Angel Financing in Asia Pacific – Japan Chapter by Evan Burkosky – Excerpt Preview

The following is an excerpt from the book Angel Financing in Asia Pacific – A Guidebook for Entrepreneurs, for which I wrote the chapter on Japan. For those interested in reading more, it would be greatly appreciated if you purchase your copy on Amazon here

Japan is currently enjoying a boom in startup activity and some of the most entrepreneur-friendly conditions ever experienced throughout its long history. A relative abundance of capital, ongoing government deregulation and loosening of restrictions of the Commercial Code, the advent of the Silicon Valley-style investing model, technology which has lowered the infrastructure costs to starting a new business, and changing social perceptions towards lifetime employment are all contributing to a very favourable environment for entrepreneurs and Angel investors. However, the same issues which have plagued Japan for decades remain: A ponderous, restrictive bureaucracy and lingering cultural aversion to risk and innovation. Recently a new problem is also emerging: The declining population means fewer young entrepreneurs are available to take advantage of the current favourable environment. Many opportunities exist in Japan to disrupt old ways of doing things and innovate new ideas, but there is a lack of people willing and able to do so. Angel investors looking for interesting investments will find that their encouragement and mentorship of entrepreneurs is desperately required.

There have been many very successful entrepreneurs throughout Japanese history, as Japan has gone through boom and bust cycles of entrepreneurship. Many of the household names we are familiar with today such as Honda, Nintendo and Sony started out as individual ventures. It is important to note however that many of these ventures we know today were started in the postwar period after World War II when Japan experienced a boom in entrepreneurship due to there being few to no alternative options for employment. With few jobs available and the old ways of thinking rejected Japanese culture and the business environment was ripe for disruption. This is a common theme found around the globe, entrepreneurs tend to emerge and new ventures flourish in any country whenever the job market is tough. Many Japanese young people looking for employment in the 1950s had no choice but to start their own ventures. Industrious entrepreneurs turned their considerable energy and diligence to building new companies and trying to catch up with the West in technology and conveniences. Conversely, as these ventures grew through the late 1950s, 60s and early 70s, they formed the new economy which ultimately led to Japan’s economic miracle of the 80s and early 90s. By the 80s with the success of the Japanese economic miracle, it became no longer necessary or desirable to start a venture in order to find gainful employment, and public sentiment turned towards job safety and financial security. In fact, by the 80s Japanese corporations were so successful, and lifetime employment with no risk and steady promotion such a certainty, that the culture became used to this environment and began to discourage young people from starting new ventures at all.

The collapse of the bubble economy in the mid-1990s came as a shock to a generation who had only known job security, and the result was a further move towards a conservative, defensive business market. The dot-com boom of the late 90s brought a short resurgence in entrepreneurism, but the collapse of the dot-com bubble and the public arrest of high-profile internet entrepreneur Takafumi Horie for his aggressive usage of loopholes in the Corporate Code at his company Livedoor once again put a damper on this. Today the status of entrepreneurs in Japan is not high, especially in comparison to the U.S. Society’s perception of entrepreneurs is somewhat negative. Typical Japanese parents usually don’t support the idea of becoming an entrepreneur, preferring that their children take the “safe” route of going to an elite public university and joining the bureaucracy or a major established corporation such as Mitsubishi, Mitsui, Toyota, etc. Most parents still believe these paths present the most stable careers, the highest cumulative pay and the most prestige.

Nevertheless, the recent success of the tech industry in places like Silicon Valley, Europe, Singapore, Hong Kong and Southeast Asia is igniting a strong desire in Japan not to be left behind, and with the promise of stable lifetime employment a fading memory from the bubble period, public sentiment is swinging back towards an entrepreneur-friendly environment somewhat more supportive of risk. In recent years there have also been several successful Japanese startups which have made headlines in the mass media, and the general public is starting to become aware of the economic benefits of startups.

At this point though it is still hard to find evidence of Angel investor activity in Japan. Although Angel investors do exist and are active in Japan’s startup community, they are considerably more low profile than in places like Silicon Valley. The aforementioned public sentiment and social connections are extremely important in Japan, and this can be seen in the desire of most Angel investors to retain their privacy. Traditionally, the best way to contact Angel investors has been through personal introduction. This has begun to change, evidence of which can be seen in the increasing number of Angel investors on (, where there are now over 320 investors listing their residence in Japan. However, due to the reluctance of Angel investors to release their private information, it’s difficult to find reliable statistics on investors in Japan. Japanese Angel investors usually tend to invest in groups, together with trusted connections and personal friends and do not make their activities known to the general public. For this reason, the story of Angel investors in Japan is very much the story of accelerators, incubators, co-working spaces, and meetups where entrepreneurs and Angels gather.

Another factor greatly influencing Angel activity in Japanese startups has been Japanese company’s traditional reliance on debt rather than equity when raising capital. Compared to the West there has traditionally been reluctance for Japanese startups to sell shares early on. Usually, stock is held by the founder(s) and a bank loan is taken on, backed by personal guarantee, instead of selling shares at the start. This is partly because of a lack of necessary infrastructure. In Japan, judicial scriveners rather than attorneys at law are responsible for writing up articles of incorporation, but most are not familiar with corporate structures which most benefit early stage equity investment. Convertible notes, for example, the preferred equity vehicle for Silicon Valley early-stage investors, are a foreign concept. This reliance on debt capital is quite limiting given that founders must personally guarantee the bank loan, as this eliminates the protection given the founder by the unlimited liability structure, ironically negating the primary reason for forming a corporation and putting the founder at risk of personal bankruptcy. Furthermore, debt is transferable. In other words, if the startup fails, the founder’s guarantor or family then assumes responsibility for the unpaid debt. Even if the founder dies, the family is still liable for the debt. One of the reasons why American entrepreneurs are so successful with startups is that they face little risk in the event of failure, even if the startup venture fails personal bankruptcy is fairly rare. There needs to be a change to Japanese bankruptcy laws in order to improve these conditions. This issue is slowly improving as Angel investors willing to provide early-stage equity help remove some of the risks for entrepreneurs. An increase in Angel investors is therefore essential for the continued success of Japan’s fledgling startup environment…

To read the rest of this chapter please purchase your copy of Angel Financing in Asia Pacific – A Guidebook for Entrepreneurs on Amazon here!

Evan Burkosky has lived and worked in Japan since 2003 and is an active marketing technology executive and startup mentor.