Introducing a Global Ecosystem for Japanese Technology Entrepreneurs: The University of Tokyo Edge Capital (UTEC)
Miki Hirai, Class 14
The number of inventions from Japanese universities is on a level with their U.S. counterparts, but royalties from university-based inventions in Japan are only 1/50th of the U.S. payout. There seem to be many missed opportunities for commercialization—but Japanese awareness of this gap is growing. In this article, I present a “cutting-edge” company that has been working on this issue for several years.
One Japanese venture capital firm, the University of Tokyo Edge Capital (UTEC), is focused on early-stage technology and works closely with academic institutions. UTEC’s main partner is the University of Tokyo, which is regarded as the best research university in Japan and has been known for its tradition of innovation that builds bridges between academia and industry. With its importance to the new government initiatives for Japanese technology entrepreneurs (as either a direct supporter, a participant, or an advisor), Tomotaka Goji, Managing Partner and President of UTEC, was invited to the G8 Innovation Conference in London in 2013 as a young Japanese entrepreneur/innovator.
My mission as a venture capitalist is to find “raw,” disruptive technologies, polish them, and commercialize them globally, helping to promote innovation that makes the world better for everyone. I joined UTEC as a principal in April 2011, focusing on seed- and early-stage information technology investments. My previous experience1 brought me face to face with the differences between university technology commercialization in Japan and in the United States.
This article opens with a brief overview of the current Japanese venture market and the level of early-stage and seed investments, followed by an overview of Japanese government efforts to develop an ecosystem for university technology entrepreneurs. After presenting three case studies of technology entrepreneurs from Japanese universities, I consider why so few succeed. Finally, I introduce UTEC as a specific program targeted at the commercialization of Japanese university technology, and close with a consideration of its future potential.
Japanese Venture Trends
Despite the financial crisis that swept across the world in fiscal 2008 (triggered by the collapse of Lehman Brothers), the Japanese venture industry is growing. According to the Japan Venture Capital Association, “between April 2011 and March 2012, [Japanese] venture capital firms made investments and loans of 124 billion yen in 1,017 venture companies in total, compared to 113.2 billion yen and 915 firms the previous year.”2 The Venture Enterprise Center’s annual report for 2012 identified three factors behind the increase: “the creation of Asia-oriented investment funds, capital injection from the Organization for Small and Medium-sized Enterprises and Regional Innovation, and the creation of funds aimed at rebuilding, creating, and revitalizing industry in the areas affected by the Great East Japan Earthquake.”3
Accelerators and seed investments are increasing in Japan step by step. In fiscal 2012, 44.3% of firms receiving initial or follow-on funding were in the seed and early stages, compared to 32.5% in the previous year. Seed-stage investment more than tripled, from 4.4% to 15.7% of firms being funded.4 Thirty-one newly established funds received investments of ¥119.7 billion,5 which was more than twice the number of such funds in fiscal 2010 and greater than the number of funds before the financial crisis of 2008.
Although there are still few investments in technology seeds, new government-sponsored ecosystems have been creating opportunities, and universities are producing more entrepreneurs.
Japanese Government Support for Technology Entrepreneurs
New government projects have been established to support Japanese technology entrepreneurs with donations, education, mentors, and professional support. In this section, I review these projects and describe their origins, intentions, and effectiveness.
The START Program: Creating STart-ups from Advanced Research and Technology
Initiated by the Ministry of Education, Culture, Sports, Science, and Technology in 2012, the START program adopts hands-on units through 11 project promoters such as venture capitalists. START creates project/IP strategies for technology seeds that are risky but have great potential. In this way, the project aims to put the research achievements of universities and incorporated administrative agencies back into society by means of startups, while creating a Japanese-style innovation model that will serve as a sustainable mechanism. UTEC was an advisory member and a role model when the government created the START program.
START teams combine government funding and private sector commercialization know-how from the pre-launch stage of academic startups, determine which markets and opportunities are appropriate, and aim those technologies for global markets and outlets. The project promoter and researchers join together, creating a team of specialists (entrepreneurs, IP personnel, etc.) who then craft the optimal R&D/commercialization plan for the technology seed (i.e., the commercialization concept). While the team manages the project, milestone-based research and development and project fostering is conducted in response to market needs (pre-venture activities). The aim is to launch an academic start-up with a high business value and entice private sector funding through the implementation of the project.
In principle the START Program aims to set up a business venture within one to three years; however, according to subsequent screenings, support may in some cases be extended up to five years until proof-of-concept. In 2012, 27 projects from biotech, IT, and the cleantech industry were chosen and are starting projects for future commercialization. UTEC was elected as one of the project promoters, and five projects from UTEC were START projects in 2012. In 2013, the government decided to increase START’s new promoters and budget, and expects that the opportunities for technology entrepreneurs will expand.
