Japan’s Startup Revolution (feat. Kathy Matsui) | E2235

Japan is often viewed through the lens of its economic "Lost Decades"—a period defined by stagnation and deflation following the asset bubble burst of the late 1980s. However, the narrative is shifting dramatically. In a recent conversation during the Founder University cohort in Tokyo, Jason Calacanis sat down with Kathy Matsui, General Partner at MPower Partners and former Goldman Sachs strategist, to dissect the evolving Japanese startup landscape. The consensus? Japan is undergoing a quiet revolution, driven by demographic shifts, government policy, and a new generation of talent willing to take risks.

For decades, the "safe path" in Japan was a job at a blue-chip conglomerate. Today, inflation is returning, wages are rising, and a shrinking workforce has created a "seller's market" for young talent. This environment is fostering an ecosystem where innovation is not just welcomed but necessary for survival.

Key Takeaways

• The Talent Mindset Shift: Graduates from top institutions like the University of Tokyo are increasingly choosing entrepreneurship over traditional "safe" corporate jobs.
• The Gender Arbitrage: Data suggests female-led startups in Japan are undervalued at the seed stage but outperform male-led peers at IPO, creating a significant investment opportunity.
• Labor Shortage as a Catalyst: Japan’s shrinking population makes the country uniquely receptive to AI and robotics, viewing automation as a necessity rather than a threat.
• The "Trust" Economy: Success for foreign founders in Japan hinges on relationship-building and patience, often requiring years of groundwork before deals are signed.
• Global Ambitions: While the domestic market is large, a new wave of founders is looking to emulate the global success of brands like Uniqlo and Sony from day one.

From Deflationary Stagnation to a Startup Boom

To understand the current opportunity in Japan, one must understand the psychological impact of the last 30 years. Matsui explains that deflation acts like "poison" to an economy. When consumers expect prices to fall, they delay purchases. When businesses expect materials to be cheaper next year, they delay expansion. This created a generation focused on security and hunkering down.

However, the economic tides have turned. Deflation has given way to inflation, and wages are beginning to rise. Perhaps most importantly, Japan’s demographic crisis—a rapidly shrinking workforce—has inadvertently empowered the youth.

"Unlike many other countries, Japan has a very small and shrinking workforce. So for young people today, it's a seller's market. They have so many opportunities in front of them."

The University of Tokyo Statistic

The most telling metric of this cultural shift comes from Japan’s most prestigious institution, the University of Tokyo. Historically, graduates flocked to the Ministry of Finance or major trading houses to secure their social standing. A few years ago, a poll of undergraduate students revealed a startling change: over 40% of respondents expressed a desire to start a company or work at a startup. This willingness to forego the "blue-chip" safety net signals a profound change in risk tolerance among Japan’s elite talent.

The Undervalued Opportunity in Female Founders

One of the most compelling insights from the discussion centers on the investment potential of women entrepreneurs in Japan. MPower Partners, which focuses on ESG (Environmental, Social, and Governance) integration to drive growth, launched Japan’s first fund dedicated to female founders. This wasn't driven merely by social mission, but by hard data.

Matsui notes that female founders in Japan typically raise less capital and receive lower valuations than their male peers at the early stages. However, looking at IPO data between 2020 and 2024 reveals a market inefficiency:

"Those that did [IPO], their companies were valued one and a half times greater than the companies of their male peers that IPOed. So, as an objective investor, you get in at a discount and you can exit at a premium."

This "gender arbitrage" suggests that the market is currently mispricing risk and potential regarding female-led ventures, offering savvy investors a unique entry point.

The Uniqlo Standard: Quality Over Speed

When discussing what makes Japanese business successful globally, the conversation inevitably turned to Fast Retailing, the parent company of Uniqlo, where Matsui serves as an external board member. Uniqlo’s success offers a blueprint for modern Japanese founders.

Contrary to the "fast fashion" label often applied to affordable apparel, Uniqlo positions itself as anti-fast fashion. Their strategy relies on functional, durable fabrics (like HeatTech and Airism) and a rejection of disposable trends. This obsession with product quality, combined with "flawlessly efficient" customer service, has allowed a company from rural Yamaguchi Prefecture to dominate global markets.

The lesson for startups is clear: Japanese companies win globally not by competing on the lowest price, but by competing on extreme quality and utility.

Navigating the "Trust Barrier" for Foreign Entrants

For international entrepreneurs and investors looking to enter the Japanese market, the barrier to entry is rarely regulatory—it is relational. The concept of trust in Japan extends far beyond a signed contract. It involves a deep, often time-consuming vetting process.

The discussion highlighted a specific anecdote regarding an American investor acquiring a ski resort. The process took four years of negotiation, not because of financial disagreements, but because the local stakeholders needed to verify the buyer's commitment to the community. In Japan, business longevity acts as a proxy for trustworthiness; a company with a 300-year history commands respect that a two-year-old startup does not.

The "Nod" is Not a "Yes"

A critical nuance for Westerners to understand is Japanese communication styles. In a meeting, a nod often signifies "I hear what you are saying," not "I agree with your proposal." Misinterpreting this cultural cue can lead to significant miscalculations in sales cycles and partnership developments. Success requires a physical presence, repeated face-to-face interactions, and a demonstration of long-term commitment.

Labor Shortage: The Engine for AI and Robotics

While the West often debates the ethical implications of AI displacing jobs, Japan views the technology through a pragmatic lens. With a critical shortage of workers in sectors ranging from elderly care to waste management, Japan needs automation immediately.

This creates a fertile environment for Deep Tech, AI, and robotics companies. There is less societal "allergic reaction" to automation because the alternative is a breakdown in essential services. Startups like Sakana AI (a unicorn created in Japan with global talent) are finding that Japan is not only a great market for selling AI solutions but also an attractive destination for recruiting global engineering talent due to the high quality of life.

"The good news for AI founders is here, this is a market that's welcoming to your technology... because we just cannot—the people don't exist."

Conclusion

Japan is navigating a complex geopolitical landscape, balancing its crucial security alliance with the United States while managing relationships with neighbors and seeking new economic bridges with the Middle East. Internally, the country is waking up. The government is setting ambitious targets for unicorn creation, streamlining startup visas, and offering subsidies for deep tech.

For investors and founders, Japan represents a unique paradox: it is an ancient culture built on slow-moving trust and tradition, yet it is currently one of the most urgent and welcoming markets for radical technological innovation. As the "Lost Decades" fade into history, Japan’s startup revolution is just getting started.