Japanese investors turn to Europe as deep tech boom lures capital abroad

Huge swathes of cash are flowing from Japan to European tech startups as risk-averse investors favor a more mature entrepreneurial ecosystem, helping to scale the continent’s booming deep tech cluster.

While the European startup and venture capital ecosystem has long operated in the shadow of Silicon Valley, it has become fertile ground for Japanese corporates, whose domestic market is younger.  

Japanese investors or venture capital funds who themselves have Japanese investors, known as limited partners, participated in European financing rounds worth more than 33 billion euros ($38 billion) since 2019 when a trade deal between the European Union and Japan came into force, according to research from venture capital fund NordicNinja and data platform Dealroom.   

For the five years leading up to the EU-Japan Economic Partnership Agreement, investment totaled 5.3 billion euros.

In Europe at that time, “there was no Japanese capital other than Softbank,” Tomosaku Sohara, co-founder and managing Partner of Japan-Europe VC NordicNinja, told CNBC. NordicNinja, which has 250 million euros of assets under management, is a joint venture between Japan’s JBIC IG Partners and private equity firm BaltCap.

“Softbank was pretty active already at that moment, because they had acquired Finnish gaming company Supercell,” Sohara said, noting that the acquisition injected life into Finland’s startup ecosystem. 

Now, Mitsubishi, Sanden, Yamato Holdings, and Marunouchi Innovation Partners are among those directly backing European tech, per the report, while Japan-linked venture capital firms such as NordicNinja, Byfounders, and Toyota’s Woven Capital cut checks to startups on the continent. 

There are over two times more VC-backed startups in Europe than in Japan, per capita, and 4.3 times more unicorns, per the report.