Over the past five years, Japanese corporate venture capital has been growing rapidly. The latest to go all-in: TDK, the $19 billion (market cap) firm perhaps best known for its eponymous tapes. The Tokyo-based electronics giant’s VC arm, TDK Ventures, launched its second fund with $150 million and a mandate to invest in early-stage materials science, energy and clean tech, mobility and robotics startups.
TDK Ventures’ new fund is three times the size of its first one, which launched in July 2019 with $50 million. That first fund has invested in a total of 15 companies, including 3D printing startup Origin (acquired by Stratesys earlier this year) and energy cell firm GenCell (which went public last November on the Tel Aviv Stock Exchange).
With the new fund, TDK Ventures, which is based in San Jose, California, hopes to build a portfolio 50 early-stage companies over the next three years with investments that range from $250,000 to $5 million. Like most corporate VCs, it prefers not to lead investment rounds.
“We’re going into markets that are very small today with tech that we do not have,” says Nicolas Sauvage, TDK Ventures’ managing director, who is a native of Paris and based in Silicon Valley. “There are many disruptions coming our way. We can either anticipate them, and be the road map and find the solutions, or we are not going to be happy with what’s coming to us.”
Sauvage, 45, joined TDK when his previous company, smart sensor startup, InvenSense, was acquired in 2018. He spent that summer at a Stanford executive program. It was there that he learned about corporate venture capital, and met Paul Holland, a longtime venture capitalist who as VC-in-residence at growth incubator Mach49 had been helping corporate VCs invest a little Silicon Valley magic into their operations. “We were giving this talk at Stanford, and Nicolas walked up and said, ‘I want to start TDK Ventures,’” recalls Holland, who says he figured at the time that it was the longest of long shots.
“There are many disruptions coming our way. We can either anticipate them … or not be happy with what’s coming to us.”
Sauvage was undeterred. “It had been proposed many times inside TDK before,” he says. “But I was one who was not from TDK for a long time. I am French, I don’t speak Japanese, and I’m not in Tokyo. Maybe because of that, the project was different.” After nine months of hearing no, Sauvage flew to Tokyo for a presentation to TDK’s board, where CEO Shiganeo Ishiguro got up with a pointer, and said, “This is exactly what I want.”
In Silicon Valley, corporate venture capital is often viewed as the stepchild that isn’t as nimble as VC needs to be. But in Japan these funds have been proliferating at a rapid clip, with companies that include Japan Airlines and air-conditioning maker Daikin Industries launching them. Initial Inc., which tracks startup funding in Japan, counts 93 new corporate venture funds over the past five years, more than double the 40 launched in the five years before that. For industrial startups, corporate venture firms have long been active even when traditional VC steered clear of less sexy, more capital-intensive areas.
“The vast majority of corporate VC has bad deal flow and makes bad decisions,” says Holland, who has taken on the role of general partner in residence with TDK Ventures. (He also works with 15 other corporate venture firms through Mach49.) “The way we fix the deal flow is we walk you into relationships with top VCs in the Valley and Shanghai, Berlin, Tel Aviv, wherever it might be. You have to get in front of that network of deals.”
TDK – best known by those old enough to have used cassette tapes for its ubiquitous TDK brand ones – is a giant with revenue of $12.5 billion in fiscal 2020 (ended last March), down 1% from the previous year. Started in 1935 to commercialize ferrite, a key material in electronic and magnetic products, TDK now produces capacitors, magnetics, sensors and power supplies.
As with all corporate venture firms, TDK Ventures hopes the mothership’s scale will give its portfolio companies an edge, while TDK figures on gaining insight into new technologies that will strengthen its operating businesses. With the success of the first fund, TDK’s board unanimously approved the second one, TDK’s Ishiguro said by email. “Nicolas with his team have completely surpassed my highest expectations,” he added.
Though the fund has only now disclosed its launch, it has already begun to invest. Its first portfolio company: semiconductor startup Analog Inference, which develops AI chips that could be used in video analytics, autonomous driving and other applications. “TDK was a really good corporate for us because they have a lot of neighboring technologies, but they’re not doing AI themselves,” says CEO Carey Kloss, who previously was general manager of Intel’s AI training products group.
Sauvage says that two other investments are in the works, and he figures there are many more innovative industrial startups out there worth investing in. “It’s been too easy to invest in software companies, and that’s made it hard for VCs to think about hardware companies,” he says. Plus, many old-line, industrial firms are scrambling to reinvent their operations. “It’s happening all over now, and it is happening because they have to. Nobody wants to be a Kodak,” Holland says.
TDK’s OTC-traded shares, at a recent $154, are up 3% year to date.