Both Kurahara of Infostellar, and Nakanose of GITAI say they expect to see a few Japanese space startups go public in the next few years, as investment increases and the companies grow in business.

Nakanose says the companies who focus on customer demands will see the most success. “For some space startups, who have achieved sales and other results by launching businesses based on specific customer needs rather than relying solely on funding, we believe that the next few years will bring great opportunities to further expand their businesses. As a result, we believe that some of them will become the first space companies to go public in Japan in the next few years.” VS