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Japan’s New Tech Generation

Every Wednesday, a bar in central Tokyo hosts an unusual speed-dating event. There are drinks and plenty of coy looks. But the young people at the bar aren’t here for romance.]

Woman talking on a phone working on a laptop.
Geri Lavrov | Photographer's Choice | Getty Images
Woman talking on a phone working on a laptop.

“I want to meet like-minded people — basically, people who get the Internet,” said Shingo Hiranuma, 29, a former smartphone engineer at Toshiba who recently introduced a new map application, Sanpo. “And I won’t settle for just anyone.”

As Japan’s aging tech giants like Sony and Panasonic continue to falter, a new generation of Japanese technology entrepreneurs is stepping up. While their numbers are small compared to those in the United States, they are turning to a bevy of start-up incubators and even to financing from Silicon Valley. And so-called start-up dating salons, like the bar in central Tokyo, are helping to match would-be collaborators.

“There’s a lot of uncertainty in Japan right now, and that’s actually made younger Japanese more willing to take risks and try out new ideas,” said Hiro Maeda, 26.

Mr. Maeda went to college at Bucknell University in Pennsylvania and worked on several start-ups in the United States before returning to Japan to create Open Network Lab, a Tokyo-based incubator.

Open Network Lab has financed five rounds of start-ups since its start in 2010. Mr. Maeda said it received close to 100 applications during its latest round this year — more than twice the number from the previous year. The lab provides early funds, office space and mentoring.

Japan badly needs an infusion of entrepreneurial blood. With its economy sluggish and its population graying, the country slipped to No. 25 in the most recent ranking of global innovation by the United Nations, falling out of the top 20 for the first time since the survey began in 2007.

And it has become increasingly clear that the country’s big electronics firms cannot be counted on to drive innovation. Japan’s top tech giants in products from televisions to smartphones, their competitiveness sapped by a strong yen, are racking up huge losses and being overtaken by nimbler, cheaper overseas rivals.

More than ever, many innovations seem incremental or just plain odd. A $4,500 “networked” washing machine released by Panasonic in August that can be operated remotely via smartphone was greeted with derision in the Japanese blogosphere. “Has Panasonic lost its way?” one blogger asked.

Still, Japan’s tech entrepreneurs have much to overcome if they hope to succeed where the mainline giants have not.

Japanese society continues to venerate lifetime company loyalty, while penalizing risk-taking and failure. The government has created a cumbersome web of regulations that hampers new entrants. And risk-taking is absent not just among would-be entrepreneurs, but also among investors, who still favor propping up old companies rather than fostering new ones.

“Whether you’re talking about driving innovation or creating new jobs, it’s clear that Japan needs to try something new,” said Taizo Son, who helped start Yahoo Japan with his brother, Masayoshi Son, in 1996, and now runs the venture capital fund Movida Japan. “But the odds are still stacked against people who dare to try.”

According to the Tokyo-based Venture Enterprise Center, the value of investments by its 50 or so venture capital fund members increased to 24.6 billion yen ($316 million) in 2011, 35 percent higher than the previous year. But that was a small fraction of the $12.6 billion in venture funding raised by Silicon Valley companies that year, according to Ernst & Young.

The proportion of the working population involved in entrepreneurship in Japan — as measured by a start-up portal, InternationalEntrepreneurship.com — stood at 3.3 percent in 2010, one of the lowest rates in the industrialized world. In the United States, the equivalent number was 7.6 percent.

Satoshi Sugie, Junpei Naito, Muneaki Fukuoka and Hiroshi Kurita are among those who are trying. All left comfortable jobs — at Nissan, Sony, Olympus and Japan’s largest advertising agency, Dentsu — to work on Whill, a device that clamps onto wheelchairs to turn them into electric vehicles.

It is a big bet for the founders. Because they were unable to secure large investors, the 6 million yen put toward developing a prototype came from their savings. After it was invited to display the prototype at the Tokyo Motor Show last year, the start-up has been inundated with inquiries from Japan, Europe and the United States, the company says. The start-up is preparing to announce a brand-new model next week.