The Japan Open Innovation Platform (JOIP)
Created by the New Energy and Industrial Technology Development Organization (NEDO) in 2013, JOIP helps young, talented researchers create a business plan with technology from large companies and universities. Funding sources include grants from government institutions and venture capitalists. UTEC suggested this platform to NEDO based on experience with the UTEC Summer SEARCH, a similar internship program for university students that supports future young entrepreneurs for several years. Using its networks and connections, UTEC helped NEDO plan and operate the JOIP along with the Division of University Corporate Relations and professional contributors.
While they are creating their business plans, JOIP offers young researchers an entrepreneurial education program and an individual mentor to provide professional commercialization know-how and support their growth as entrepreneurs. JOIP also offers connections to industry and finance through the business plan presentation and poster session that completes the program, where aspiring entrepreneurs can exchange opinions with industry and finance leaders and discuss future commercialization plans.
JOIP’s pilot projects were completed in June 2013: six teams made presentations and 16 global companies, banks, and venture capitalists attended. The program’s effectiveness was confirmed, and NEDO approved JOIP for five more years and decided to expand the program all over Japan.
Jump Start Nippon
Founded by the Ministry of Economy, Trade and Industry (METI) in 2013, the Jump Start Nippon project supports and trains talent for creating new business. METI promotes professional support to increase participants’ understanding of the commercialization of disruptive technology and seed business model. Jump Start Nippon has educated talented supporters, expanded their network of supporters, and shared their knowledge through several case studies. The goal of the program is to create an ecosystem that will generate many venture companies and spin-off companies. For the pilot year, 21 supporting teams and 19 projects were chosen in 2013. UTEC was chosen as a supporting member for Jump Start Nippon, and supports some of the projects.
Successful Technology Entrepreneurs from Japanese Universities
These government programs have been helpful, and the number of successful technology entrepreneurs from Japanese universities is increasing. In this section I present case studies of three companies—Morpho, PeptiDream, and MUJIN—that successfully commercialized and expanded their business globally after beginning at a Japanese university.
Morpho was founded in 2004 by scientists and engineers from the University of Tokyo who specialize in image processing. The founders strive to use their knowledge and cutting-edge research experience to contribute to technological advancements in the real world, and believe that computer science should be a practical discipline. Their mission is therefore to create real-world solutions that meet existing and emerging social needs.
Morpho aims to provide an efficient, high-quality digital image processing technology, and to offer that framework as the de facto standard for both industry and customers. Advanced imaging technologies enable the user to recognize, process, and express images to meet the needs of today’s new lifestyle. Morpho’s technology is offered via various platforms such as digital cameras and smartphones, and in other important application domains such as security surveillance and computer graphics.
Morpho received seed money from UTEC at its incorporation, with a total of $2 million received before IPO. Through face-to-face board meetings once a week, UTEC provided advice all along the way, such as on Morpho’s business plan, financial plan, and choice of market. Mr. Masaki Hiraga, the CEO of Morpho, reported that UTEC’s advice on their choice of market was especially important in deciding the company’s future. The company originally planned movie content development as a main business. However, market research conducted with UTEC revealed that the high-spec movie content market was small, so they decided to develop embedded technology for the larger market provided by mobile phones and digital cameras.
Morpho’s technology has been used by global mobile providers since 2005, and the company has collaborated with the large Japanese carrier NTT Docomo for research and development since 2008. Morpho received funds from its business partners and UTEC (with an appropriate financial plan) to hire talented engineers and management. In July 2011, Morpho had an IPO on the Mothers6 section of the Tokyo Stock Exchange and has been working on expanding its business globally.
PeptiDream is a Tokyo-based biopharmaceutical company founded in 2006 that makes use of novel peptide expression and platform-selection technologies (peptides are a rapidly growing therapeutic class of medicines with significant potential7). The technology was developed by professor and company cofounder Hiroaki Suga at the University of Tokyo and previously at the State University of New York (SUNY) at Buffalo. PeptiDream’s cofounder and CEO is Kiichi Kubota, and the company is supported by the University of Tokyo Technology Licensing Organization (TLO) and UTEC. Kubota has experience managing a global company and has aggressively promoted collaboration with large pharmaceutical companies.
PeptiDream holds exclusive licenses to the worldwide patent rights for all of Professor Suga’s technology. UTEC invested in PeptiDream’s seed stage, advised on its target market and business plan, and introduced PeptiDream to top pharmaceutical companies through its global networks.
