Why Kyoto, not Tokyo, is Japan’s real deeptech bet

Ask most investors where Japan's startup action is, and they will point to Tokyo without hesitation. However, a quieter story is unfolding an hour's train ride southwest of the bustling capital: Kyoto, often associated with temples rather than transistors, has quietly established one of Asia's more intriguing deeptech ecosystems.

While Kyoto's ecosystem may not boast a large number of startups or venture capital backing compared to Tokyo, the city's focus lies not in scale but in patience and the potential for global capital to provide a competitive advantage. In contrast to Tokyo's dominance in SaaS, fintech, consumer marketplaces, and fast-moving AI applications, Kyoto's strength lies in semiconductors, robotics, materials science, life sciences, and climate and energy technology.

The city's compact geography, with its universities, research institutes, corporations, and manufacturers situated close to each other, facilitates a slow-burn collaboration that is crucial for deeptech development. This close proximity enables ideas to move seamlessly from the laboratory to funding and manufacturing within the region, a rarity for cities at this scale.

Don Stalter, managing partner at Sunshine Lake, highlights three strengths that set Kyoto apart. Firstly, Kyoto University's research density has contributed to a significant share of Japan's Nobel laureates, including breakthroughs in regenerative medicine. Secondly, the steady renewal of talent, with approximately one in ten Kyoto residents being students. Lastly, the city's cultural tolerance for long timelines that venture capital alone cannot purchase.

While Kyoto possesses a rich manufacturing lineage with companies such as Nintendo, Kyocera, Murata, Omron, Shimadzu, and Horiba, Don Stalter acknowledges that the city lacks early-stage global capital, access to global customers, and networks that treat founders as they would in San Francisco. These gaps, however, present opportunities for improvement.

Hide Morita, CEO of Queri, a fan-engagement platform, provides a more grounded perspective on the matter. While Tokyo offers easier access to capital, customers, and large corporations, Kyoto compensates with its depth in engineering and manufacturing knowledge. Morita's company exemplifies the region's slower logic, focusing on long-term, unglamorous work that requires alignment between universities, engineers, manufacturers, and investors over years rather than product cycles.

The evidence supporting Kyoto's deeptech bet is compelling. TreGem Biopharma, a Kyoto University spin-off, is developing a tooth-regrowth drug targeting a specific protein, with an initial focus on patients born without a full set of teeth. DeepForest Technologies utilizes AI to analyze drone footage for identifying individual tree species and their carbon absorption, a level of granularity that is increasingly demanded by carbon credit buyers and Japan's aging forest plantations.

Kyoto Fusioneering specializes in building exhaust and fuel-cycle systems for fusion plants, which could potentially supply private fusion developers internationally. EneCoat Technologies is working on developing perovskite solar cells that can generate electricity even under cloudy skies or indoor lighting, making them thin and flexible enough to be applied to windows instead of rooftops.