The challenge of UTokyo IPC in driving Deep Tech innovation

At the 2024 Japan-Taiwan Innovation Summit, which will be held on September 17th and 18th at the Tokyo Innovation Base (TiB), a startup exchange hub in Tokyo, over 10 prominent speakers from Japan and Taiwan will take the stage. Particularly notable events are the keynote speeches scheduled for Day 2, which will focus on two major themes: "TSMC Supply Chain Innovation: The Secret Behind TSMC’s Market Value Increasing Tenfold" from Taiwan, and "Japan's Deep Tech Investment and the Activities of the University of Tokyo" from Japan. The Japanese speaker for this segment is Mr. Kei Furukawa, an investment partner at UTokyo IPC (UTokyo Innovation Platform Co., Ltd.), a venture capital company established in 2016 with 100% capital from the University of Tokyo.

J-STORIES - UTokyo IPC is a leading venture capital firm in Japan that supports a diverse range of startups in deep tech fields with the potential to significantly impact society, such as healthcare, space, artificial intelligence (AI), environmental technology, and agri-tech. Beyond investment, UTokyo IPC aims to create an innovation ecosystem for startups by expanding its activities into entrepreneurial support and talent matchmaking. In recent years, its collaborations have not only included universities and private companies across Japan, but also extended to international enterprises. We spoke with Kei Furukawa to learn more about their goals and how UTokyo IPC is fostering entrepreneurship.

Kei Furukawa: The foundation of UTokyo IPC is closely tied to the 2013 government-private innovation program, where the government took measures to recognize investment companies for four national universities (Tokyo, Kyoto, Osaka, and Tohoku). This initiative aimed to provide further support for university-originated startups at a time when the government was allocating budgets for such purposes. In this sense, our establishment (UTokyo IPC) carries a strong policy-driven aspect.

KF: IPC Fund 1 had two main types of investments: one was a "fund of funds," which involved investing in private venture capitals, and the other was direct investments in startups. At that time, there was a trend to attract more active private venture capitals around the University of Tokyo, and we wanted to play a role in strengthening new or existing funds through the fund of funds approach.

Back then, many venture capitalists were focused on "seed" and "early" stage startups, while there was a noticeable lack of support for "middle" and "later" stage startups, which had reached profitability or were on a growth trajectory. The intention behind the public-private fund was to address this gap through direct investment. Essentially, our fund aims to collaborate with existing private venture capitals and provide support in these crucial stages.

KF: The AOI 1 Fund has two main characteristics. Firstly, it focuses on "carve-out investments," where we separate a business unit or subsidiary from a corporation to start it up as an independent startup. Secondly, it involves early-stage investments (seed investments) in startups that aim to leverage various resources from large corporations to promote growth. Japanese corporations have not only human resources and capital but also various other assets such as distribution channels and equipment. At the same time, many of their products have great potential. However, there are limitations to commercializing these products within large corporations, such as slow decision-making processes or a small market demand that may not justify the business within a large corporate structure. Therefore, the fund was established with the goal of spinning these off and nurturing them as startups. Being a subsidiary of the University of Tokyo, we also support industry-academia collaboration to ensure that the results from the university are effectively utilized by our portfolio companies.

Regarding seed investments, our strategy involves investing in new startups that are well-connected with corporations, enabling them to achieve rapid growth.

KF: Yes. ASA Fund, our third fund, is a collaboration with the Tokyo Metropolitan Government. The Tokyo Metropolitan Government wanted to further promote and support deep tech (scientific discoveries or innovative technologies that address social issues and have a significant impact on our lives and society), and they called for fund proposals. We were selected for this initiative. We feel that the investment environment around deep tech is still lacking, and there are valuable technologies sleeping in various universities, including those in regional areas across Japan. We want to support the commercialization of these technologies from universities. I think there are many ways to approach this.

KF: Our primary focus is on tech-related fields. We believe that support and investment in university-originated or university-linked startups are still insufficient. This is why the government also saw the need for public-private funds like ours. Our main role is to fill these gaps.

KF: Exactly. We are not interested in competing with other venture capitalists. Instead, our focus is on how we can collaborate to support deep tech, which requires significant time and investment. It is very important to work together and provide support collectively.

