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Last September we published our Report “Corporate Innovation in Silicon Valley. Outposts and Investment Flows” during the San Francisco Scaleup Summit. The news was that the largest presence of Innovation Outposts came from Asia and Pacific, rather than from Europe, with Japan being by far the most represented country. 

Today we launched our brand-new Japanese Corporate Innovation in Silicon Valley” Report during a digital event with our CEO Marco Marinucci, and Noriya Tarutani, Executive Director at JETRO San Francisco, both LIVE from San Francisco (CA) due to the general lockdown (watch it again). 

The report, written with the support of Jetro, highlights the Japanese Fortune 500 and Forbes 2000 corporates active in innovation in Silicon Valley and confirms, once again after 8 months, that Japan is the country that has by far the largest presence of corporations in the Bay Area accounting for about 1/3 of total 275 outposts and the most significant chunk of capital deployed”, commented Marco Marinucci.

Japan has further increased the total number of its outposts to 85  (from 72 corporate groups) and it’s followed by US (39), France (22), Germany (20), and China (19). In addition, deals closed by Japanese investors in the Bay Area grew up to 288 for a total of $28.1B invested. China ranks second with 207 deals equal to $25.6B, UK follows with 136 and $4.1B. 

In general, the Japanese market is considered a market that cannot be easily accessed by startups aiming for rapid growth because of problems with regulations, business practices, and language barriers – added Takanari Yamashita, Chief Executive Director JETRO San Francisco, in the report – But in Japan there is a single regulation set, a single business style, and a single language. It is a single market with the world’s third largest GDP.  Japanese companies are very powerful partners that can help startups scale”.

Our analysis identified 18 different sectors of the Japanese economy active in the Bay Area, with Electronics as the industry with the largest footprint in the ecosystem, counting 14 outposts (16.4% of the total). Trading and Automotive follows with 9 each, IT&Software ranks third with 8. Finance & Banking (7), Manufacturing (6) Telecommunications and Insurance (5 each) follow. Other represented industries are Real Estate & Construction (3), Transportations (3), Oil & Gas (2) and Machinery (2). With only 1 outpost per sector, we find Fashion & Luxury, Steel, Media & Entertainment and Business Services & Consulting. 

More than half of the outposts (47, 55.3% of the total) have lean structures, in the forms of either a Corporate Innovation Antenna (28) and/or a CVC Office (19). On the other hand, only 5 out of 73 R&D Centers we registered in Silicon Valley have been created by Japanese corporates, which seem to prefer the form of Corporate Innovation Labs (33, 38.8% of the total) rather than exclusively focusing on research and development operations. In general, most of the Japanese innovation outposts (59, 69.4% of the total) are organised in small teams of less than 10 people. 

Japanese outposts remain spread all around Silicon Valley with only 9 (10.6% of the total) based in San Francisco. Three are the other main clusters: Palo Alto (15 outposts, 17.6% of the total), San Jose (14, 16.4%) and Santa Clara (13, 15.3%). Sunnyvale follows at a distance with 7 outposts (8.2%), Menlo Park and San Mateo count 6 (7%) each and, finally, Cupertino with a couple fewer (4).

The Report also includes a few deep-dives  that can exemplify models of organizations of some key Japanese entities operating in the Bay Area: World Innovation Lab (WiL), Vision Fund and Honda Innovations. 

WiL – With almost $1B under management, today WiL is a key stakeholder of the Japanese innovation ecosystem. A possible a real role-model to follow, rather than a classic CVC, WiL has been conceived as an extension of the R&D department of its corporate LPs. It has been modeled to recreate the effects of a trading post, where large corporations can have more freedom to exchange ideas and create new businesses in collaboration with startups and other corporations. 

Vision Fund – Created in 2017, the $100B Vision Fund backed by SoftBank Group, Saudi Arabia’s Public Investment Fund, Abu Dhabi’s Mubadala Investment, and corporates such as Apple, Foxconn and Sharp, is the largest investment fund in the history of venture capital, combining an ambitious and long-term strategy. The Fund has so far invested in 88 late-stage companies with deals ranging from a minimum size of $100M up to several billions of dollars. 

Honda Innovations – Established in 2017 as a natural evolution of more than a decade of Honda’s activities in Silicon Valley, it operates two public-facing programs: Honda Xcelerator, serving as the company’s platform to engage startups and a co-development lab, and Honda Developer Studios, both a program aimed at co-creating new businesses and a developer portal. Today, Honda Innovations drives collaboration with 20-30 startups annually across the globe and also also manages a small fund of funds that provides insights through several LP positions in VC funds in Europe and Asia. 

In this flourishing ecosystem, with such gigantic investments and strategies put in place, one might wonder if COVID-19 will have an impact on Japanese corporations’ innovation activities in Silicon Valley. And If so, how. 

No conclusions have been reached at this stage. However, many Japanese companies are trying to continue their commitment to Silicon Valley, while reviewing and redefining their strategies – ended Takanari Yamashita – COVID-19 is likely to cause various changes in Japan. And I foresee many of those changes will be beneficial to startups as well. JETRO is helping startups in Silicon Valley and Japanese companies create win-win situations. We provide information about individual Japanese companies and information about the Japanese market”. 

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