Many Japanese startups working on Deep Tech and expanding their businesses have emerged from the Kansai region. Although Japan’s ecosystem has primarily developed around the capital city of Tokyo, cities in the Kansai region have also been rapidly growing their ecosystems with the development of investment environments and collaborative efforts from the private, academic, and government sectors supporting startups.
Tokyo’s current innovation ecosystem
Even when compared to cities around the world, Tokyo’s scale is large. In the global city startup ecosystem rankings, Tokyo was 9th in 2021 and 12th in 2022.
The concentration in Tokyo is evident when looking at the number of companies established and the total funds raised. According to Startup DB, by the end of 2022 there were 10,395 startups headquartered in Tokyo, accounting for 66.17% of all startups in Japan. That is over 9,000 more than the 810 startups in Osaka Prefecture, which has the second-highest number of startups in Japan. In terms of the amount of funds raised, out of the total domestic amount of 1.19 trillion yen, startups in Tokyo raised 934.1 billion yen. That means Tokyo alone accounts for 78.45% of the total amount raised.
When looking solely at the total numbers, it is clear that startups in Japan are concentrated in Tokyo. However, this is not necessarily the case when considering the growth rate in terms of the number of establishments and the number of fundraising events.
First, looking at the annual number of startup establishments, 693 were founded in Tokyo in 2015, accounting for 71.22% of the total in Japan. However, since 2015, as the number of startups established in other regions has increased, Tokyo’s proportion has gradually declined, dropping to 63.6% in 2022. The change is even more evident when looking at the number of fundraising events by prefecture. When considering the whole of Japan as 100%, Tokyo’s proportion, which was 83.55% in 2012, has decreased to 71.18% in 2022, according to Startup DB.
In contrast, the number and amount of fundraising activities in regional cities outside of Tokyo have been increasing year by year. For example, in Osaka Prefecture, the proportion of fundraises, which was around 2% of the national total in 2017, has been steadily growing year by year, reaching 5% by 2022. Cities like Kyoto and Hyogo are also gradually increasing their proportions, albeit at a slower pace. These data also suggest a flow of funds and trends from Tokyo to regional cities.
The changes in these numbers suggest that an environment conducive to the influx of investment funds into regional startups is being established. This likely stems from the heightened interest of public institutions, such as the national and local governments, in fostering regional startup ecosystems to realize regional revitalization. Another factor could be the increasing diversity on the investor side, including local businesses and venture capital originating from universities.
Among the regional startup ecosystems that have been gaining prominence, the “Kansai area” stands out with its particularly strong momentum and attention.
Reasons why the Kansai ecosystem is attracting attention
Kansai is composed of several prefectures, including Osaka which has the second-highest GDP in Japan after Tokyo, and the cultural city Kyoto, which boasts a history of more than 1,000 years.
According to data from Crunchbase, there have been 731 startups established in the Kansai region since 2013, and the total fundraising amount has been significantly increasing in recent years. While there was a decline in the amount raised in 2020 due to the spread of COVID-19, the cumulative fundraising amounts within the broader Kansai region has more than doubled in the last three years. As of August 2023, the amount raised already exceeded the amount from 2021, and it is expected to further increase year over year.
The increase in investment in Kansai-based companies can be attributed to the region’s accumulation of deep tech companies, which have recently gained attention as promising investment targets. Additionally, the local government agencies have been expanding their startup nurturing and support systems.
Kansai has traditionally been an area with many startups originating from university laboratories with several research institutions including Kyoto University, and many companies expanding their services based on fundamental research conducted in those labs. Historically, major Japanese pharmaceutical companies such as Takeda Pharmaceutical, Shionogi & Co., and Ono Pharmaceutical also originated from the Kansai region.
Many companies in the Kansai region are expanding their services based on research in biotechnology, engineering, and other fields. Notably, there are several startups in the region that are engaged in deep tech. In recent years, universities have also been putting more effort into supporting these companies via a noticeable trend of establishing investment funds within their institutions to help them scale up.
The Kansai region is not only receiving support from universities, but also from government agencies. With the Osaka-Kansai Expo scheduled for 2025, various entities including Osaka Prefecture, the city of Osaka, and the Osaka Business Development Agency have teamed up to boost the Expo through the Osaka-Kansai Expo Revitalization Fund. This support system from universities and governmental agencies is acting as a significant tailwind for startups in the Kansai region.
Startups from Kansai that are delving into deep tech and raising funding
There are three startups that are particularly noteworthy in Kansai.
EX-Fusion
Recently receiving high expectations from investors is EX-Fusion, which is engaged in the energy business. The company, aiming for the practical application of commercial laser nuclear fusion reactors, was established in July 2021 by researchers from the Institute of Laser Engineering, Osaka University and the Graduate School for the Creation of New Photonics Industries.
Laser nuclear fusion has been attracting attention in recent years, as it is capable of generating and supplying electricity without emitting carbon dioxide. The services of this company, which can potentially replace existing energy sources, are garnering attention as a clean energy source that could contribute to achieving carbon neutrality by 2050.
