Japan’s Startup Revolution (feat. Kathy Matsui)

SUMMARY

Jason Calacanis hosts Kathy Matsui, MPower Partners GP and Uniqlo board member, discussing Japan's startup surge, economic revival, Uniqlo's global model, women founders' challenges, and geopolitical shifts.

STATEMENTS

Japan's workforce is small and shrinking, creating a seller's market for young people with abundant opportunities.
Entrepreneurs fall in love with Japan due to its unmatched quality of life, including safe public transport and exceptional food.
Uniqlo, under Fast Retailing, originated in rural Japan and transformed from simple apparel to durable, functional clothing at reasonable prices.
Fast Retailing rejects fast fashion categorization, emphasizing sustainable, long-lasting wear over trendy styles.
Uniqlo's business generates more revenue overseas than in Japan, with strong penetration in the US, Europe, China, and Asia.
Functional fabrics like HeatTech for warmth and AIRism for cooling have been key to Uniqlo's competitive edge in a highly competitive clothing industry.
Japan's manufacturing for apparel often occurs outside the country to optimize costs while maintaining quality standards.
In the 1980s, Japan was seen as a global product leader with brands like Toyota and Sony, but economic stagnation inward-focused entrepreneurs.
The asset bubble burst in the late 1980s led to decades of deflation, causing economic stagnation and a "death spiral" in consumer and business behavior.
Deflation encouraged delaying purchases and investments, as prices and wages fell, leading to inward-looking companies and job security priorities.
Recent economic recovery, with inflation and rising wages, combined with labor shortages, has shifted young talent toward startups.
At the University of Tokyo, over 40% of undergraduates now aspire to start or join startups, a dramatic change from five years ago.
MPower Partners' first fund focused on ESG integration to scale businesses, targeting mid-to-late-stage growth companies.
MPower's second fund emphasizes "Japan Dynamism," addressing vulnerabilities like energy, supply chain, cybersecurity, and food security.
Only 2% of startup funding in Japan goes to women founders, despite evidence they raise less capital but achieve higher IPO valuations.
Women-led companies in Japan enter at lower valuations but exit at 1.5 times the premium of male-led peers on IPOs.
MPower launched Japan's first women-focused fund to address the pipeline issue, backed by government and corporations like Mitsubishi.
In the US, DEI initiatives became polarizing and led to performative actions like title inflation to meet quotas.
Japanese startups often focus domestically first due to the large market, but global ambition is growing with VC support for expansion.
Building trust in Japan requires multiple meetings and personal relationships, unlike quick US deals where business precedes friendship.
Entering Japan's market demands understanding regulations, local faces for relationships, and patience in incumbent-dominated sectors.
Japan's historical energy dependence has fostered ties with the Middle East, now evolving into tech and infrastructure collaborations.
Geopolitical uncertainties, including US alliance reliability, push Japan to build proactive ties in Asia, Africa, and rule-making.
China seeks global leadership status, behaving rationally amid vulnerabilities like economic downturn risks and civil unrest.
AI is urgently needed in Japan to address acute labor shortages, with a welcoming stance unlike some Western markets.
Smart trash cans using AI for sorting can prove value through pilots showing cost savings and emissions reductions.
Startups in regulated sectors benefit from VC connections to ministries, politicians, and policy committees for rulemaking influence.
Japan's point-based immigration and technical trainee programs allow skilled and blue-collar workers, but broader acceptance is pragmatic necessity.

