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.

Takeuchi: What kind of boy were you when you were young?

Nishikawa: I became interested in PCs around the fourth grade. My father had an introductory book on (the programming language) BASIC. I picked it up and I was immediately hooked. My parents wouldn’t buy me a PC, so I would play around with source code on a piece of paper.

After I got my own PC, I spent days programming. Then, I gradually became curious about the more fundamental aspects of computing, not just programming — like how computers work in the first place? From there, my interest grew in the direction of networks and hardware. I didn’t think twice about joining the Hiraki lab (professor Kei Hiraki’s lab at the University of Tokyo’s Graduate School of Information Science and Technology).

Takeuchi: It’s an interesting lab. I hear the professor still visits your company.

Nishikawa: Yes, he does. Actually, he works for us full time.

Takeuchi: So, you asked him to join PFN?

Nishikawa: No, he first told me he wanted to talk about something and visited our office. Until then, he had advised us on analogue aspects, like the handling of processor boards and high frequencies and things like that.

One day, he told us he wanted to develop a supercomputer with PFN. He now gives lectures to our members once a month or so.

Takeuchi: Am I correct in remembering that you met (PFN co-founder and Vice President Daisuke) Okanohara in college?

Nishikawa: Correct. We were in the same class in the first year, and our relationship has continued to this day.

He said he wanted to run an application on a search engine he developed through the MITOU Program. While I helped him with that, we started discussing our dream of creating a sophisticated search engine and launching a business around it.

Takeuchi: So, that led you to establish (PFN predecessor) Preferred Infrastructure (PFI), right? I understand you launched the business when you were in graduate school. What were your career plans at the time?

Nishikawa: At the time, I was interested in IBM or Intel. While I was working part-time for a bio startup, this experience helped me realize it was possible to work with a small team that enabled me to do and approach things I wanted to in ways I liked. That’s why I decided to start a company, but I had little funding. Starting a company wouldn’t have been possible without MITOU’s support.

Support in early years

Takeuchi: So, the business took off smoothly?

Nishikawa: No, not at all. The founding members were all engineers. We had zero knowledge about making money, let alone how to establish a company.

That’s where MITOU’s support proved helpful. The program referred us to experts who could give us advice about things involved in starting a company, like legal, financial or intellectual property matters. An accounting firm that helped us back in those days is still doing some work for us.