May 25, 2023

Japan’s startup ecosystem is finally waking up

Most people associate the global startup industry with Silicon Valley or China. As the world’s third-largest economy, why does Japan’s startup ecosystem rarely receive attention? According to leading market intelligence company CBInsights, as of April of this year, Japan had only six unicorns, less than one percent of the US. 

There are a variety of reasons for Japan’s limited startup development till now, both economic and cultural – these include the long-standing practice of lifetime employment, which leads to a lack of talent mobility, high costs associated with career changes due to tax policies, a conservative and failure-averse society, and limited avenues for startup exits.

However, Japan’s startup ecosystem seems to be gradually waking up. More and more investors are actively seeking opportunities in the country, and even Warren Buffet recently visited and announced that he had increased his holdings in Japan’s five largest trading houses.

The government is one of the main forces driving this change. Prime Minister Fumio Kishida views technological innovation and startups as the two pillars of “new capitalism” and announced a five-year plan for Japanese startups in early 2022. The goal is to increase the number of startups and related investment amounts tenfold by 2027. Additionally, last summer, the Cabinet created the position of startup minister to coordinate related policies.

In addition to its startup-friendly policies, the Japanese government has also been deeply focused on technological innovation, particularly in the most-discussed areas of the last two years – Web3 and AI.

This newer, more open attitude is bringing new opportunities. In April, OpenAI CEO Sam Altman visited Tokyo and met with Prime Minister Kishida. The meeting resulted in the government expressing interest in adopting AI in the public sector and OpenAI considering opening an office in Japan. 

Add onto the fact that tensions between the US and China have caused many investors to pivot away from China to other Asian markets. Southeast Asian countries (Singapore in particular) have benefited from this shift, though the region is still coping with a fragmented market. Japan, with its substantial domestic market, is also attracting investment. 

It’s yet to be seen if Japan’s slowly awakening startup ecosystem can become Asia’s next startup hub. But the country will certainly present itself as a new challenger in the Asian startup landscape, and we will be keeping a close watch on future developments. 

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