“At Whill, we move at such a different speed from Sony,” said Mr. Naito, who came up with the idea for Whill before leaving his job this year as a Sony product engineer. “We move things along much faster, and I enjoy that.”

Makoto Fukuyama, 27, and Kota Uemura, 25, ex-Google employees who started Social Lunch in October, have also seen interest surge among users.

Social Lunch’s Facebook-based app helps young professionals set up casual business lunches to expand their social networks. The start-up now has 60,000 users and is adding 10,000 more a month. It won 32 million yen of seed money this year from a new start-up fund started by KDDI, Japan’s second-largest telecommunications firm, but has found that few investors in Japan are willing to offer larger amounts.

Part of the problem is that there is still no real track record of start-up buyouts in Japan, which means the only way that tech entrepreneurs can cash out of an investment is through an initial public offering — a lofty goal for most companies. (Eleven technology companies managed an initial public offering last year.)

Because Japanese investors do not have high expectations of a successful exit, they invest far less than their Silicon Valley counterparts, which leads to fewer companies succeeding, a vicious cycle that damps entrepreneurship.

“Seed funding has grown in Japan, but you’re talking about very small amounts,” Mr. Fukuyama said. “Entrepreneurs are still seen as drifters with nothing better to do.”

But the growing trickle of older, more experienced Japanese who are leaving their jobs to start their own companies is helping to galvanize the local start-up scene, said Taku Harada. Mr. Harada runs PeaTix, an event management start-up that lets users set up event invitations and ticketing.

Mr. Harada, who worked at Sony, Apple and Amazon before founding PeaTiX in 2009, says it has become easier for him to lure talent away from big companies; the average age at his 20-person start-up is well over 30, and all hires have extensive experience in the tech sector.

“More success stories might inspire more people at senior positions at corporations to make the jump,” Mr. Harada said. Still, many potential recruits tell him that the blow to their reputations if they fail is too large in Japan.

“If you fail, you don’t get many chances after that,” Mr. Harada said.

The constraints of Japan’s local start-up scene drove Gengo, a Web-based translation start-up, to look for investors and talent beyond Japan’s shores. Robert Laing, 33, Gengo’s founder and chief executive, had the idea of setting up a platform that instantly links clients looking for translations with a network of freelance translators worldwide.

But Gengo struggled to take off. Mr. Laing, a British citizen, paid himself nothing for a year, living off his savings. His business partner, Matthew Romaine, who is part Japanese, slept on the floor of his parents’ apartment in Tokyo. Landlords would not lease them office space without years’ worth of company statements.

Their break came in early 2010 when an American angel investor, Dave McClure, gave them seed funding and connected them with other investors outside Japan. Gengo’s main investor is now Atomico, based in London, and a handful of non-Japanese investors.

Even as Gengo won investors and clients, it struggled to find people willing to join its team. It turned to Craigslist, word-of-mouth and recruiters to assemble what Mr. Laing calls a motley international crew, now 30 strong and growing. Only in the last year did Gengo make big hires in Japan; among those it brought in were Hiroto Tokusei, a former senior product manager at Google.

“We ended up with foreigners because they seemed to be the only ones willing to join some crazy start-up,” he said. “And because there are so few start-ups in Tokyo, we had nobody to discuss things with, to ask whether we’re on the right track.”

The weekly start-up dating salons, like the bar Nomad New’s Base here in central Tokyo, seek to fill such a need. As the drinks flowed, Mr. Hiranuma, the former Toshiba engineer, moved around the room on a recent Wednesday with his MacBook Air, pitching his Sanpo app.

Sanpo, which means stroll in Japanese, lets users plan routes to destinations, as Google Maps does — except the app suggests detours to popular shops, restaurants and other spots along the way.

“It helps people take fun detours, and try something new,” Mr. Hiranuma said. “I believe in trying new things.”

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