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Nomura-Keio University Fund Boosts Investment Target for Japan Startups

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October 18-20, 2023 / Tucson, AZ
The annual summit for research institution gap fund and accelerator programs, including proof of concept programs, startup accelerators, and university venture funds

The Story

Keio University and Nomura Holdings Inc. increased the fundraising goal for their venture-capital partnership by 50 percent to 15 billion yen ($147 million) after demand from Japanese financial firms during the first phase of financing exceeded expectations.

Keio Innovation Initiative Inc., founded by Japan’s oldest university and biggest brokerage, closed the first round last month with almost 5 billion yen, about 50 percent more than it anticipated, Chief Executive Officer Kotaro Yamagishi said in an interview. The fund operator aims to raise another 10 billion yen for the second and third phases over 10 years, he added.

The plan reflects growing investor interest in high-technology ventures in Japan in areas such as robotics, as well as increasing profitability of startups emerging from academia. The first tie-up of its kind between a Japanese university and global investment bank comes as the government seeks to promote more new businesses and investors facing shrinking interest rates contemplate taking more risks in search of returns.

“Academic and technology ventures have been raising investors’ hopes because their research is maturing and they’re becoming more focused on making profits,” said Yamagishi, who co-founded mobile-game maker Gree Inc. “Competition for investing in startups is heating up so the bigger our funds become, the more negotiating power we can have.”

Quadruple Return

Tokyo-based Keio Innovation, which formed in December, seeks to quadruple the gross return in 10 years through initial public offerings of the startups, Yamagishi, 40, said. That’s equivalent to a 15 percent internal rate of return, he said.

Investors in the first round included Japan’s three megabanks — Sumitomo Mitsui Financial Group Inc., Mizuho Financial Group Inc. and Mitsubishi UFJ Financial Group Inc. — plus Toho Bank Ltd., Tokyo Broadcasting System Holdings Inc. and Yahoo Japan Corp., he said.

“We decided to invest in the fund to provide indirect financial support to the next generation of venture firms,” said Yuichiro Himuro, a Tokyo-based spokesman for Sumitomo Mitsui. “Not only can we expect to earn capital gains on our investment, we can also acquire various banking transactions with the fund’s investment targets.”

For more on the origins of Keio Innovation, click here.

The fund will invest in about 20 startups in areas such as robotics, life sciences and regenerative medicine over the next three to four years, Yamagishi said. He estimates the ventures will have a 30 percent chance to become publicly traded.

University Startups

On the Tokyo Stock Exchange Mothers market, five of the top 10 biggest companies by market value are technology firms that began as ventures in universities, according to data compiled by Bloomberg. At least 1,773 startups originated from academia in Japan as of last December, and 56 percent were profitable, up from 43 percent a year earlier, Trade Ministry research shows.

Yamagishi said he has invested 200 million yen of his own money into the fund. He said Japan’s record-low interest rates have given investors more impetus to chase returns from ventures. “Low-rate conditions served as a spur to raise funds,” he said.

Source: Nomura-Keio Fund Boosts Investment Target for Japan Startups – Bloomberg

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