Although Japan’s startup sector is the world’s largest, it lags behind other regions such as the United States, China, and the United Kingdom in terms of the number of unicorns and the amount of venture capital investment. For years, an aging population, general economic deflation, and the tendency of office workers to work for traditional large corporations have made startup life unappealing to many people.
Context: As of October 2023, there are approximately 661 unicorns in the United States, 172 in China and 52 in the United Kingdom, according to a recent IMF report citing CB Insights data. There are only seven unicorns in Japan. (PitchBook estimates the number of Japanese startups at nine, so there are likely more unicorns in the market than these data sets suggest.)
But things are getting somewhat better. Young graduates are increasingly choosing to think outside the box and act on their own rather than working within existing corporate systems. And the Japanese government is once again trying to attract attention to domestic startups.
Through the ‘5-Year Startup Development Plan’ launched in 2022, the government aims to create 100,000 startups and foster 100 unicorns by 2027 by fostering incubators, strengthening venture fund funding, and diversifying exits. Earlier this year, the Tokyo Metropolitan Government launched Tokyo Innovation Base, a startup hub that organizes networking events and promotional competitions and provides workspace for entrepreneurs. There is also a Startup Visa that makes it easier for venture capital firms, startups, and accelerators to set up in Japan, as well as a special tax system for angel investors. It helps that there are about 130 accelerators in the country, which isn’t too bad considering the size of the market.
Despite these advantages, most venture capital invested in Japan comes from outside. According to the IMF report, from 2010 to 2023, American investors accounted for 50% of investment in Japanese startups, British investors accounted for about 10%, and Japanese investors accounted for only 5%.
For example, Bessemer Venture Partners recently made its first investment in a Japanese startup, a food delivery company called Dinii. “We were fortunate to be a major investor in Toast in the U.S., helping Toast become a $13 billion company, and we saw similar success factors in Dinii,” said Bryan Wu of Bessemer Venture Partners at the time.
Japanese startups generally decide to go public earlier in the development phase than startups in other countries. For example, thanks to the Tokyo Stock Exchange’s lenient IPO rules, it can be listed after just two funding rounds. Therefore, it is likely that we will see the unicorns listed below perform IPOs sooner rather than later.
Here are a few notable Japanese unicorns.
spiber
Total funds raised: $653 million
Last funding round: April 2024 $65 million (10 billion yen)
Major investors: Baillie Gifford, Fidelity Investments, Goldwin, Kansai Paint, Iowa Economic Development Authority, Shinsei Bank and Carlyle Group.
Spiber is an eco-friendly biomaterial with a wide range of applications and has quickly attracted the attention of investors and customers. Spyber’s materials are used instead of animal, plant, or synthetic materials throughout the fashion, cosmetics, and automobile industries, and customers include Pangaia, The North Face, Goldwyn, Woolrich, Shiseido Japan, and Toyota.
In April of this year, it raised about $65 million (10 billion yen) to expand production of its “Brewed Protein” material, which has applications in textile production. It has 300 employees and opened a branch in Paris last year to promote its European business.
smart news
Total funds raised: $479 million
Last funding round: $69.3 million venture debt round in January 2024
Major investors: Atomico, Asian Capital Alliance, Development Bank of Japan, Globis Capital Partners, Japan Post Capital, JIC Venture Growth Investments, SMBC Venture Capital, Social Venture Partners, Princeville Capital and Woodline Partners.
SmartNews, a news aggregator founded in 2012, sought a new approach as a news provider. Our goal is to partner with publishers to provide users with a personalized and streamlined news feed. It has grown rapidly since its launch in the US in 2014. It became the first news startup to reach a $1 billion valuation since 2015, and its valuation soared to $2 billion in 2021.
But the startup has struggled to retain users as social media platforms like X, Threads, Mastodon and Bluesky try to position themselves as places to read breaking news. According to SensorTower, the startup’s number of daily active users was 1.7 million from Q1 2023 to Q3 2023, down nearly 30% year-on-year.
Smart HR
Total funds raised: $362 million
Last funding round: $140 million Series E, June 2024
Major investors: Beenext, Coral Capital, KKR, Light Street Capital, Sequoia Capital Global Equities, Teachers’ Ventures Growth (sector of the Ontario Teachers’ Pension Plan), World Innovation Lab and Whole Rock.
SmartHR, co-founded in 2015 by Kensuke Naito and Shoji Miyata, has seen high demand over the past few years for its SaaS platform that helps businesses manage and streamline their human resources and operations. ARR hit $100 million in February 2024, up from $80 million in fiscal 2023. SmartHR joined the unicorn club after raising a Series D of approximately $115 million in May 2021 at a $1.6 billion valuation.
Section A.I.
Total funds raised: $344 million
Last funding round: $214 million in Series A funding in September
Major investors: Dai-ichi Life, Fujitsu, Global Brain, Itochu, JAFCO, Khosla Ventures, Lux Capital, Mizuho, Mitsubishi UFJ Financial Group (MUFG), New Enterprise Associates, Nomura, Nvidia, SBI, Sumitomo Mitsui Banking Corporation (SMBC), Sony, Translink Capital, 500 Global.
Founded in 2023 by former Google AI engineers, Sakana AI focuses on training low-cost generative AI models using small datasets. The company’s co-founder and CEO, David Ha, previously served as head of research at Stability AI and as a researcher at Google.
The startup is collaborating with Nvidia, the University of Oxford, and the University of British Columbia on research, data centers, and AI infrastructure. Sakana has 20 employees and has garnered a lot of attention in Japan, which is trying to catch up with the US and UK in the AI race. They even managed to get processing time on one of Japan’s supercomputers. The startup raised a large Series A round (about $214 million) last September from major Japanese banks and tech companies at a $1.5 billion valuation.
preferred network
Total funds raised: 152.19 million dollars
Last funding round: 2018 Series C $8.1 million
Major investors: Chugi Pharmaceutical, FANUC, Hakuhodo DY, Hitachi, JXTG, Mitsui, Mizuho Bank, Tokyo Electron, and Toyota.
Founded in 2014, Preferred Networks designs semiconductors for use with AI, develops software for them, and builds generative AI-based models. The company has deep learning and machine learning models for applications in robotics, manufacturing systems, drug discovery, 3D scanning, autonomous driving, e-commerce, and food inspection.
Last September, the startup attracted 69 billion yen (about $463 million) worth of investment from Japanese financial services company SBI Holdings to develop semiconductors for AI applications. And it signed a deal with Samsung to produce 2-nanometer chips for AI.
OPN
Total funds raised: $222 million
Last funding round: $120 million Series C+ funding raised in May 2022
Major investors: JIC Venture Growth Investments, Mars Growth Capital, MUFG and Sumitomo Mitsui Banking Corp.
Fintech startup OPN, previously known as Synqa, first began operations in Bangkok, Thailand in 2014. OPN provides a variety of services, including mobile payments, online payments, and virtual cards, to more than 7,000 merchants. Customers include Thai companies such as Toyota, duty-free shop operator King Power, telecommunications company True, and online insurance company Roo Jai.
Currently, the company operates in Japan, Singapore, Indonesia, Malaysia, Philippines, and Vietnam. In 2022, it acquired US-based MerchantE for approximately $400 million to build its presence in the US. Most recently, it announced a strategic partnership with BigPay, a Malaysian e-wallet platform launched in Thailand.