IDEAS

Japan's quality of life, from safe subways for kids to Michelin-star abundance, creates an irresistible draw for expat entrepreneurs.
Uniqlo's anti-fast fashion ethos prioritizes timeless, functional clothing, appealing universally across cultures and climates.
Deflation acted as economic poison, fostering a wait-and-see mentality that stifled innovation for decades.
Labor shortages have flipped the job market into a seller's paradise, empowering young talent to risk startups over safe corporate paths.
University of Tokyo students' 40% startup aspiration signals a cultural pivot from job security to entrepreneurial ambition.
ESG in Japan focuses on practical governance and scaling, contrasting US DEI's politicized quotas and shaming.
Women founders offer investment upside: undervalued entry, premium exits, yet systemic barriers limit their funding to 2%.
"Japan Dynamism" invests in resilience against island vulnerabilities like resource scarcity and cyber threats.
Domestic market mastery isn't wasteful if it builds a foundation before global leaps, but tech breakthroughs demand worldwide application.
Trust-building in Japan tests commitment through repeated dinners and nods that aren't commitments.
Middle Eastern nations' oil diversification seeks Japanese infrastructure expertise, forging non-energy alliances.
US-Japan security ties face doubt, prompting Japan to diversify geopolitically without aggression.
China's rational pursuit of leadership avoids war to secure legacy and stability amid internal pressures.
AI trash sorting addresses Japan's meticulous recycling culture, targeting high-traffic spots like stations for scalable impact.
Regulated sectors thrive via VC bridges to policymakers, turning obstacles into collaborative advantages.
Immigration pragmatism will quietly expand in Japan to fill essential roles robots can't yet handle, like elder care.
Job displacement from AI and robots heightens urgency for immigration balance in workforce-strapped economies.
Historical family business longevity in Japan values sustainability over quick disruption.
Global teams at VCs like MPower facilitate bidirectional market entry, easing Japanese firms' international tactics.
Ski resort acquisitions highlight how cultural tests of respect and community benefit reveal true investor dedication.
Point-based systems prioritize skills, but homogeneous societies resist broader influxes until necessity forces change.
Uniqlo's functional innovations like UV-blocking fabrics exemplify Japan's edge in blending tradition with utility.
Economic recovery narratives inspire risk-taking, as cushy jobs remain backups for startup experiments.
Middle East's strategic investing counters "dumb money" stereotypes, mirroring Japan's long-term vision.
AI's opportunistic embrace in Japan stems from demographic crises, not fear of job loss.
Policy evolution now welcomes startup voices in committees, accelerating regulatory adaptation.

INSIGHTS

Economic deflation's psychological grip fosters caution, but inflation reignites ambition by validating risk.
Quality of life as a magnet for talent underscores how livability trumps salary in global competition.
Sustainable brands like Uniqlo succeed by defying trends, proving durability builds loyalty across borders.
Labor scarcity transforms youth from job seekers to choosers, catalyzing a startup renaissance.
ESG's non-polarizing role in Japan enables genuine scaling, avoiding US-style backlash.
Women founders' valuation asymmetry reveals untapped alpha, demanding early intervention to build pipelines.
Geopolitical isolation as an island nation necessitates "dynamism" investments in self-reliance.
Trust economies like Japan and the Middle East reward patience, filtering for committed partners.
Domestic dominance provides a launchpad, but global tech hoarding squanders innovation's potential.
US alliance uncertainties compel diversified diplomacy, positioning Japan as a rule-maker.
China's leadership aspirations prioritize stability, tempering aggression despite external posturing.
AI integration is survival-driven in aging societies, accelerating adoption over resistance.
Regulatory navigation via insider connections turns policy hurdles into strategic edges.
Immigration's point-based pragmatism balances skills needs with cultural homogeneity.
Job automation amplifies demographic pressures, forcing hybrid human-AI workforces.

QUOTES

"As a measure of quality of life, this country is very hard to beat."
"Deflation when prices and wages and assets fall in value, that is like poison."
"It's a sellers market right? They have so many opportunities in front of them."
"40% plus of the respondents said I want to start a startup or work at a startup."
"You get in at a discount and you can exit at a premium. Like, how juicy is that?"
"In Japan, you don’t build trust in just one meeting…"
"When you move up the stack… be careful what you wish for!"
"We need AI yesterday because the labor shortages are so acute."
"Japan will face a reality that they do not have enough people to do a lot of the jobs."
"If you want to be a global leader, you have to behave in a global leader-like way."
"Nodding does not mean yes. It’s just like, 'I understand kind of what you’re saying'."
"Their companies were valued one and a half times greater than the companies of their male peers."
"We're not just about oil anymore. We're diversifying and we need your help."
"Building trust... that's the process of getting to know each other."
"There's a lot of pride attached to the fact that you have a family business that's been around like 300 years."

