Japan as a Growing Market for US Startups

Despite being frequently overlooked, Japan is emerging as a significant expansion destination for American startups. Companies such as Slack, Salesforce, Twitter, and Clubhouse have all found success in the Japanese market in recent years.

SIP Global Partners has recently announced the launch of a new investment fund. This fund is designed to invest in early-stage U.S. startups with strong potential for expansion into Japan, other Asian nations, and the Gulf Cooperation Council countries.

Fund Details and Investment Strategy

The fund has secured a first close of $75 million towards its $150 million target. Initial investments have already been made in five promising companies.

SIP’s fund will concentrate on companies in the late seed to Series B stages. These companies should possess a product, or be nearing product launch, that is prepared for international scalability.

The investment team will collaborate closely with portfolio companies. This support will facilitate the launch of operations within Japan and throughout other key Asian markets.

Reasons for Japan's Appeal

Justin Turkat, a managing partner at SIP, explained to TechCrunch that Japan presents a compelling opportunity for foreign startups. A relatively underfunded venture capital landscape results in a limited number of entrepreneurs.

Talent Acquisition: Many of Japan’s top technology professionals are choosing to join established conglomerates or government positions rather than pursue entrepreneurial ventures.

While Japan’s startup ecosystem is still developing, it holds considerable promise. Furthermore, Japan currently stands as the world’s largest source of outward foreign direct investment.

With a consumer base of approximately 125 million and a substantial number of large corporations seeking innovative, scalable solutions, Japan represents a fertile ground for new technologies.

Increased Openness to US Startups

“Japan is demonstrably more receptive to partnerships with U.S. startups than ever before,” Turkat stated. “We are witnessing significant tailwinds and record levels of investment and partnerships over the past five years, with deal volumes consistently increasing annually.”

The SIP Global Partners Team

The fund is spearheaded by a team of four investors strategically located in both the U.S. and Japan.

Justin Turkat and Shigeki Saitoh, the founder and managing partner and former director of the Japan Venture Capital Association, are based in Tokyo.

Jeffrey Smith, a general partner, and Matthew Salloway, the founder and managing partner, are located in Boston and New York, respectively.

“Our team’s extensive experience in cross-border operations and investment, spanning both the U.S. and Asia, is the foundation of this fund,” Turkat emphasized. “Each of the four partners brings over 20 years of dedicated experience to the table.”

Shifting Trends in Global Expansion

Turkat noted a growing trend of startups considering global expansion earlier in their development.

“Historically, U.S. venture-backed startups typically delayed overseas expansion until their Series D funding round,” he explained. “However, we are now seeing companies explore foreign markets as early as their seed stage.”

Investment Focus Areas

SIP’s new fund is prioritizing startups within three key sectors:

• Creativity: Augmented and extended reality, synthetic media, and web-based platforms.
• Productivity: Artificial intelligence and machine learning, edge computing, the Internet of Things, and semiconductors.
• Safety: Digital health and information security.

The fund is particularly interested in companies providing fundamental infrastructure or the economic foundation for emerging technologies.

“We are observing the simultaneous global rollout of 5G, alongside advancements in edge computing, semiconductors, security, and AI/machine learning – all of which constitute this crucial infrastructure layer,” Turkat clarified.

Current portfolio companies like Parallel Wireless (an OpenRAN startup) and Croquet (an ultra-low latency collaboration platform) exemplify this focus.

Economic Layer and Current Investments

Beyond infrastructure, the fund also targets the “economic layer” – the platforms and applications built upon these advancements.

Current investments in this area include Fable (a browser-based motion design platform), Tilt Five (an AR gaming platform), and Kinetic (an industrial IoT startup specializing in workplace safety).

Strategic Support for Expansion

As a strategic investor, SIP provides comprehensive support to startups as they expand internationally.

This assistance encompasses talent acquisition and the identification of key business partners, including distribution channels and potential joint venture opportunities.

Following Japan, SIP assists startups in entering other Asian markets, with a particular focus on the ASEAN region, including Thailand, Vietnam, and Indonesia.