A History of Japanese Venture Businesses

In the first quarter century after World War II, smalland medium-sized businesses were discussed in Japan with no relation to discussions about startups in other countries. For some time after the war, a two-tiered structure theory with a pessimistic approach toward smalland medium-sized businesses was at the fore, and later discussions of medium-sized companies never really focused on startups. However, from the 1970s, with the influence of the U.S., the Japanese-English term “venture businesses” began to take off. Venture capital began to be provided to startups, and these businesses came to be discussed with great expectations.


Prehistory: "Two-tiered Structure Theory" and "Medium-sized Company Theory" in Japan
In the first quarter century after World War II, small-and medium-sized businesses were discussed in Japan with no relation to discussions regarding startups in other countries (e.g., Ries, 2011). The two-tiered structure theory promulgated by Arisawa (1957) noted the coexistence of two tiers: (1) capitalistic management based on large-scale bureaucratic and rational organizations centered primarily on technologies transplanted from foreign countries (production technologies, production management, and product design) and (2) family-managed small-and medium-sized businesses that were built around existing technologies (Odaka, 1989). This concept was described in the Annual Report on Japanese Economy of 1957 as "being a two-tiered structure within a country similar to the structure of advanced and developing nations" and quickly spread from there (Odaka, 1984). As to Japan's employment structure, this Annual Report on Japanese Economy pointed out Japan's modern companies on the one side, with small companies and family-owned micro enterprises having premodern labor-management relationships on the other, and very little in between. This two-tiered structure theory can be summarized by the following five points (Kiyonari, 1990): (1) The Japanese economy is built on modern fields (large companies) and premodern fields (small-and medium-sized companies).
(2) Unlike modern sectors where necessary labor is determined by capital and technology, sectors with little capital have changing combinations of labor and capital due to lower incomes. Since people work even though income does not meet labor reproduction costs, there is little potential for unemployment, leading to full employment.
(3) The economies of Western advanced nations are a single, homogenous structure.
(4) The Japanese economy is growing at a quantitatively rapid pace, although it is qualitatively lagging behind.
(5) Premodern sectors are stagnating, and there is no ability to break out of that stagnation developing within the economy.
On the basis of these ideas, the expansion of the small-and medium-sized business area was tied to an increase in small-and medium-sized businesses built upon low wages and long work hours, making growth both unlikely and undesirable (Takahashi, 2007). This meant that entrepreneurial activities for promoting the creation of startups were looked down upon.
In contrast, Nakamura (1964)  The qualitative definition of mid-sized companies given by Nakamura (1990) is as follows: In other words, mid-sized companies did not take market share from dominant existing large companies; rather, they grew in markets that were expanding in the high-growth economy. 1 However, though this theory filled the gap in the two-tiered structure theory between small-and medium-sized businesses on the one hand and large companies on the other, it did not refer to startups in any way.

The Emergence of "Venture Businesses"
"Venture business" is an English term created in Japan that gained Japan's first introduction to venture businesses, or the groups of small companies that were created in the U.S. in the 1950s in practically every industry, particularly the electronic equipment and information industries in the latter half of the 1960s (Kiyonari, Nakamura, & Hirao, 1971). However, the term "venture business" was not used in the U.S. or U.K., and startups were never referred to as "venture businesses" in everyday conversation (Yonekura, 2001). Kiyonari, Nakamura, and Hirao (1971)  Securities. These efforts allowed the procurement of capital through equity finance by small-and medium-sized companies that were previously getting capital through regional or second-tier regional banks or credit unions.

Theory of "Venture Businesses"
The first venture boom came to a close as the first oil shock in 1973 caused many venture businesses to fail. However, the position of venture businesses in the world of industry was clear (Matsuda, 2014). The "Small Business and Micro-Enterprise Startup Survey," "Survey of Urban Startup Firms," and "Survey of Regional Startup Firms," published by the People's Finance Corporation Research Department (1977), all pushed the idea of venture businesses (Takahashi, 2007).
In The surveys mentioned above showed that small and micro enterprises with high productivity increased, startup firms in major metropolitan areas existed in certain fields, and startup firms were not limited to urban areas. This made a massive impact on society, changing the pessimistic view of small-and medium-sized companies advocated by the two-tiered structure theory and presenting a positive view of startups.

The Second "Venture Boom"
Between 1982 and 1986, Japan experienced a second venture boom. Deregulation catalyzed the creation of much venture capital from securities firms, banks, and foreign firms, and this period was even called the "venture capital boom" (Matsuda, 1998)

Meanwhile, the Small-and Medium-Sized Business Investment
Promotion Act was passed in the U.S. in 1980, and in the same year, the Bayh-Dole Act, which granted rights to inventors, was also passed. The next year, the capital gains tax rate was lowered from 28% to 20%, creating a boom in initial public offerings (IPOs).
At this time, the micro-enterprise region from Tokyo's Ota Ward to Kawasaki 2 was recognized as a rare industrial area globally, with advanced technologies and product development capabilities. It was considered that the skills and technologies accumulated within this network improved the productivity of large factories for mass production and enabled the rapid development of products (Imai, 1984 1986. Consequently, the period that followed was even called the "venture winter" (Matsuda, 1998).

The Third "Venture Boom"
The third venture boom began in 1995, amid the long-term slump following the bursting of Japan's economic bubble (Matsuda, 2014

Conclusion
Discussions of Japan's small-and medium-sized businesses did not focus on startups for the first quarter century after World War II. However, beginning in 1970 and with the influence of the U.S., the abundant funding of startups primarily through venture capital began, raising expectations and initiating discussions around "venture businesses," a unique English phrase developed in Japan in contrast to the pessimistic view of small-and medium-sized businesses that existed prior to that time. However, even after the third venture business boom, funding for startups in Japan still has not moved from traditional to equity financing. Further consideration of this topic will be left to a future paper.