HABITS

Prioritizing customer service excellence in all interactions, extending it globally via Uniqlo's model.
Delaying non-essential purchases during deflationary periods to capitalize on falling prices.
Building relationships through multiple meetings and shared dinners rather than single transactions.
Focusing on functional, sustainable product design over fleeting trends.
Seeking blue-chip job security initially, then transitioning to startups with market safety nets.
Integrating ESG principles early to prepare for governance expectations in scaling businesses.
Using public transportation exclusively for efficiency, avoiding personal driving in urban areas.
Encouraging independent child mobility, like subway rides at night, for safety and trust.
Conducting morning walks in HeatTech apparel to experience product functionality firsthand.
Renewing work visas annually despite challenges, committing long-term to professional growth.
Participating in policy committees to influence regulations proactively.
Proving product impact through pilots demonstrating cost and emissions savings.
Diversifying supplier networks to mitigate risks in global sourcing.

FACTS

Japan has more Michelin-starred restaurants than any other country, with some declining stars to avoid crowds.
Uniqlo's parent, Fast Retailing, earns more revenue overseas than domestically.
The asset bubble burst in late 1980s led to over 25 years of economic stagnation and deflation.
Only 2% of Japanese startup funding supports women founders.
Women-led Japanese IPOs from 2020-2024 valued 1.5 times higher than male-led peers.
40% of University of Tokyo undergraduates want to start or join startups.
Japan lacks natural resources, facing acute vulnerabilities in energy, food, and supply chains.
Saudi Arabia's PIF has committed significant investments to Japan recently.
Japan issues startup visas and subsidies for deep tech and biotech to attract founders.
Sakana AI became one of Japan's fastest unicorns, recruiting global AI talent.
Japan's technical trainee program covers blue-collar roles like nursing and construction.
Amazon employs about 1.5 million humans and 600,000 robots in its operations.
US unemployment is at 4.6%, complicating business hiring amid AI displacement.

REFERENCES

Uniqlo (fashion retailer and flagship store in Ginza).
Fast Retailing (parent company of Uniqlo).
MPower Partners (venture capital fund, Funds 1 and 2).
Every.io (back-office tool for incorporation, banking, payroll).
LinkedIn Jobs (AI-powered hiring platform).
Zite (AI business software builder).
Jetro (partner for Founder University pre-accelerator).
Goldman Sachs (Kathy's former employer).
Tom Ford (luxury suit brand).
Toyota (iconic Japanese automaker).
Sony (electronics pioneer, started with rice cookers or heating blankets).
Ezra Vogel's book "Japan as Number One" (on Japan's 1980s dominance).
Sakana AI (Japanese AI unicorn with KLEINER Perkins and Lux investors).
Aladdin (smart trash cans startup by Yuki Kanai).
AltSource Capital (Maya Hojnacki's firm for supply chain platform).
Goi (Hiroki's factory automation company).
Mubadala (UAE investment fund).
Public Investment Fund (PIF, Saudi Arabia).
SoftBank (partnership for Founder University).
Y Combinator (accelerator with gender bias experiences mentioned).

