President, VEC Foundation
No.2:Innovation and Venture Business
Each and everyone of us have his or her own definition of "innovation." But I think it is a process based upon some kind of technological development, which is converted into a product or service, or that has an impact on society into which it is assimilated. Innovation which is to be taken up by "Innovation 25" should assume a specific technological development that has a large enough impact to change the whole economic society.
Looking back into history, ever since the industrial revolution there have been endless technological innovations that have largely changed the capitalist society, such as the invention of steam engines, construction of railroads, invention of automobiles, etc. Looking ahead into 2025, we need to focus our discussions on innovations which similarly will have enough impact to change the social system. What then are these innovations? I think one of the fields is information technology (IT), and the other, biotechnology.
However, in our country, we do not usually limit our discussions of scientific technology to these two fields as targeted priority areas. For example, in the process of planning fundamental projects on scientific technology, there inevitably would be a contention that basic fields are important against which others argue that applied fields are, ending up in a compromise that a balance between the two would be the best. As for targeting the priority areas, there is always someone who checks for this and that making sure that nothing is left out, with all the efforts winding up from time to time in a please-everyone project.
This tendency is most likely due to the structural remnant of antiquated departments and courses of universities or meetings of academic societies. Although we have seen quite rapid accommodation in course curriculums to the recent incorporation of national universities and to the economic social changes due to a declining birthrate; the resisting forces of old industries are stubborn and hard to quell.
This is true for the administrative side as well. For example, in the Ministry of Economy, Trade and Industry, although the vectors of divisions, which oversee individual industries, have been adjusted to meet the times, the structures have not dramatically changed over the years. The directors of each division vying for budget allocations for technological development have hindered the targeting of priority areas.In Japan, in areas where market mechanism does not take hold, large structural changes accommodating innovative changes do not occur as readily.
In contrast, the United States is a dynamic country, with the number of university researchers in biotech rapidly increasing once biotech is considered important. In particular, it is quite evident in the investment areas of U.S. venture capitals, which are completely under market mechanism where money only moves towards profit: the priority fields of IT and biotech together comprise 80% of their investment.
The VEC venture capital questionnaire employs the translated Japanese version of the U.S. NVCA questionnaire list. Until last year industries in this questionnaire were categorized into "biotech, IT and others," indicating that in the U.S. it has come to the point where other fields are not worth investigating. That 80% of U.S. venture capitals, with an annual average of two trillion yen in investment, are invested into just these two fields signifies that epoch-making innovations are occurring in these areas with concentrated groups of enterprises sure to grow into large businesses within a few years. Nanotechnology is considered for the most part a priority field, but this field serves more as parts supporting IT and biotech and is not among the technologies that will change the world by itself.
In the Japanese economy, which maintains a structure resistant to market mechanisms thereby stalling reform or abolition of organizations, the venture capitals are invested evenly to various industries; moreover, from the seeds to early and late stages, that evenness is remarkably maintained throughout. However, in the U.S., it is at the other extreme, where capitals for equipment investment no longer flow into old industries. For example, oil refineries have not had any equipment investment in the past 30 years to the point where once a hurricane destroys them, the gasoline prices immediately soar as its aftereffect. To be sure, not everything is good about the U.S., but to follow up on how the U.S. economy, the frontrunner of world economy, targets the priority areas to the extreme, and allocates resources to the forefront of intellect to continue on its advance is, I think, quite important.
Incidentally, there is data indicating that market mechanism is barely but still at work in our country: of the 1500 university-based ventures, 40% is biotech-related, and another 40%, IT-related. It is no coincidence that university-based ventures are concentrated in these two fields. When faculty members of universities at the forefront of intellect in our country attempt to startup a business, it is natural that their superiority is brought into full play in the fields where technological innovation is in rapid progress.
However, as the university-based venture project is an extraordinary 'venture' in our consensus-oriented society, it not only has been at the center of attention, but it rather symbolically exposes the weaknesses in our country's infrastructure and milieu for innovation. I will address the future prospects and issues in each individual field in the following series.