Why There Are Only 3 Unicorns in Japan?

SmartNews became the 3rd unicorn in Japan. Where are the others?

a pack unicorn-shaped baloons in baby blue and pink colors
The Government of Japan is planning to have 20 unicorns by 2023. Yet, in 2019, it only has 3 (or 4 depending on how you count). Not so much time has left to reach the goal. It is only natural to ask how come that the 3rd economy in the world does not produce tech giants the way the United States or China do, accounting for about 130 and 104 of 390 world unicorns respectively. In this article, we are going to take a closer look at those reasons. But first, let us talk about those three unicorns that Japan has.

Unicorn startups in Japan

We will start with Mercari, an e-commerce mobile platform that made selling and buying used stuff easier. Founded in 2013, it has raised USD 75 million in Series D and became the first Japanese company to get the valuation of over USD 1 billion before filing for IPO in 2018 and consequently lost its unicorn status. It is worth mentioning that the shares were 77 cents on the first day and fell immediately after never going that high ever again, reports the Financial Times.

The three unicorn startups in Japan are Preferred Networks, Liquid Group, and SmartNews.

The next were Preferred Networks and Liquid Group. The former is an AI developer that applies machine learning to a variety of technologies propelling the Internet of Things field. It became the second unicorn of Japan in 2018 with a valuation of over USD 2 billion at that time. The later is a crypto and fiat assets exchange joining the cohort in 2019, which is quite ironical provided that not everything has gone smoothly on a crypto scene of Japan.

Finally, Tokyo-based SmartNews has gotten a USD 28 million investment in Series E led by Japan Post Capital, crossing the USD 1 billion valuation threshold earlier this week. The app creates personalized news feeds based on content from the leading publishers. It is currently growing at 500% rate.

Why aren’t there more unicorns in Japan?

The primary reason is the lack of investment into Japanese startups compared to other countries. About a month ago The Japan Times has posted an opinion article titled “If Masayoshi Son won’t invest in Japan, why should you?”. Indeed, even the Vision Fund run by the CEO of Softbank chooses to invest in foreign startups. There are three phenomena behind it as explained by Asia Times.

Firstly, there is not enough risk capital in Japan. Which, in turn, is connected to the second reason – Japan being risk-averse country chooses to invest in the companies that can be trusted, i.e. those who have listed and gone public. Thus, thirdly, many companies with big potential and ambitions go public too early driving down the possibilities of getting big investments.

Moreover, many services are often focused on the Japanese market and rarely expand beyond, while traditional hiring system skims the best talents right from universities straight to corporations on the promise of the lifetime employment without ever taking a risk of joining a startup. Not to mention that startup ecosystems are encouraged in selected regions like the city of Fukuoka and not within the whole country.

Can the Situation Change?

Theoretically speaking, yes. Should there be more institutions like Vision Fund but focusing on Japanese startups or more startup hubs beside Fukuoka, companies might have been more likely to take a risk. The Ministry of Economy, Trade and Industry established the J-Startup programme for that purpose but from what we see today, it will take longer than 2023 to get to the count of 20 unicorns.

"Otsumami" - a bite size snack:

Creating unicorns goes hand-in-hand with risk-taking.

What do you think?

Japanese yen coins on black leather, consumption tax hike

The Consumption Tax Hike in Japan Brings Rates from 8% to 10%

A traffic moving through Tokyo at night

Managing Traffic During the Tokyo Olympics in 2020