Most recently, the Tokyo Stock Exchange announced 14 companies selected as the companies to be supported by “TSE Asia Startup Hub”.

This initiative aims to “create an ecosystem that fosters startup growth, focusing on promising Asian companies with ties to Japan, to support business expansion in Japan and partnerships with Japanese firms. This will in turn support IPOs on TSE as one of the outcomes…With 52 organizations from Japan and overseas signing up as partners and four as observers, we have established a comprehensive support system for Asian companies.”

Read the full press release.

Our portfolio companies Rainforest and Shipper are a part of this inaugural cohort.

While the initiative does not guarantee any future listing for the companies in the cohort, it is a signal to the broader market of the interest in Japanese institutions like the TSE to invest in the growth of companies in the region. This is another development in the trend we wrote about earlier this year.

We’ve previously written about the increasing interest of Japanese strategics in technology companies and hyperlocal businesses in Southeast Asia markets. It is an interest driven by an economy with strong balance sheet corporates looking to invest more actively overseas.

In the last piece we outlined four insights from this trend:

1. Japan’s increasing value as a destination market for global companies coming from Southeast Asia.
2. The trend is driven by capital outflow environment in Japan strengthening long-time interest in the region.
3. There is an opportunity to apply the “time machine thesis” from Southeast Asia to Japan.
4. There is opportunity for cross-pollination across regions with similar specialties and trajectories, for example deep tech learnings and use cases between Singapore and Japan’s Kansai region.

With this news from the TSE, we revisit our learnings from the Japan influx of capital and involvement in the region’s startup ecosystems, with four more insights:

(1) Japanese strategics are increasingly more interested in hyperlocalized first movers / category defining companies.

An example of this from our portfolio is Mizuho’s investment in Tonik as the first of its kind digital bank in the Philippines.

Majority of Japanese strategic investments and partnerships have been our fintech portfolio companies. Apart from the examples mentioned, our most recent examples include MUFG Innovation Partners participating in AwanTunai’s latest Series B round (announced March 2024) and Orico’s funding into Honest in June 2023. These investment play into the earlier insight we pointed out with regards to corporate interest in first mover / category defining plays (AwanTunai’s world class, one of a kind risk engine in Indonesia’s FMCG space, and Honest’s licensed credit card business being the first of its kind at the time).

But it’s not just fintechs. Insurance player MS&AD participated in Intellect’s Series A round in 2022.

This preference comes as:

(1) competitive advantages previously held in specific industries are being threatened and Japanese companies see an opportunity to ride the new technology waves in these industries (the automotive sector is becoming more competitive for the Japanese companies with the rise of Chinese and Korean EV automakers),

and (2) the opportunity to apply Japanese technologies in localized business models and new forms of distribution (Geopolitical changes in the semiconductor supply chain present favorable opportunities for Japanese business. Malaysia in particular is actively attracting global companies to establish supply chains including upstream processes).

In general, Japanese companies are increasingly shifting their focus to Southeast Asia countries from production and exports base to capturing domestic demand much like they did in China in the past.

(2) There is value in leveraging Japan’s existing inroads in Southeast Asia.

Japan has long had strong business interests in Southeast Asia, and what this new wave of capital presents is an opportunity for local players to tap into existing networks of these corporates to strengthen their own distribution.

While Tonik is focused on the Philippines for their business, Japan’s networks in the country opened up opportunities for the digital bank to unlock growth in new channels for their consumer loans, especially in employee benefits and shop installment loans.

(3) There is opportunity for platforms for connecting Japan’s large companies and Southeast Asia startups, as well as Japanese startups with local partners in the region.

As shown by initiatives like the TSE Asia Startup Hub, there are platforms for Southeast Asia startups to tap into resources for market expansion, from in-house advisory units in corporates like Mizuho to networks of venture capital firms like ours at Insignia Ventures.

This type of support goes beyond capital. An example is Carro’s strategic partnership with MSIG to develop usage-based insurance back in 2021.

Another dimension of this Japan-Southeast Asia platform is the opportunity to find customers or partners in Japanese startups looking to expand into the region. This is especially the case for Japanese startups with advanced technologies seeking to expand into Southeastern Asia with support from local companies.

(4) Improvements in performance standards in Japan’s public markets to drive capital utilization opportunities.

The Japanese stock exchange is focused on improving the return on equity for listed companies. So the revised governance code adopted by the Tokyo Stock Exchange is one strong incentive for CEOs to more seriously think about ROE and capital utilization.

This presents another incentive as well for Southeast Asia companies looking to tap into Japanese partners for market expansion, be it in Japan, across the region, or even globally. Such regulation also sets up a more mature precedent for listing in Japan.