HOW TO APPLY

Assess Japan's quality of life appeal by experiencing safe public transport and cuisine to attract talent.
Study Uniqlo's model: Develop durable, functional products at accessible prices for broad market penetration.
Counter deflation mindsets by emphasizing inflation's opportunities for immediate investments and hires.
Target labor-short markets: Pitch startups as seller's market advantages for young, skilled workers.
Integrate ESG early: Build governance and data security to accelerate mid-stage scaling and IPO readiness.
Launch women-focused initiatives: Identify undervalued female founders for discounted entry and premium exits.
Adopt "Japan Dynamism": Invest in solutions for energy, cyber, and supply chain resilience in vulnerable economies.
Start domestically: Master the home market before global expansion to leverage large consumer bases.
Build trust gradually: Schedule multiple meetings and social dinners to establish long-term relationships.
Navigate regulations: Partner with locals for on-ground presence in heavily controlled sectors like fintech or healthcare.
Diversify geopolitically: Form alliances in Asia, Middle East, and Africa to reduce reliance on single partners.
Embrace AI urgently: Deploy automation for labor gaps, proving ROI through pilots in high-impact areas like waste management.
Connect with policymakers: Use VC networks to join committees influencing rules in regulated industries.
Implement point-based immigration: Prioritize skilled visas while pragmatically expanding for essential roles.
Pilot innovations: Demonstrate tangible savings in costs and emissions to win enterprise clients like airports.

ONE-SENTENCE TAKEAWAY

Japan's startup revival thrives on economic recovery, labor needs, and global ambition despite cultural and geopolitical hurdles.

RECOMMENDATIONS

Embrace Japan's seller's market to recruit top talent into startups over corporate safety nets.
Design products with functional innovation like Uniqlo's fabrics to differentiate in competitive industries.
Counter historical deflation caution by acting swiftly on rising wages and inflation signals.
Survey university students to gauge entrepreneurial interest and tailor accelerator programs accordingly.
Focus VC on ESG integration for governance, avoiding polarizing US-style mandates.
Target women founders for investments, capitalizing on their undervaluation and superior exit multiples.
Prioritize "dynamism" themes in portfolios to address Japan's resource and security vulnerabilities.
Encourage domestic mastery before globalization, providing tactical support for international entry.
Invest in relationship-building time, viewing multiple interactions as commitment filters.
Collaborate with Middle Eastern diversifiers for infrastructure and tech partnerships beyond oil.
Diversify alliances amid US reliability doubts, engaging in Asia and Africa rule-making.
Urgently adopt AI for labor shortages, welcoming it as an opportunity rather than threat.
Connect startups to ministries and politicians for regulatory influence in deep tech.
Expand immigration pragmatically for blue-collar needs, blending points systems with trainee programs.
Prove AI solutions via pilots showing cost and environmental benefits in public spaces.
Balance automation with human oversight to sustain jobs in human-in-the-loop models.
View geopolitical tensions rationally, seeking cooperative leadership over confrontation.
Launch bidirectional bridges for market entry, aiding Japanese firms abroad and vice versa.
Test long-term dedication in trust-based cultures through community-respecting persistence.
Prepare for AI-driven displacement by upskilling in oversight roles for robots and systems.

MEMO

In the heart of Tokyo, amid a live taping of This Week in Startups, Jason Calacanis sat down with Kathy Matsui, a general partner at MPower Partners and board member at Fast Retailing, Uniqlo's parent company. Their conversation peeled back layers of Japan's evolving economy, once hobbled by decades of deflation but now surging with entrepreneurial fervor. Matsui, an American of Japanese descent who has lived in Japan for over 30 years, painted a picture of a nation where labor shortages have turned the job market into a buyer's paradise for young talent. "It's a seller's market," she said, noting how rising wages and inflation are coaxing graduates from safe corporate paths toward startups. At the prestigious University of Tokyo, 40% of undergraduates now aspire to found or join ventures—a stark shift from the job-security obsession of the Lost Decades.

Uniqlo emerged as a case study in Japanese ingenuity adapted for global conquest. Born in rural Yamaguchi Prefecture, the brand shuns fast fashion's ephemerality for durable, functional apparel like HeatTech base layers and AIRism cooling fabrics. Calacanis, fresh from a visit to Uniqlo's bustling Ginza flagship—where he replaced lost luggage—marveled at its efficiency and quality. Matsui explained how Fast Retailing has flipped the script: more revenue flows from overseas markets like China and Europe than Japan itself. This outward focus contrasts with the inward turn post-1980s asset bubble, when deflation poisoned investment, delaying factories and purchases in a vicious spiral. Yet, as Japan rebounds, companies like Uniqlo embody a cultural priority on customer service and sustainability, manufacturing abroad to maintain "Japanese-style quality" without domestic production's high costs.