Most recently, it successfully raised a total of 1.8 billion yen in seed funding in July. In October, it signed a Memorandum of Understanding with EOS Space Systems of Australia — which uses high-power laser technology to track space objects — to explore cooperation. Going forward, the goal is to contribute to technology development in various optical industry sectors, not just in the energy field.
Toregem Biopharma
Another university-launched startup attracting attention is Toregem Biopharma, a Kyoto University-originated company developing a treatment for congenital anodontia, a condition in which patients inherently lack permanent teeth or have lost teeth due to decay or other causes. It is developing a medication that allows teeth derived from the patient’s tissue to grow by injecting an antibody formulation. The company’s business, based on research findings from Kyoto University’s Department of Dental and Oral Surgery, is garnering attention as it could become the world’s first regenerative treatment for teeth if commercialized. In July 2023, it successfully raised 380 million yen in its Series A2 round. Using the procured funds, it plans to advance nonclinical safety tests and the production of formulations for clinical trials, aiming to start clinical trials in 2024 and achieve practical application by 2030.
Bacchus Bio Innovation
Lastly, there is Bacchus Bio Innovation. This biomanufacturing company was founded based on the results of many years of synthetic biology study at Kobe University. Bacchus designs and modifies genes to cultivate microorganisms (smart cells) that are optimized for mass production through a unique development cycle that combines digital technology and biotechnology.
The company has built Asia’s pioneer “Integrated Biofoundry®” as a platform for biomanufacturing. Its strength lies in its ability to provide consistent services from the design of artificial metabolic pathways and strain modification in microorganisms to the process development. The company aims to achieve a sustainable society by using its technologies to build bio-based processes that fundamentally change the manufacturing processes for pharmaceuticals and functional foods, and the production of chemical raw materials and fuels derived from fossil resources.
Most recently in April, the company carried out funding with Idemitsu Kosan Co., Ltd., and the cumulative fundraised amount reached 3.1 billion yen.
Beginning in August 2023, the company is participating in a project led by the Ministry of Economy, Trade, and Industry to develop biomanufacturing products directly from carbon dioxide. Furthermore, the company is growing its business by enhancing its R&D organization and expanding its facilities with an eye to overseas expansion.
Future prospects of the Kansai Area
The Union of Kansai Governments has put forth the concept of “Deep Tech Valley KANSAI,” aiming to create a startup ecosystem that competes globally. To showcase the potential of the startup ecosystem, five companies selected from the Kansai area took the stage recently to pitch.
Metro Weather
Metro Weather is a startup originating from Kyoto University that develops and provides aerial technology, including small, high-performance Doppler lidars. These technologies are expected to be applied in various fields such as urban disaster prevention, wind power generation, drones, and aviation. In September it raised an additional 510 million yen in its Series A round, with NTT Finance, DRONE FUND, MOL PLUS, and others as underwriters, bringing the total raised in the Series A to 1.21 billion yen. The funds raised are planned to be invested in expanding its business development structure for accelerating its business expansion in the U.S.
Pittan
A startup that develops a health care service called Pittan is building a better understanding of skin conditions from sweat with the world’s smallest analyzer. The company offers a service that allows users to track metrics related to skin health and beauty with the simplicity of a body fat scale. By leveraging analytical chemistry for the research and development of trace bio metabolite analysis, they are promoting collaboration with business operators who have inner care solutions, contributing to the realization of well-being. In August 2023, it raised funds with Senshu Ikeda Capital and Dispatch Startup Spinout Capital as underwriters. Pittan plans to allocate the funds for the research and development of visualization functions related to skin diseases, muscles, stress, etc., which they will release in the future.
Behomal
Behomal develops and sells the plastic DAC Pla, which captures CO2 from the atmosphere, positively impacting the environment. Mixing resin additives into plastic products, the company turns them into CO2-absorbing plastics, called DAC Pla (Direct Air Capture-Plastic) products. Its aim is to realize a ubiquitous CO2 capture society by using DAC Pla products that capture and reuse CO2 from the atmosphere.
SK Fine
SK Fine specializes in making three-dimensional ceramic models using 3D printers, selling the printers, and conducting research and development. In April 2021, it raised 100 million yen in additional investment from Osaka University Venture Capital, aiming for further performance improvements in its equipment.
MT3
MT3 is researching and developing a radiosensitizer for animals called “Lavurchin.” Lavurchin is Japan’s — and the world’s — first cancer radiosensitizer for animals, discovered through natural substances that are derived from marine organisms. It has been confirmed to increase the therapeutic effect of radiation, and is expected to contribute to medicine in the future. In November 2020, it raised funds with the backing of the Gunma Medical Industry Collaboration Activation Fund, operated by REVIC Capital and Gunma Consulting. MT3 is pushing forward with research and development, clinical trials, and other efforts to accelerate commercialization.
