Japan is often seen as a country slow to change and dominated by large multinational companies. World Innovation Lab hopes to change that.
The Palo Alto, California venture firm works with Japanese corporations that are also its LPs to encourage innovation from within and eventually spin companies off. Gen Isayama, general partner and CEO, said he wants to help improve innovation in his home country and encourage more start-ups to grow outside of the traditional mega-corporations.
“I realized that innovation in the United States and China was led by these ambitious entrepreneurs who want to be rich, want to be famous and are willing to take the risk,” Isayama said. “Whereas in Japan, innovation seems to be happening in a very different way, which is not led by these individuals or entrepreneurs.”
World Innovation Lab, which goes by the acronym WiL, was founded in 2013. It invests in US-based growth to late-stage companies looking to expand in Japan and in Japanese companies looking for a foothold in the US. It is also an evangelist for Japanese entrepreneurship.
In addition to Isayama, WiL’s general partners are Masataka Matsumoto, who is also the firm’s co-founder, and Rob Theis. Rounding out the team are a dozen partners, seven directors, four investors and one principal.
Isayama approached some of Japan’s largest companies with a proposition: World Innovation Lab would team up with the corporations’ employees and invest in their work, then help the employees spin out into their own start-ups.
Spin-offs helped by World Innovation Lab include Soracom, an internet-of-things platform. The company began inside a mega-corporation and spun out before the KDDI Group bought it in 2017.
“A lot of companies in Japan have started to embrace that model where instead of owning 100 percent of all the subsidiaries, they have affiliates,” Isayama said. “And that’s one of our missions – incubating and spinning out a business.”
WiL’s mission resonates with many investors, said Naoto Osugi, director at investment bank DC Advisory, which is an LP. “It’s a unique concept of working with their LPs to empower innovation in those organizations,” Osugi said. “LPs are satisfied not only with the fund’s performance, but are also very happy with the long-term partnership with WIL as a change agent for them to become more innovative organizations.”
Japan’s venture ecosystem has gone through fits and starts, but it began growing in earnest in 2014, according to a report from the Japan External Trade Organization. The group noted that large corporations started working with outside firms to keep up with the rapid technological evolution in the market. Many of these companies established corporate venture capital arms. CVC investments in start-ups grew by 4.5x to 317 between 2013 and 2018, the JETO report said.
However, Japan’s venture market is not as robust as other countries’, according to a Bank of Japan March 2021 report. For example, VC-backed companies represent only 0.02 percent of Japan’s gross domestic product, compared to 0.52 percent of GDP in the United States and 0.22 percent in China, the report said.
It was in this environment that World Innovation Lab began raising capital in hopes of bridging the gap between Japan and the US. It is currently investing out of its third flagship fund, WiL Ventures III LP. The firm declined to reveal the size of the fund, which began raising in May 2021, according to a regulatory filing. PitchBook reports that the fund size is $690 million and that the fund is still open.
Besides DC Advisory, WiL’s LPs include carmaker Suzuki Motor Corporation, technology and entertainment giant Sony, money management firm Daiwa Securities and Mizuho Bank.
Sumito “Sunny” Kimura, a director at Suzuki Motor of America, said working with World Innovation Lab has helped Suzuki to embrace its entrepreneurial roots. “It can be said that the entrepreneurial spirit was the DNA of our company when it was founded,” he said. “WiL has enabled the executives to systematically re-learn the entrepreneurial and ‘thinker to doer’ spirit, and how to apply them in existing and new businesses.”
Kimura added that working with WiL and other VCs has “enabled many [Suzuki] executives to learn core principles of design thinking that put the customer at the center of everything.”