Crowdfunding Gains Ground in Japan

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WSJ | By Eleanor Warnock | June 27, 2014

Crowdfunding in Japan microbreweryTAKAYAMA, Japan—When microbrewery owner Saburo Setsuda needed to replace a bottling machine last year, his bank said no to a loan but introduced him to a Tokyo firm that helped him raise funds online.

"I remember thinking it was almost too good to be true," said Mr. Setsuda, who had piled up ¥10 million ($98,000) in outstanding bank loans. He is one of a number of Japanese entrepreneurs, from fashion designers to restaurant operators, who are turning to online fundraising, known as crowdfunding, when regular banks won't help.

In January, the first time Mr. Setsuda tried crowdfunding, which lets Internet users put money toward projects or companies in return for a cut of profits, he raised nearly ¥4 million in just 18 hours. The funds went for a new bottling machine to pack beer flavors like blueberry and brews made from hot-spring water from this area in central Japan. The second time, in March, he raised ¥1.2 million for a refrigerator.

When crowdfunding emerged, after the 2008 financial crisis, many investors simply used crowdfunding sites to donate a couple of hundred dollars to projects they found worthy. Now, more are showing interest in platforms that give participants a return on their money.

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In Japan, where Prime Minister Shinzo Abe is trying to jump-start economic activity, politicians have viewed crowdfunding as a way to nudge some of the trillions of yen in household savings out of low-yielding deposits and into the hands of entrepreneurs.

"I want to see sleeping money being put toward investment, starting by making that possible in the safest way," Finance Minister Taro Aso said last month in a hearing about crowdfunding.

In May, lawmakers passed legislation—similar to the U.S. JOBS Act (Jumpstart Our Business Startups), which increases the number of investors a private firm may have—to make it easier for companies to provide these services online.

Just over half of the ¥1.6 quadrillion ($15.7 trillion) in Japanese household assets are in cash or at banks. Only 11% is in stocks or bonds, compared with 42% in the U.S. and 23% in Europe, according to the Bank of Japan.

Meanwhile, strict regulations keep banks from extending credit to some firms, which may have a good business idea but other issues, such as debt, that prevent lenders from funding them. Banks are lending out less than 70% of the deposits they hold.

Normally, that is where venture capital might step in, but economists say Japanese firms tapping crowdfunding often prefer to remain relatively small, and aren't looking for Silicon Valley-style backing, which tends to be aimed at companies targeting large-scale growth.

Crowdfunding is still small in Japan, estimated at ¥8.2 billion, or $80 million. Meanwhile, the global market, which was less than $1 billion in 2010, was estimated to reach $5.1 billion in 2013, with the North American market accounting for $3.7 billion, according to a report the research firm Massolution published in April last year.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada crowdfunding hub providing education, advocacy and networking opportunities in the rapidly evolving crowdfunding industry. NCFA Canada is a community-based, membership-driven entity that was formed at the grass roots level to fill a national need in the market place. Join our growing network of industry stakeholders, fundraisers and investors. Increase your organization’s profile and gain access to a dynamic group of industry front runners. Learn more About Us or contact us at casano@ncfacanada.org.

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