KF: The 1stRound program is an incubation support initiative hosted by UTokyo IPC, with the primary goal of assisting early-stage startups originating from universities and research institutions. Often, startups that begin from academic research struggle with understanding business aspects or knowing what to do for initial fundraising. They may face difficulties in securing funding in the early stages, so we aim to support them as much as possible to avoid these pitfalls.

The most notable feature of the program is that if selected, startups receive up to 10 million yen in activity funds without having to give away equity. This kind of support without taking equity is quite rare.

Additionally, during the six-month incubation period for selected startups, we help them develop their business plans and support them in achieving their initial fundraising in the best possible way. The goal is to secure the best possible funding from the best venture capitalists. If there are excellent investors in the private sector, we help ensure that the startup can successfully raise funds from them. The program is run in an open and supportive manner.

We have selected 85 companies so far, and about 90% of them have successfully completed their fundraising. Some have received investment from us, while others have not, but the vast majority have managed their funding well, and there are very few cases of companies failing. Some startups have even achieved business growth without fundraising, by effectively utilizing grants and other resources.

KF: There are three main reasons. The first is our ability to discern timing. There are many university-originated startups and ideas, but timing is crucial. If a project is still in the development stage and hasn't yet connected to a business opportunity, it may not succeed. Being able to assess this timing effectively is a significant strength of ours.

The second reason is our support system. We provide robust support through our capitalists and dedicated staff. Additionally, we receive support from various professionals, such as lawyers and accountants, as well as information technology service providers like Amazon Web Services. This diverse range of support helps nurture the startups.

The third reason is the high level of attention we receive. Many venture capitalists are interested, which helps create a well-functioning ecosystem. Moreover, we don’t bear the costs ourselves; instead, we receive support from 22 sponsor companies. As mentioned with AOI Fund 1, we value nurturing startups together with large corporations from the early stages.

Additionally, this program, which started in 2017 at the University of Tokyo, has now expanded to 19 national universities, private universities, and national research institutes. There are no other programs that cross university boundaries in this way, so we are very pleased with this development.

KF: Yes, I believe that talent is crucial for startups. Of course, technology and funding are important as well, but attracting talented individuals to a startup and nurturing them within the company is essential. Especially in the deep tech field, where specific technical knowledge is required, finding the right talent can be challenging. Additionally, even if excellent technology is developed in a lab, issues such as who will take on the role of CEO are significant challenges in the deep tech sector.

KF: While talent is not the only issue, it is certainly a significant factor. In the past, the high risk associated with startups may have deterred talented individuals from joining. However, the startup ecosystem is becoming more dynamic, with overall salary levels rising and the nature of these changes evolving. Our role is to match excellent research outcomes and technologies with talented individuals, and we aim to achieve this effectively.

KF: It’s a bit challenging to answer in brief [laughs]. When it comes to the collaboration between startups and large corporations, while there have been successful cases, there have also been many that didn't work out. Large corporations often have their own norms and ways of thinking, so startups may find it difficult to align their ideas with those of large companies, leading to issues in commercialization. However, open innovation has advanced compared to the past. It’s not just that we have acted as intermediaries, but also that the overall market sentiment and the necessity for large corporations to collaborate with startups have evolved. Over the past two or three years, the rise of corporate venture capital and the flow toward collaboration have deepened the connections between industry, academia, and startups.

Our role is to maintain this momentum and create successful examples so that investing large companies can see returns. By repeating this process, we can expand the ecosystem across the country and reduce the growth period losses.

KF: Large and medium-sized companies have established structures and shareholders, which can slow down decision-making. It is often said that large overseas companies make decisions faster than Japanese companies, but in reality, the differences may not be as significant. The key is to make decisions effectively. In Japan, being overly cautious can be a unique problem for large companies. On the other hand, more large companies now have decision-making authority at lower levels, such as department heads or section chiefs, which seems to be improving the speed.

KF: There are several patterns. For instance, we have supported commercialization from university research labs in fields such as drug discovery, materials science, and robotics. These types of support take considerable time, so we are committed to continuing these efforts with an eye toward creating the next-generation industries. On the other hand, there are also many cases where we invest in startups that were established independently from our founding activities.

KF: While we do support startups emerging from the University of Tokyo, it’s also crucial to focus on how to effectively utilize the university's research assets. Startups that do not initially have a relationship with the University of Tokyo can still grow their businesses by leveraging the university's research outcomes through joint research, and we provide support in these cases as well. Looking at our portfolio, about 10% of our investments are international, and in each of these cases, University of Tokyo assets are being utilized.

