Buyout firms such as Merrill Lynch Global Private Equity, Unitas Capital, and Sun Capital have all decided to close their Tokyo offices. Now, news comes that Japan’s Venture Capital community is looking at large scale consolidation according to the Japan Venture Capital Association. Much of the issue comes from the lack fo IPO market in Japan at the moment. Only 49 companies went public last year in Japan, the fewest since 1992.
I know, most of you are probably thinking, “Right now, the whole world lacks an IPO market!”. Which is true, but one must remember that Japanese VCs are twice as dependent on IPOs for their exit revenues as compared to their American and European counterparts. Data from the Venture Enterprise Center show that IPOs provide 45% of revenue and 90% of profits for Japanese Venture Capital firms. This creates greater liquidity issues than what western funds are seeing at the moment.
Kazuhiko Tokita, former director of Mitsubishi UFJ Financial Group’s Venture Capital unit and current Chairman of the Japan Venture Capital Association, had a great quote:
The industry needs to gather its power during this ice age, and that means combining. When this is finished, what’s left standing will be the real venture capitalists.
This portent will ultimately prove itself true not just concerning the VC firms in Japan, but also many other types of Private Equity firms across the globe (we’re already seeing this with Capital Dynamics buying out HRJ as one example). Perhaps in this crisis, Japan can act as an example in ways other than simply referring to it’s “lost decade”?