Goodbye Silicon Valley obsession. But keep watching...
There's no point in imitating Silicon Valley. Episode #39
Those of you who read my Substack may know that the Takaichi whirlwind swept through Japan’s House of Representatives election, resulting in a historic victory for the Liberal Democratic Party.
Personally, I have high hopes for the new political party, Team Mirai (Future), to make great strides, but it seems that the existing opposition parties have reached their “best before” date. The Liberal Democratic Party remains the only major political party.
In the world of startups, Silicon Valley is the dominant force, so it is nonsense to be conscious of Silicon Valley or try to copy a Silicon Valley-like ecosystem in your own country.
I have previously cited Japan Startup Finance (in Japanese) reports several times to introduce the fundraising landscape for startups in Japan.
This report, created using Manus (AI) and adding my analysis, provides a comparative analysis of the startup investment landscapes in five key economies: the United States, the United Kingdom, France, Germany, and Japan.
Using 2024 data, it examines structural differences and characteristics across these ecosystems from multiple perspectives, including total investment scale, deal quality and quantity, investor demographics, and the composition of capital sources for venture capital (VC) funds (LP composition).
As is well known, the most striking feature of the Global Startup Landscape is the United States’ (most likely Silicon Valley’s) sheer dominance. In 2024, total US investment reached $215.4 billion, approximately 6.5 times the combined total of the other four countries (around $33.3 billion) [1].
This “US dominance” pattern illustrates fundamental differences in the maturity of startup ecosystems, market size, and the supply of risk capital.
In terms of the number of deals, which indicates the “quantity” of investment, the United States stands out with 14,320. In Japan, 2,869 companies have raised funds of known amounts, the same as in the UK (approximately 2,800 deals) and significantly higher than in France and Germany. [2] [3] This is due to the high rate of startups in Japan and the active fundraising at the seed and early stages.
However, the picture changes dramatically when looking at deal size, a proxy for investment quality and scale.
Average Deal Size: US (15.0M) and France (15.1M) lead, indicating markets driven by large, growth-stage rounds. Japan’s average is the smallest at $2.3M.
Median Deal Size: The median, which better reflects the typical deal, reveals an even starker contrast. France leads with 4.5M, followed by the U.S. (3.5M), the UK (3.2M), and Germany (3.0M).
Japan’s median of $0.35M is an order of magnitude lower than the others, highlighting the market’s heavy concentration in seed and early-stage investments [4] [5].
Also, I believe the more fundamental reason is that, with very few exceptions, Japanese startups target only the Japanese market, which keeps their Total Addressable Market (TAM) small and prevents them from attracting growth capital from overseas.
Who is funding these startups? The breakdown of investor types reveals the underlying structure of each ecosystem. (Note: The following comparison uses the effective share of identified investors, excluding the “Other/Unknown” category, which varies by data source.)
US (Independent VC-Led): Independent VCs are the core of the ecosystem, accounting for 55% of investment. While CVCs are active (23%), independent firms clearly lead the market.
UK (Global Financial Hub): While led by independent VCs (40%), the UK has a high share of foreign VC investment (20%). This reflects London’s role as a European financial hub attracting global capital [6].
France (Government-Led): Government and public agencies (like Bpifrance) have the highest share among the five countries at 16%. The high proportion of foreign VC investment (21%) suggests that strong government initiatives are successfully attracting international capital [7].
Germany (Industry-Integrated): Led by independent VCs (35%), Germany also has a significant corporate presence, with CVCs (15%) and corporate direct investment (8%) combining for a 23% share. This points to strong collaboration between large industrial corporations and startups [8].
Japan (Corporate-Led): Japan is a clear outlier, with corporate investment (CVC at 15% + direct at 22%) reaching a remarkable 37%. Furthermore, financial institution VCs account for another 20%, leaving independent VCs with just 24% of the share. Unlike in the West, corporations and financial institutions are the central players in Japan’s ecosystem [5].
Focusing on corporate investment (the sum of CVC and direct investment) highlights Japan’s unique structure.
At 37%, Japan’s share of total corporate investment is significantly higher than that of the next closest countries, Germany and the United States, both at 23%.
This suggests that Japanese corporations are actively using startup investments as a vehicle for open innovation—seeking strategic synergies and exploring new business domains.
However, with a few exceptions, it cannot be said that significant results have been achieved.
The differences in investor landscapes are rooted in who funds the VC funds themselves—the Limited Partners (LPs). Comparing LP composition reveals the fundamental capital flow structures of each ecosystem.
US: The ideal model of patient capital. Pension funds are the largest source of capital at 30%, followed by university endowments and foundations (15%). This long-term, return-seeking capital is the bedrock of the US VC market [9].
UK: Family offices and high-net-worth individuals are the dominant LPs, accounting for 41%. This may be driven by tax incentives such as the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) [6].
France & Germany: Government and public agencies are the largest LPs, accounting for 30% and 25%, respectively. Public funds, often channeled through bodies like the European Investment Fund (EIF), are crucial for sustaining the continental European VC market [10].
Japan: Banks and insurance companies (31.7%) and corporations (25.4%) together account for over half of all LP capital. These institutions fill the role that pension funds play in the US. This structure may contribute to Japanese VCs' tendency to seek shorter-term returns or strategic synergies, potentially explaining the smaller median deal sizes [11].
Finally, a look at the historical trend of investment in Japan by investor category (based on SPEEDA data) confirms the consistent dominance of corporate-related investors. While there was a spike in foreign investment (tourist investors) in 2021, corporate investors (incl. CVCs) have remained the largest single category. The share of financial institutions has also been growing, particularly in 2024.
To attract foreign investors, it is necessary to increase the number of Japanese startups that expand into the global market, rather than focusing solely on the domestic market.
That is exactly my theme for the rest of my life.
PS: What is the US<>Japan VC Playbook? It is published by 500 Global, in partnership with JETRO, which analyzes and describes the differences in the startup ecosystems between the US and Japan. Highly recommended.
The sheer scale of capital availability int he US is striking