KF: We believe that expanding in our current form, including the fund, is the best approach. We aim to broaden our activities, including increasing the number of startups by tenfold. However, the most important aspect is generating fund returns. When returns are reinvested into the University of Tokyo, they can stimulate further research, leading to the creation of new startups and technologies, thus advancing the ecosystem. We are still at the beginning and are improving our approach step by step.

KF: Indeed, Japan is experiencing a declining birth rate and an aging population, and its growth rate is sluggish. However, Japan is still the world’s fourth-largest economy by GDP, meaning it still has significant financial resources and many global corporations remain strong. Within this context, we need to further strengthen the "venture ecosystem" to continuously produce a variety of companies. It is crucial to create startups that can compete globally, not just domestically. Personally, while producing unicorns is important, it’s also valuable to foster companies with cutting-edge technologies that may not grow to unicorn status but can capture market share and possess global strengths. Additionally, I want to communicate to international startups that Japan has money, including from large corporations' venture capital, and encourage them to take advantage of it. Japan also offers a large market, so I hope that companies will use assets like the University of Tokyo to bridge their activities in Japan.

KF: As you mentioned, there is indeed value in supporting technologies related to aging and disaster response if they can be developed into viable startups or enterprises. We are committed to providing support both before and after the establishment of these startups. For instance, in the field of aging society, we have invested in a company called KAIGO Media, which develops digital media for caregiving professionals centered around video content. Regarding disaster management, we have invested in Urban X Technologies, which provides AI for road inspection to municipalities nationwide, contributing to the maintenance of aging infrastructure. We are keen to continue investing in such innovative ventures with an edge.

KF: While we have not yet made investments in Taiwanese companies, we are actively engaging with them to explore investment possibilities. Through this process, we have been discovering connections that were previously not visible. For example, one of our invested companies originally worked with the Industrial Technology Research Institute (ITRI) in Taiwan on product development, and we are looking to deepen our collaboration in the semiconductor field. We are currently having discussions with various key players.

KF: There are many possibilities for collaboration. For instance, university collaborations like ours or partnerships between startups emerging from these institutions can be very beneficial. Ideally, mutual investments in each other's startups can facilitate entry into each other's ecosystems, which is crucial.

KF: Yes, when I first visited Taiwan, it felt almost like being in Japan. The cultural similarities were so strong that it was a bit disorienting [laughs]. There is a high level of mutual respect between our cultures, and I believe this will positively contribute to our collaboration.

KF: Rather than focusing on Japan's deficiencies, it’s about receiving inspiration. Given various political and situational factors, the ability of Taiwan to develop industries rapidly with the integration of government, academia, and industry in a short period is something we can learn from. Although not everything will directly apply to Japan, there are aspects that could serve as valuable references when Japan focuses on certain fields in the future. Taiwan has resources in various areas, including but not limited to semiconductors, so we hope to collaborate and become partners in tackling global challenges.

KF: We have high expectations. While Japan has its own strengths, Taiwan also has its advantages. There are things we can offer, and, likewise, areas where we can learn from Taiwan. We are initiating conversation with various parties and hope to provide what we can. Our goal is to facilitate collaboration and make valuable contributions to our joint efforts.

KF: My first exposure to the startup world came when I was at INSEAD for my master’s degree. It was there that I learned about venture capital for the first time. While starting my own business was one option, I was more motivated by the desire to be involved in various fields, meet different entrepreneurs, and explore a range of opportunities. I found the venture capital role to be quite intriguing.

When I joined the UTokyo IPC in 2019, it was largely due to a fortunate opportunity that came my way. Prior to that, I had worked with government-affiliated funds and had an interest in contributing to national development. Moreover, being at a university allows me to meet a wide range of researchers directly, which is a strong motivator for me. The unique perspective gained from being in an academic environment is both interesting and valuable.

KF: Absolutely. There is a vast amount of fundamental and applied research that we may not yet be aware of. There are many projects that I think would be very interesting if they were developed into businesses, and I am eager to support them.

Translated by J-STORIES（Anita De Michele, Lucas Maltzman)

Top photo: J-STORIES (Emi Takahata) 

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