Magazine article American Banker

Venture Capital Offers Japan Economic Key to Turn Technical Duplication to Innovation

Magazine article American Banker

Venture Capital Offers Japan Economic Key to Turn Technical Duplication to Innovation

Article excerpt

Venture Capital Offers Japan Economic Key To Turn Technical Duplication to Innovation

Ninety-one years ago, historian Frederick Jackson Turner told Americans to stop looking West, that the frontiers had been conquered, and beyond San Francisco there was nothing but the vastness of the Pacific Ocean.

It is apparent today that Mr. Turner was quite short-shighted. The cities of the Far East will be the vanguard of economic growth in the 21st century, and the West will have to run to meet them. Already, Japan has catapulted past most of the world in becoming the premiere industrial force after World War II.

Japan's success, however, was achieved largely through technological innovation from the United States. But having borrowed knowledge to better the production quality and capacity of the West, Japan is ready now to embark on the next stage of its economic ascendancy: creating an environment that fosters its own technological breakthroughs.

Venture capital is one of the critical elements in making their shift from replication to innovation. The Ministry of International Trade and Industry (MITI) and the Ministry of Finance (MOF), in conjunction with their vision of building a "technopolis,' are promoting the venture capital idea strongly.

MITI, which is usually the barometer for developments in the technology sector, has formed a blue ribbon panel of 20 of the nation's most important business and government leaders to study venture capital, and large number of various study groups have come to the United States to explore the scene.

The immediate question they seek to answer is how U.S. venture-funded companies can develop products as fast as they do; they are determined to find out and implement that process in their country. The Japanese are eager students and will observe carefully what the pitfalls of American venture capital are, and probably will avoid them.

True professional venture capital activity in Japan occurred for the first time in 1982, partly due to tremendous support by Prime Minister Yasuhiro Nakasone. (Japan actually had a wave of what was called venture capital in the early 1970s, but it was more an attempt by banks to make loans to small businesses, rather than taking equity positions in companies and helping define technologies, market size, and management structure.)

At the end of 1983, the number of venture capital funds in Japan totaled 46--16 of which were established in 1983. Total funds under management were 47 billion yen (approximately $200 million), and the total number of investments during 1983 was 672, equaling 38 billion yen (approximately $165 million).

Activity should continue to increase as the practice of equity investing versus lending begins to emerge. …

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