By
Tolu Ajiboye
September 7th, 2023
Mizuho said that startups in Japan are looking for debt wherein they can get loans without diluting the ownership stakes in the company.
Japanese financial giant Mizuho Financial Group announced that it would be launching a venture debt fund worth 10 billion yen or $72 million with a goal to boost the startup economy of Japan.
Mizuho feels that Japan has been lagging in the number of startups and thus it seeks to address this issue upfront. Kazutoshi Isogai, Mizuho’s retail and business banking chief, said that the fund will start as early as this month.
The goal of the fund will be to provide finance to middle and late-stage startups without diluting their existing shareholder equity. “We want to help finance startups in deep tech fields such as biotech, space, renewable energy and artificial intelligence where large upfront investments are required for research and development,” he said.
The Japanese government aims to increase investment in startups to 10 trillion yen ($72 billion) within five years to revitalize the country’s innovation and competitiveness. Decades of weak economic growth had hindered private investment and stifled innovation, prompting the need for this initiative.
As part of the plan, the government also aims to foster the creation of 100 unicorns, startups with a valuation exceeding 100 billion yen. Currently, there are only about a dozen such firms in Japan.
Mizuho, along with its larger peer Mitsubishi UFJ Financial Group, is taking steps to support this effort. Mitsubishi UFJ Financial Group also plans to establish a 20 billion yen venture debt fund for Japan, building upon existing $750 million debt funds for overseas startups.
Strong Demand from Startups
Kazutoshi Isogai said that there’s strong demand for debt from Japanese startups. Besides, more of these firms have preferred loans to equity financing that requires diluting ownership stakes.
“Startup business has been our forte,” Isogai said in an interview. “Other megabanks are also very active in this field. We don’t want to get beaten.”
Mizuho’s fund will primarily focus on purchasing bonds with stock options, allowing the lender to share in potential gains if the borrower goes public through an initial public offering in the future. Depending on the success of the first fund, the bank may establish more similar funds.
Apart from investment purposes, Mizuho sees this initiative as an opportunity to attract future unicorns, which will help build a strong pipeline of wealth management clients for the bank.
In the latest development, Mizuho has also allowed its 45000 employees to explore OpenAI, to unlock any major opportunities ahead in the market.