Japanese investors turn to Europe as deep tech boom lures capital abroad

A significant influx of capital from Japan is now being directed toward European tech startups, as cautious investors are increasingly drawn to the continent's mature entrepreneurial environment. This shift is playing a crucial role in enhancing Europe's burgeoning deep tech sector, which has often been overshadowed by Silicon Valley's dominance. Since the implementation of the EU-Japan Economic Partnership Agreement in 2019, Japanese investors and venture capital firms have participated in financing rounds totaling over €33 billion (approximately $38 billion) for European startups. In stark contrast, the five years leading up to the trade deal saw only €5.3 billion invested. Tomosaku Sohara, co-founder and managing partner at NordicNinja, a venture capital fund, noted that prior to this agreement, Japanese investment in Europe was nearly nonexistent, with Softbank being the notable exception. NordicNinja, which manages €250 million in assets, is a collaboration between JBIC IG Partners from Japan and the private equity firm BaltCap. Sohara referenced Softbank's early activity in the European market, particularly its acquisition of Finnish gaming company Supercell, which revitalized Finland's startup ecosystem. Today, major Japanese corporations like Mitsubishi and Sanden, along with venture firms such as NordicNinja and Woven Capital, are actively funding tech ventures across Europe. Statistics reveal that Europe hosts over twice as many VC-backed startups per capita compared to Japan, and has 4.3 times more unicorns. Sohara explained that the Japanese corporate culture has historically favored investment in the U.S. but is now recognizing the compatibility of European entrepreneurs—many of whom have corporate backgrounds—with Japanese business practices. A notable trend among Japanese investors is their preference for deep tech sectors, which leverage scientific and engineering advancements. In 2024, deep tech and AI projects accounted for 70% of investments by Japanese-linked investors in Europe. High-profile startups benefiting from this investment include U.K.-based autonomous vehicle company Wayve, which raised $1.05 billion, and British quantum computing firm Quantinuum, which secured €273 million. However, scaling these startups poses challenges, given Europe's historically limited access to growth capital and industrial experience. Sarah Fleischer, co-founder and CEO of German battery materials recycling firm Tozero, highlighted that Japanese companies have accumulated substantial capital over the years and are now seeking to expand their global presence. The expertise of these firms in manufacturing and automotive sectors positions them well to address Europe's gaps in scaling production. Political factors also play a role in this investment landscape. Japan's strategic positioning as a bridge to Asian markets is becoming increasingly relevant amid U.S.-China tensions, and the youth in Japan is showing a gradual shift towards entrepreneurship. Despite the promising collaboration potential, language barriers and cultural differences pose challenges. Sohara pointed out that the limited English fluency in Japan can hinder communication, while Fleischer emphasized the importance of personal relationships in building successful partnerships. Japanese investors typically require thorough due diligence, leading to a slower decision-making process. The contrast between traditional Japanese investment approaches and those of firms like Softbank, which operates on a more aggressive, founder-driven model, highlights the evolving landscape. Looking ahead, while projections suggest a decrease in Japanese investment rounds to around €3 billion in 2025, increasing interest from Japanese firms in the European market indicates a potential growth trajectory for collaboration between the two regions.