Startups in Japan - statistics & facts
Relative to the size of its economy, Japan’s startup ecosystem is still small. Domestic venture capital investment in Japan is only a fraction of VC investment in the United States. However, the Japanese startup ecosystem has been maturing in recent years and startups raised 753.6 billion yen in funds in 2023.
In 2023, there were seven unicorns, privately held companies with a valuation of one billion U.S. dollars or more, in Japan. Mercari, an online marketplace app for secondhand goods that went public in 2018, was the first Japanese startup to reach unicorn status. Investment in startups amounted to 753.6 billion Japanese yen, down from a record 966 billion yen in 2022. Nevertheless, the amount of funding raised by startups has increased fivefold in the past decade. With its Startup Development Five-Year Plan to expand Japan’s startup ecosystem, the government aims to push this figure to 10 trillion yen by 2028.
Challenges to entrepreneurship in Japan
There are several reasons why Japan is a late bloomer in developing a suitable environment for entrepreneurs to start high-growth potential companies. The postwar economic growth has traditionally been attributed to the Japanese large-firm-centered system, with stable corporate groups focused on keiretsu structure around large companies. Since big corporations relied primarily on in-house research and development, the need to purchase products or services from startups was limited. It was rather unattractive for venture capitalists to invest in Japanese startups. Instead, they focused on investing in foreign ventures, preferably in Silicon Valley. The political system was also optimized to favor large firms. A peculiar regulatory system, as well as a lack of financial support by the government, were obstacles for young entrepreneurs. Finally, the social norms of postwar Japan did not serve as an incentive for setting up new, risky ventures, as an elite career meant aiming at working for large firms or top government agencies with long-term employment and seniority-based wages.New opportunities and a changing startup ecosystem
Since the burst of the asset bubble in the early 1990s and the following period of sluggish economic growth, a slow economic structural shift can be observed that has contributed to building a better environment for establishing ventures in Japan. A new breed of young entrepreneurs who grew up in Japan’s slow-growth era is emerging. The performance crisis of large firms has made it less attractive to work there, and many startups today have been founded by elite university graduates. The rise of independent venture capital funding and the participation of large corporations in venture capital have stimulated entrepreneurship. Established companies no longer see startups as investments; they also start to view them as possible partners in tech to help their core business.In 2023, there were seven unicorns, privately held companies with a valuation of one billion U.S. dollars or more, in Japan. Mercari, an online marketplace app for secondhand goods that went public in 2018, was the first Japanese startup to reach unicorn status. Investment in startups amounted to 753.6 billion Japanese yen, down from a record 966 billion yen in 2022. Nevertheless, the amount of funding raised by startups has increased fivefold in the past decade. With its Startup Development Five-Year Plan to expand Japan’s startup ecosystem, the government aims to push this figure to 10 trillion yen by 2028.
