Why Japan Is Pulling Out All the Stops to Create More Unicorns

Tokyo plans reforms to attract foreign capital and reshape its startup ecosystem — a bid to close the gap with the US and China

Japan’s government is stepping up efforts to attract more foreign investors and venture capital as part of a broader strategy to generate greater numbers of unicorn startups — privately held companies valued at $1 billion or more — and strengthen its innovation ecosystem. The moves are emerging amid debates over startup policies and investment rules, including reforms that could make Japan more competitive with ecosystems overseas.

Policy discussions reported in Yomiuri and related sources show Tokyo is exploring changes to investment guidelines with the aim of luring overseas VC funds and making it easier to generate scale-ups and unicorns. While a suite of measures is being considered, a central theme is improving the appeal of Japan’s startup funding landscape for global investors.

Despite its size and technological strength, Japan has historically produced relatively few unicorns. Government targets under the Startup Development Five-Year Plan — which sets out goals such as boosting startup investment to ¥10 trillion and creating 100 unicorns and 100,000 startups by around 2027–2028 — underscore the urgency of change.

Under the current environment, Japan’s startup investment levels and exit activity lag behind those in markets like the United States or Europe, making it harder for companies to scale to global size. This has prompted policymakers to rethink how capital flows into and around Japan’s innovation economy, especially from foreign sources.

The planned reforms focus on removing barriers that may deter foreign venture capital from investing in Japanese startups. According to reporting, areas under review include:

• Revising startup investment rules to align with global norms and eliminate practices that can dissuade overseas VC participation.
• Recognizing M&A exits on par with IPOs to broaden exit pathways for startups.
• Encouraging revisions to contractual and regulatory frameworks so that foreign investors face fewer restrictions compared with domestic markets.

These changes are aimed at ensuring that foreign capital can operate within the Japanese ecosystem without encountering opaque or unfavourable terms — a concern often raised by international investors.

A Broader Strategy: Startup Development Five-Year Plan

The effort to attract more foreign investors is part of Japan’s wider Startup Development Five-Year Plan, launched in 2022 to reshape the country’s innovation ecosystem.

The plan was introduced after policymakers concluded that Japan was producing too few high-growth startups compared with other major economies. Venture capital investment levels remained significantly lower than in the United States and China, and many startups struggled to scale beyond the domestic market.

Under the strategy, the government set ambitious targets — including increasing annual startup investment to around ¥10 trillion by 2027–2028 and significantly expanding the number of unicorn companies. To achieve this, the plan focuses on strengthening the entire startup pipeline rather than just injecting capital.

Key measures include expanding incubators and accelerator programs, building stronger mentorship networks between large corporations and startups, encouraging open innovation partnerships, and making it easier for entrepreneurs to launch and scale companies.

Why Attracting Foreign Investors Matters

Foreign venture capital plays a critical role in scaling startups, especially at later stages where larger funding rounds and global networks are essential. By improving investment conditions, Japan aims to:

• Increase the volume of available growth capital
• Enhance global market connections for Japanese startups
• Boost the number of significant exits through IPOs and M&A
• Encourage deeper integration with global tech ecosystems

Industry voices — both foreign investors and domestic policymakers — point out that simplified exit routes and better investment conditions can help reduce reliance on small “micro-IPOs” that often do not deliver lasting scale or value.

A Gradual But Necessary Shift

Efforts to attract foreign capital are already taking shape, including startup visa expansions and ecosystem events designed to spotlight Japanese innovation globally. Cities such as Tokyo, Sapporo and Kobe are increasingly hosting global startup events and collaboration hubs, helping build bridges between domestic and international players.

However, obstacles persist. Japan’s business culture has traditionally been risk-averse, and venture capital activity remains modest compared with Western peers. Structural issues, such as limited late-stage VC presence and relatively small exit markets, continue to restrain scalability, meaning reforms must address not only capital flows but also broader ecosystem dynamics.

As Japan pushes to attract foreign investors and revise its startup investment rules, its strategy reflects a recognition that local capital alone may not be enough to create a vibrant unicorn generation. The government’s blend of regulatory reform, visa facilitation and international outreach underscores a desire to make Japan a more hospitable environment for global venture capital.

Whether these measures will translate into a significant uptick in unicorn creation remains uncertain — but they represent an important step toward aligning Japan’s startup ecosystem with global standards and attracting the kinds of investors that can help scale innovative companies onto the world stage.

Quick Takeaways

• Japan is reviewing policies to attract more foreign venture capital as part of its plan to boost unicorn creation.
• The reforms aim to ease investment rules and expand exit options, including greater recognition of M&A deals.
• The push aligns with the government’s Startup Development Five-Year Plan, which targets higher startup investment and more high-value companies.
• Policymakers believe stronger foreign participation could increase growth-stage funding and global market access for Japanese startups.
• Success will depend on whether reforms can meaningfully improve Japan’s competitiveness compared with the US, China and Europe.