Tracxn, a leading global SaaS-based market intelligence platform, has released its Geo Annual Report: Japan Tech 2023. The report, based on Tracxn’s extensive database, provides insights into the Japan Tech space.
Japan has long been known for its technology and global innovation, majorly in electronics and robotics. It is also the fourth-largest economy after the US, China and Germany. However, this region has ranked seventh among the Asian countries, based on startup funding in 2023 YTD. This space witnessed its highest funding in 2021, after which the funds started experiencing a steady decline.
Japan has witnessed an economic slowdown in 2023, with prolonged inflation rates and a reduction in consumer and corporate spending, and has also witnessed a decline in GDP. This has made investors more cautious in making funding decisions.
The Japan Tech startup ecosystem secured a total funding of $1.3 billion in 2023 YTD, a 39% fall from $2.13 billion raised in the same period in 2022 and a 47% drop from $2.45 billion raised in the same period in 2021. Late-stage investments stood at $501 million in 2023 YTD, a drop of 41% compared with $844 million raised in the same period in 2022 and a 72% drop from $1.78 billion raised in the same period in 2021.
Early-stage funding in 2023 YTD saw funding of $736 million, a decline of 35% from $1.14 billion raised in the same period in 2022. However, early-stage funding this year grew 24% compared with the $593 million raised in the same period in 2021. A similar pattern was observed in seed-stage investments as well. In 2023 YTD, seed-stage funding fell 43% to $83.8 million, from $146 million raised in the same period in 2022. However, seed-stage funding in 2023 rose 10% from $76.1 million received in the same period in 2021.
2023 has witnessed only one $100M+ funding round to date, as against three and eight such rounds in the same period in 2022 and 2021 respectively. Telexistence raised $170 million in a Series B round, making it the highest funding round amount in this region in 2023.
In terms of quarter-wise comparison, funding into the Japan Tech sector rose 159% from $138 million in Q4 2022 to $357M in Q1 2023. The second quarter of 2023 witnessed an uptick of more than 7% compared with Q1 2023, while Q3 2023 witnessed a growth of more than 17% compared with Q2 2023. However, Q4 2023 has witnessed only $155M to date, making it the least funding quarter based on the funding to date.
Enterprise Applications, Aerospace, Maritime & Defence Tech, and FinTech were the top-performing segments in 2023 YTD. Despite being the top-funded sector, funding in many of these sectors has witnessed a drop. Enterprise Applications companies secured total funding of $466 million in 2023 YTD, a 42% drop compared with the funds raised in the same period in 2022.
The Aerospace, Maritime & Defence Tech sector has witnessed a total funding of $179 million in 2023 YTD, a drop of 30% compared to the funds raised in the same period in 2022. The FinTech sector attracted investments worth $148 million in 2023 YTD, a jump of 54% from $95.8 million received during the same period in 2022.
No new Unicorns have emerged in the Japan Tech startup ecosystem in 2022 as well as 2023 YTD, as against two new Unicorns in 2021. The number of acquisitions fell to 11 in 2023 TYD, from 17 in 2022 and 15 in 2021. Nine companies from this space went public in 2023, as against 22 and 24 in 2022 and 2021, respectively.
Tokyo took the lead in terms of city-wise funding in 2023 YTD. Tech startups based in Tokyo raised $423 million in 2023, followed by those headquartered in Chuo City and Shibuya, which raised $144 million and $122 million respectively.
Mitsubishi UFJ Capital, Global Brain, and SMBC Venture Capital are the overall top investors in this space. Global Brain, Deepcore, and Genesia Ventures were the top seed investors in 2023, while SMBC Venture Capital, JAFCO Group, and Mitsubishi UFJ Capital were the top early-stage investors this year. Zerin Future Partners, Tottori Capital, and NVenture Capital were the top late-stage investors in 2023.
The Japanese government has implemented various measures to boost funding for the broader technology sector, particularly supporting the semiconductor industry and the startup ecosystem. The government aims to boost startup investments tenfold to strengthen Japan's startup environment. Japan is expanding international cooperation, setting up R&D centres, and developing human resources to strengthen the competitiveness of its tech sector. Such efforts will help Japan's tech sector gain a stronger global position.
