April 16, 2021


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Why Japan has so few Unicorns

A “unicorn” is a privately held startup company valued at over $1 billion. When the term was originally coined in 2013, only 39 such companies had formed in the previous 10 years, so the term was chosen to represent their rarity. However, as of March 2018, there were 279 unicorns, with the largest being Uber, Ant Financial, Didi Chuxing, Xiaomi, and Airbnb.


There are several reasons for the rapid growth of unicorns in the past few years. One strategy that investors and venture capital firms have been using is “Get big fast”. In this case, they invest large sums of money so that the startup can gain market share over rivals as quickly as possible. This strategy has been spurred on by the increase in private capital available and technological advances that allow startups to expand faster than ever. Because startups can return to their investors for more capital, they do not need to go through an initial public offering, which carries the risk of devaluating the startup if the market considers it overvalued. Finally, many startups become unicorns through buyouts by large companies like Apple, Facebook, and Google.


Unicorn companies have been created all over the world, with nearly half in the United States and a quarter in China. However, Japan, which has the world’s third largest GDP, has created only one new tech unicorn in recent years, Mercari, an e-commerce company that allows users to buy and sell used items via a smartphone app. The company was founded in 2013 and has since expanded to the United States and the United Kingdom. In Japan, the company differentiates itself from other consumer-to-consumer e-commerce companies by keeping business merchants off of the app and integrating one of Japan’s largest logistics companies into the app, so that sellers just have to print out a barcode, stick it to the package, and then drop it off at a service center.


Gen Isayama, co-founder and CEO of World Innovation Lab, believes there are three main reasons why Japan is struggling to create tech unicorns. Firstly, there are few investment firms in Japan providing growth capital, so many tech startup companies go public at a lower valuation. Secondly, startups that do receive funding in Japan tend to be focused on the domestic market, which limits growth. Finally, the tech sector in Japan lacks the entrepreneurs and managers that can scale up companies to unicorn status. Most talented graduates still flock to big corporations with the hope of lifetime employment and hesitate to join entrepreneurial startups.


Isayama has described several ways in which Japan can change to build more unicorns. Domestically, large Japanese corporations could take over the role of investment firms in other countries to provide growth capital. The $100 billion SoftBank Vision Fund established by Masayoshi Son is present in Japan but invests almost entirely in other countries. Other groups need to step up and launch smaller funds. Internationally, big companies and the Japanese government must establish consolidated business development hubs overseas to help Japanese startups expand and introduce Japanese tech business people to executives at successful unicorn companies to develop the spirit of entrepreneurship.





Also published on Medium.


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