Matsui's MPower Partners exemplifies this renaissance. Their first $150 million fund integrated ESG principles—not as trendy checkboxes, but practical tools for scaling mid-to-late-stage companies toward IPOs. The second fund doubles down on "Japan Dynamism," targeting vulnerabilities in energy security, supply chains, and cybersecurity for an island nation short on resources and people. A groundbreaking move: Japan's first women-focused fund, addressing how just 2% of startup capital reaches female founders. Data reveals the irony—women raise less but command 1.5 times higher IPO valuations. "You get in at a discount and exit at a premium," Matsui quipped, backed by Tokyo government and Mitsubishi entities to build the pipeline from seed stage onward. This pragmatic feminism sidesteps the US DEI toxicity, where quotas sparked performative title inflation and shaming.

Global ambition, however, demands more than domestic dominance. Japanese startups, spoiled by a massive home market, often prioritize it first—logical, but wasteful for exportable tech like biotech or AI. MPower's global team bridges this gap, helping 70% Japanese portfolio firms expand while aiding 30% foreign ones enter Japan. Calacanis probed entry barriers: heavy regulations in ride-sharing or fintech, strong incumbent lobbies, and trust built not in one meeting but through dinners and persistence. "Nodding doesn't mean yes," Matsui warned, echoing tales like an American reviving a Niseko ski resort after four years of community proving. For foreigners, local faces and regulatory savvy are essential; Uber's humbling pivot to Eats underscores the taxi sector's white-gloved resistance.

Geopolitics loomed large in their wide-ranging dialogue. Japan's US security umbrella, once unquestioned, now breeds doubts amid isolationist murmurs. Matsui urged proactive diversification—deepening Quad ties with India and Australia, scratching Africa's surface, and leveraging historical Middle East energy bonds for tech collaborations. Saudi's PIF and UAE's Mubadala aren't "dumb money"; educated at Stanford and Oxford, they're strategic long-term players mirroring Japan's vision. On China, Matsui sees rational leadership aspirations tempering aggression: "Be careful what you wish for" when ascending value chains, as vulnerabilities like unemployment could spark unrest. North Korean missiles and South China Sea tensions heighten stakes, pushing Japan toward rule-making influence rather than passive acceptance.

Audience questions illuminated practical hurdles. Yuki Kanai of Aladdin pitched AI smart trash cans for stations, sorting recyclables to cut costs and emissions—Jason praised targeting high-traffic pain points, starting small like Sony's rice cookers. Maya Hojnacki of AltSource Capital sought policy navigation; Matsui advocated VC connections to ministries and committees, where startups now shape rules in fusion energy or ride-sharing. Hiroki of Goi raised immigration: Japan's point-based visas and trainee programs for nurses or builders signal pragmatic shifts, but homogeneity resists floods. "Robots can't care for the elderly 24/7," Matsui noted, foreseeing quiet expansions for essential labor amid acute shortages.

AI's role crystallized as Japan's salvation. With a shrinking workforce, "we need AI yesterday," Matsui asserted, viewing it opportunistically unlike Western fears. Calacanis echoed this, citing Tesla's Optimus and Amazon's robot-human parity, predicting displacement but also opportunities in oversight. Immigration debates rage similarly in the US, where open borders under Biden proved unsustainable, and Trump's rhetoric masks pragmatic deportations akin to Obama's. Point-based systems, Calacanis suggested, could balance AI's job blunting with skilled inflows—heartbreaking for an immigrant-rooted nation, yet necessary for order.

Ultimately, Japan's startup revolution signals resilience: from deflation's ashes to dynamism's dawn, blending tradition with tech. Matsui's optimism—that pragmatism will open doors to immigrants and AI alike—offers a blueprint for aging economies worldwide. As Calacanis plans biannual visits, this "oasis" of innovation invites the world to join, not conquer.