Kyoto, distinct from San Francisco or New York, aims to build a Startup Ecosystem—a community of startups and angel investors is now needed in Kyoto

Kyoto has long been home to manufacturing (craftsmanship) starting from traditional crafts including Nishijin textiles and braided cords to cutting-edge modern technologies. The techniques and passions that have been handed down across generations now constitute a world-class industry.

Monozukuri Ventures links such traditional manufacturing that Kyoto has been proud of with the new waves of manufacturing enabled by startups. We interviewed Mr. Narimasa Makino, the company’s managing director, about the current state of startup support in Kyoto.

“Valley of Death” for manufacturing startups in Silicon Valley

First, please tell us about your business.

MakinoMonozukuri Ventures helps entrepreneurs across the world to readily produce and sell high-quality products even in small volumes. We have two main businesses: technical consultation and investment. Our technical consultation aims at providing overall support to manufacturing startups. Our manufacturing experts offer optimal solutions in different stages, including idea creation, prototyping, and mass production.

Our investment includes a fund focusing on prototyping, first in Japan, which is joined by financial institutions and manufacturing companies that support manufacturing startups. We aim to reach startups based in Japan or the United States at a seed stage or an early stage.

What motivated you to start these businesses?

MakinoI believe that Japan’s strength lies in its world-class manufacturing.

Before starting my company, I worked for a venture capital (VC) firm in Kyoto and Tokyo (Osaka office). I had chances to visit Silicon Valley, where I talked about the firm at presentations or event exhibits. However, our businesses did not seem to attract many participants.

Some manufacturing startups showed interest in our businesses. When I asked the reason, the entrepreneurs told me that they were interested in learning about manufacturing in Japan because Japan is known for being good at manufacturing.

After returning to Japan, I researched and found that manufacturing startups often faced a barrier to mass production. Although 3D printers allow easier prototyping, mass production uses molds and thus requires design and prototyping for mass production. Designing molds is totally different from designing products using 3D printers. The difference, or the gap, is so deep that the “valley of death” appears for hardware startups. Many companies have struggled to survive.

The success of TOYOTA, HONDA, and SONY has created an impression that Japan is good at mass production.

MakinoAfter more research, I found the saying “hardware is hard.” Hardware startups and VC firms investing in these startups have been in a challenging business environment. They expected Japan to solve the difficult issue. This finding motivated me to explore a potential business opportunity.

Taxation system for angel investors modeled on “Hometown tax donation program” to compensate for shortage of human resources and funds

Why did you start your business in Kyoto?

MakinoKyoto has “Kyoto Shisaku Net,” an elite monozukuri network consisting of small- and medium-sized companies. I hoped to collaborate with them. These companies autonomously build a network to offer prototype solutions. The system is unique in the world. I expected that this network would be a great advantage.

Computers are used to design products made with 3D printers, but designing molds for mass production requires special techniques. Designing atoms based on information about bits is not an easy task. That task may be achievable using much experience and techniques held by Kyoto-based companies. Since our foundation in 2015, we have supported over 110 startups.

How do you see the current state of the ecosystem in Kyoto?

Makinohe ecosystem in Kyoto is full of potential, but honestly, it is not enough. Kyoto had long been called the capital of venture businesses, but not many startups are now being established in Kyoto anymore. The listed companies in Osaka and Hyogo outnumber those in Kyoto. Tokyo has the most extensive ecosystem in Japan. However, if you ask me which region has the potential to establish a globally viable ecosystem in Japan, I will definitively answer that Kyoto is the only candidate for that.

Why do you think Kyoto has such potential?

MakinoYou may think of Silicon Valley or New York as typical cities for ecosystems. Further, cities worldwide are also striving to enrich their ecosystems, aiming to be the second version of Silicon Valley or New York. However, such cities remain behind. I think cooperation between ecosystems is now required. To achieve such cooperation, we need to refine the values unique to the ecosystems. In this regard, Kyoto is different. Its history, tradition, and culture are the great strengths of Kyoto. These strengths will possibly be an integral part of the global ecosystem. The companies we invested in, such as Atmoph and mui labo, incorporate the sensibility of Kyoto into their product designs.

What is necessary for Kyoto to build a rich ecosystem in the future?

MakinoAlthough having potential, the Kyoto ecosystem lacks a community of entrepreneurs as well as funding.

Kyoto University conducts excellent basic research, but many of its graduates leave for Tokyo because Kyoto lacks a community of startups and thus lacks information. Another reason is related to funding—startups need two types of funds. One is seed money. Few investors in Kyoto are investing money into startups to start their businesses. Students thus leave for Tokyo. After successfully expanding businesses, startups may prepare for an initial public offering (IPO). An IPO needs funds of several hundred million yen to one billion yen, but VCs in Kyoto can invest 100 to 200 million yen at most. This facilitates the outflow of talent to Tokyo.

How can we solve these issues?

MakinoBuilding a community of individual investors, or angel investors, is essential to communicate with startups. Although you may think an angel investor must be wealthy, some in the United States invest as little as 500,000 yen or 1 million yen. They also receive tax benefits. The angel taxation system, which is not familiar in Japan, should be used more effectively in Japan. Similarly to the hometown tax donation program, this system allows us to readily choose how to use tax money. More use of the angel taxation system for startups will compensate for the shortage of funding in Kyoto and prevent talent outflow.

Active startup supporters create a rich ecosystem

Please give a message to entrepreneurs who are ready to start their businesses in Kyoto.

MakinoHonestly, I have nothing much to say to entrepreneurs. Startup founders are driven by their passions and are willing to bear risks. I think startup founders are good as they are.

Instead, supporters, including VCs and the government, should think more and act more to provide better assistance to entrepreneurs.

One solution is the taxation system for angel investors modeled on the “hometown tax donation program” you mentioned.

MakinoExactly. We already have the angel taxation system. However, the system is still not used well. The system is sound but is limited by some obstacles. I hope that the angel taxation system will be improved for easier use, reflecting the views of startups.

Lastly, please tell us about your favorite spots in Kyoto.

MakinoLet me think… Kyoto has various aspects, including advanced technology, history, and academic characteristics. Selecting one spot from that wide range is difficult. I would recommend Ginkakuji Temple, not because of its decorative beauty, but because it is a place where the unique beauty of Japan, such as wabi and sabi (beauty within simplicity and imperfection), is expressed. Kyoto has many places that will stimulate your senses, offering the advantage of operating businesses here in Kyoto.

Monozukuri Ventures
https://monozukuri.vc/ja/