PeptiDream’s proprietary Peptide Discovery Platform System or PDPS is a highly versatile peptide generation and selection platform consisting of three core technologies: Flexizyme technology; translation, cyclization, and peptide modifying technologies; and PD display technology. The combination of these technologies allows PeptiDream to engineer peptide libraries consisting of trillions of unique macrocyclic and helical nonstandard peptides that exhibit improved physical, chemical, and pharmacological properties compared to conventional peptides. With this system, hundreds of highly potent nonstandard peptides can be identified against any target in weeks, covering a wide variety of peptide classes and structures. PeptiDream scientists can then screen hundreds of hits a week for the desired target binding, selectivity, and activity by independently expressing each peptide using PeptiDream’s PDTS translation system, without the bottleneck of expensive and time-consuming chemical synthesis, significantly increasing the speed of lead identification. Leads can then be chemically synthesized and purified for downstream validation and further development.
PeptiDream has a very strong company foundation, built on a strong intellectual property portfolio around its core technologies, an experienced management team, and a number of important partnerships with the world’s top pharmaceutical companies such as Amgen, AstraZeneca, Bristol-Myers Squibb, Novartis, Pfizer, Daiichi-Sankyo, Mitsubishi Tanabe Pharma, GlaxoSmithKline, and IPSEN. In particular, Novartis is a shareholder and nominated PeptiDream as its global partner.
PeptiDream went public on the Mothers section of the Tokyo Stock Exchange on June 11, 2013. The founders anticipate more rapid growth and global expansion through licensing their technology to pharmaceutical companies as well as manufacturing medicine themselves.
MUJIN Inc. was founded at the University of Tokyo in 2011 by Dr. Rosen Diankov and Issei Takino. Dr. Diankov is a researcher at JSK Laboratory of the University of Tokyo, a world-renowned roboticist, and the main contributor for the widely used open-source robot motion planning system OpenRAVE. He has created and supported the Open Robotics Automation Virtual Environment (OpenRAVE) for over six years, and is now using that experience to help the MUJIN team tackle tomorrow’s automation challenges along with robot makers, robot users, and robotics research institutions.
The founding of MUJIN centering on OpenRAVE’s core technologies is another successful example of recent trends where open-source technologies enable new business solutions that can compete with the alternative commercial solutions. Although there are many fields where MUJIN’s technology can be applied, the main target is factory automation for industrial robots. Although automation demand is high and increasing every day, the current generation of technology requires special training and the overall integration process is very time-consuming, which raises costs and impedes performance. MUJIN strives to help robot system integrators work more efficiently, shorten their development and deployment cycles, and increase overall manufacturing productivity. Their “industrial-first” robot programming solution can automatically plan optimized robot motions while proactively calculating and avoiding possible collisions. The company’s mission is to create easy access to industrial robots in order to promote factory automation and increase worldwide manufacturing productivity.
MUJIN raised $950,000 in Series A funding from UTEC in 2012 and began building a team of expert members from all over the world, including the United States and China. UTEC has provided additional support through advice on MUJIN’s business plan and strategy. Since this innovative technology is in high demand, global business partners (e.g., robot factories, manufacturers using robots, and robot-system integrators) are increasing and MUJIN is growing globally.
Themes of Success and Challenge
These three companies succeeded because of their combination of disruptive technology, a talented entrepreneur with passion, support from professionals and venture capitalists, and talented team members with management experience. In addition, each firm expanded and entered not only the Japanese markets but also the global market from a very early stage.
However, the number of Japanese technology-transfer successes is small and increasing slowly because of the many significant challenges. Difficulties include access to disruptive technology in Japan’s universities, access to a professional judge of the commercialization possibility, talented people to help with commercialization, and access to alliances with global companies. In order for university technology commercialization to succeed, these challenges must be mitigated. There are also cultural challenges for entrepreneurs in Japan because, in general, Japanese culture does not encourage risk-taking behaviors or the pursuit of unexploited opportunities. Therefore, technology entrepreneurs have difficulties in fundraising—especially in the seed and early stages—and in recruiting talented people from large traditional companies.
UTEC was founded to address these concerns by accessing and finding disruptive technologies using university networks, supporting commercialization, investing in seed- and early-stage technology companies, and adding value through its professional knowledge and networking with global companies. UTEC continues to expand its successful model.
