Japan’s Financial Services Agency plans to double the cap on the amount of money retail investors can invest in unlisted startups. The agency plans to strengthen the funding pool for emerging growth sectors.
At present, through crowdfunding, retail investors have a limitation of investing a maximum of 500,000 yen annually in individual unlisted startups. However, based on annual income, the proposed change is set to change this cap to one million yen or potentially higher. This adjustment is expected to come into effect by 2024.
Additionally, the maximum fundraising limit for companies will be expanded fivefold. These adjustments are expected to provide greater flexibility for individual investors and startups alike, offering crucial support to businesses with promising growth prospects.
The startup landscape in Japan has been evolving rapidly, with significant changes occurring since last year. In November 2022, the “Five-Year Startup Development Plan” was unveiled, leading to increased investments from venture capitalists, business corporations, and corporate venture capital entities (CVCs). This shift has provided considerable momentum for boosting investments in startups.
The Financial Services Agency is taking steps to introduce financial products in 2024, following discussions held within a working group of the Financial Services Council, an advisory body to the Prime Minister.
Japan initiated its startup crowdfunding framework in 2015 through revisions to the financial instruments regulation. Since the launch of crowdfunding services in 2017, businesses have leveraged platforms like Fundinno and Ecrowd to secure funding from retail investors.
The FSA’s plans include introducing income or asset-based investment caps, potentially permitting investors to allocate more than 1 million yen. These reforms aim to bring the Japanese crowdfunding system closer to its U.S. counterpart in structure and scope.
Crowdfunding activities at Japanese startups have experienced consistent growth over the years. In the first half of the current year, approximately 48.8% of startups have secured at least 100 million yen in funding, marking nearly double the 25.7% recorded in 2014, according to research by the Beginning analytics firm.
Furthermore, around 32.9% of startups have successfully raised amounts ranging from 100 million yen to just under 500 million yen.
Japanese startups currently contend with more stringent crowdfunding limits than their global counterparts. While the U.S. enforces a cap of $5 million, and Europe sets the limit at 5 million euros, Japan’s limits are notably lower.
Crowdfunding activity in Japan generated 12.4 billion yen from 2017 to August of the current year. By contrast, the U.S. raised 73.8 billion yen in crowdfunding funds in the preceding year alone, and the U.K. accumulated 100.1 billion yen in 2020.