Nakamura, who was formerly involved in satellite development at a major electronics maker, set up Polar Star Space Co. in 2017. The company provides a service that uses liquid crystal tunable filter cameras to collect highly precise spectrum measurement data and analyze it.

Identifying diseased trees

In 2018, Polar Star Space conducted a joint project with several partners, including Hokkaido University, in which it successfully developed a technology to detect disease-affected trees. The project used machine learning to analyze detailed spectrum data from a vast oil palm plantation in Malaysia, measuring about one-fifth the area of Tokyo. A similar project was undertaken at a banana plantation in the Philippines. At the banana plantation, farmers used to have to walk around the banana plants looking for signs of new Panama disease. If affected plants can be quickly identified using measured data, it would go a long way in preventing the spread of the disease.

Remote sensing helps analyze phenomena on land and above the ocean, as well as atmospheric conditions, from a significant distance. It is regarded as a promising technology for overcoming problems affecting a variety of areas of human activity, including primary industries, disaster prevention and resource development. The technology, however, has yet to reach its full potential in addressing the problems that people really wish to solve. This is mainly due to a lack of detailed information because the number of available wavelengths is fixed in the image-capturing technology.

The plan was created by Fermenstation Co. The startup manufactures highly pure ethanol from organic rice grown on formerly unused rice paddies in Oshu, Iwate Prefecture, that is used to make final products such as materials for cosmetics and other items. The company’s technology traveled on the train through stations in the Tohoku region, as if to embody its name, a portmanteau combining “fermentation” and “station.”

Value of unused resources

Fermenstation operates on a business model in which unused resources from the production process are recycled. Through its business, byproducts from the ethanol production process are turned into chicken and cattle feed. In turn, their manure is used on the rice paddies and other farms. Rice is not the only material from which ethanol is extracted. The substance can come from the production processes of some other food and drinks. The restaurant train project symbolizes an aspect of Fermenstation’s business.

“What we’re trying to do is to put resources that remain unused in society to effective use by using them to produce ethanol and sediment left from fermentation,” Fermenstation CEO Lina Sakai said. “We want to develop an ultimate recycling model through this process.” She is not originally from Tohoku, nor did she initially have anything that linked her to the primary industry.

Sakai is from Tokyo, and she was working in the financial industry when she learned of a technology to turn compostable waste into fuel. To learn about fermentation technology, she enrolled in the Tokyo University of Agriculture while in her 30s. While there, she met a mentor who happened to be conducting a joint research project with the Oshu municipality in Iwate Prefecture, which gave her a chance to visit the region repeatedly, leading her to eventually start the business there. Although she successfully developed the technology to extract highly pure ethanol from rice, she gave up an idea of turning it into a commercial fuel product as this turned out be an unprofitable proposition. Still, she was determined to find widespread use for the technology that she put so much effort into developing. She launched the business in 2009 to take over the project with an aim to use the rice-derived ethanol as a material for cosmetics production. Behind her passion was a conviction that an age of circular economy was going to be here to stay.

IPO not the only goal

The J-Startup program has so far selected a total of 139 companies to support. I now feel we need to diversify their growth paths, in addition to creating an environment conducive to their growth.

In Japan, the mainstream way of exiting investment is an initial public offering, but in the United States, nearly 9 out of 10 exits are through mergers and acquisitions.

We think startups should be able to take the strategy of raising large amounts of money before listing their shares, in addition to listing, so that they make their presence felt dynamically in the global market.

For this, we have high hopes for the role of larger businesses tying up with startups and the active role of corporate venture capital investment. The recently launched Open Innovation Promotion Tax System is aimed at promoting tie-ups between large companies and startups. We believe we can create a significant impact on society by combining technologies and business models of startups with the business resources of large companies and help them develop as bases of larger growth.

The Ministry of Economy, Trade and Industry’s J-Startup program has been providing significant support to 139 promising startups since its inception in June 2018. Its aim is to produce companies that can compete in the international arena.

Companies receiving the program’s support include many that have grown into unicorns — unlisted companies that are evaluated highly by the market and whose corporate value or market capitalization is at least $1 billion.

They include Spiber Inc., which develops next-generation fibers inspired by spider silk, and Preferred Networks Inc., known as PFN, that boasts artificial intelligence technology that sees high demand from large companies.

At first look, companies under the J-Startup program may appear mainly to be those in businesses that take advantage of cutting-edge technologies in sectors such as AI, robotics, drones and aerospace. But in fact the businesses are more varied, from businesses in resource recycling or environment- and energy-related areas that impact regional economies, to companies with technology that can support an aging society and services that help people solve issues they face in their daily lives.

In particular, with the spread of coronavirus transforming society and people’s living environments, new needs and lifestyles are emerging, and there is growing demand for technology and services that can address them.

“Society’s needs are increasingly diverse,” Hajime Furuya, director of METI’s Startup and New Business Promotion Office, said. “That’s why the role of startups that provide services that are fine-tuned to such needs is growing in importance.”

In its early period, the J-Startup program’s focus was on increasing the legitimacy of startups in society’s eye and producing role models, but three years in, officials are starting to feel the need to enhance its support by tailoring measures to each developmental stage of the business and to different growth strategies.