The University of Tokyo Edge Capital, Co. Ltd. (UTEC)
Founded in 2004, UTEC8 is the venture capital firm associated with the University of Tokyo, and the sole VC firm authorized by the university as its “Technology Transfer Related Company” with advantages in proprietary deal sourcing: access to the best seeds and top talents in Asia. The Japanese National University Reform of 2004 (similar to the Bayh-Dole Act9 in the United States) allowed the University of Tokyo to become independent of the government, retain title to intellectual property created at the university, and license that property or use it to create new companies.
UTEC currently manages two funds totalling over $150 million, investing in about 50 seed- or early-stage startups based on technologies and talents from the university. Having proprietary access to the university’s inventions, UTEC works closely with its researchers as scientific founders to cofound companies that will contribute to society through business based upon innovation. More than 600 inventions a year are born at the University of Tokyo. Professors and students have the option to disclose their ideas to UTEC, and about one third choose to do so before patent applications are made. UTEC is proactively involved in the formation of new startups through its Entrepreneur in Residence (EIR) and Search Initiatives at the university.
UTEC aims to promote the Japanese innovation ecosystem by using its past experience and knowledge of creating companies using technology seeds from universities. The program’s success in commercializing from technology seeds and creating global companies led to its involvement in the new entrepreneurial support programs being offered by the Ministry of Education, Culture, Sports, Science, and Technology. UTEC was an advisory member and a role model when the government created the START program, which provided UTEC with many more opportunities to locate disruptive technology seeds. UTEC also suggested that the NEDO create the Japan Open Innovation Platform, helped to plan the platform, and operates it with the Division of University Corporate Relations. Finally, UTEC was chosen as a supporting member for Jump Start Nippon and supports the ROCA Inc. project, a development of Mist-CVD technology used in the semiconductor fabrication process (a chemical vapor deposition system that is more environmentally friendly, cost-effective, and safer than traditional means of applying chemical films).
UTEC has enjoyed significant success so far, as reflected by their invitation to attend the G8 summit in July 2013. UTEC is now increasing investment in the life sciences and cleantech industries: both offer globally disruptive technology and need a longer-term investment, while many VCs tend to require shorter returns. Also increasing are investments in Information and Communication Technology (ICT) based on developments in computer science.
In order to accomplish its goals, UTEC is raising a third fund of $150-200 million, mainly from the Innovation Network Corporation of Japan. INCJ is a unique public–private partnership aimed at promoting innovation and enhancing the value of business in Japan, as well as from additional limited partners. UTEC’s third fund aims to expand the firms’ investment in seed/early venture companies.
Looking ahead, UTEC expects the importance of global collaboration for seamless and rapid technology seed commercialization to increase, as academic technology-incubation skills are connected with the needs of global corporations. By initiating innovation from Japan and spreading it across the globe, UTEC hopes to realize a significant impact on the global economy. As these efforts bear fruit and the number of successful entrepreneurs increases, royalties from university inventions should increase to match those from other developed countries. More investment can then be made in future inventions and globally disruptive technology, to impact not only the Japanese economy but also the economy worldwide through collaboration with global corporations.
Miki Hirai joined UTEC as a principal in 2011 and focuses on seed- and early-stage information technology investments. Previously, Miki worked at Nomura Securities in Japan and the United States specializing in technology IPOs. Working with passionate and idealistic venture-backed companies while at Nomura sparked Miki’s interest in the venture ecosystem in Japan, and how she can bring a Western approach to the more traditional Japanese environment. She believes that cross-border collaboration among VCs is a critical element for fueling innovation. Miki holds an MBA from Cambridge and a BA from the University of Tokyo in South European Literature and Languages.
1I was an intern at TTP Ventures (UK) helping with academic technology commercialization, and before that, an investment banker at Nomura Securities specializing in due diligence and pricing for IPOs focused on the technology industry in Japan and the United States.
2 Venture Enterprise Center (VEC), The Survey of Venture Capital Investment Trends in Japan for Fiscal Year 2012 (Preliminary), 2012, p. 1.
3 Ibid., p. 1.
4 Ibid., Figure 3, p. 3.
5 Ibid, p. 1.
6 “Mothers” stands for “market of the high-growth and emerging stocks.”
7 According to PeptiDream, the clinical use of peptide therapeutics produced by conventional technologies has been limited due to issues with peptide stability, delivery/transport across membranes, rapid body clearance, and solubility.
8 For the G8 summit in July 2013, UTEC attendees prepared a short video introduction to their work. See UTEC, “UTEC Introduction” (video), 3 June 2013.
9 Also known as the Patent and Trademark Law Amendments Act, the Bayh-Dole Act of 1980 allows federally funded research to produce intellectual property owned by a small business, university, or nonprofit. Previously, all such intellectual property was federally owned. See Association of University Technology Managers, “Bayh-Dole Act” (n.d.).