Eric's Corner vol.2

How to increase the number of startups in Japan: Make capital easier to acquire

In 2024, every startup in Japan, combined, raised about ¥780 billion or roughly $5 billion USD. That's the entire country, for the entire year. In the same twelve months, startups in Silicon Valley pulled in $90 billion USD (57% of all US venture funding) from a single metro area. Japan has somewhere between seven and nine unicorns. The US has more than 650.

You can possibly explain some of that gap with culture. Japan's risk-aversion, lifetime employment, and the social cost of failure. But I want to start this series somewhere more practical: with the money.

1. Startups follow the money

Capital and its access is the precondition for everything else. You cannot start most companies without it, and you certainly cannot scale one.

But what about what abundant capital does? When money is loose and easy to acquire, it lowers the overall risk of startups as an idea and path career choice. A founder who can raise easily can pay themselves and early employees enough that walking away from a stable, well-paid job stops feeling reckless. Nine years ago my Lattice cofounder, Jack Altman, interviewed his brother, Sam Altman, and discussed risk and how to calculate it. In the interview Sam explains that most people overestimate the risk when it comes to starting a business. Especially if you are a young entrepreneur. But that's a Silicon Valley calculation, shaped by a fundraising climate that barely exists elsewhere.

Cheap capital, in other words, doesn't just buy runway. It buys people willing to take a chance. Abundant capital increases everyone's confidence and allows more individuals to participate in the startup ecosystem.

2. Founders go where capital is easiest to acquire

If capital is the oxygen, founders behave like any organism: they migrate to where the air is richest. This is why Silicon Valley and San Francisco remain the gravitational center of the startup world. Money there is simply easier to raise than anywhere else on earth.

The Bay Area alone absorbs more than half of all US venture funding. And it isn't only the capital that's concentrated there, nearly half of America's Big Tech engineers, the founders of tomorrow, are in the same place. Capital and talent create a positive feedback loop. Increasing capital allows for more startups and attracts more founders. The founders then recruit, hire, and teach talented early employees who are then more likely to start their own companies. These employees then start their own businesses and repeat the loop. Eventually you create a hub of innovators and a culture of innovation. 

You can watch the same logic play out in Japan, but in reverse. Japanese founders also go where the money is easiest. The catch is that the easiest money often isn't Japanese or even in Japan. Between 2010 and 2023, roughly half the capital flowing into Japanese startups came from US investors and only about 5% from domestic ones. Founders are incentivized to leave Japan or seek non-Japanese capital. This drains Japan of its best talent, further suppresses a culture of risk-seeking and innovation, and never lets young people see that a startup is a real career path.

3. Japan's job is to get more capital moving

If founders chase accessible capital, then a country that wants more startups has one job above the rest: make capital easier to get. And the most reliable way to do that is to increase the total amount of it flowing through the system.

The upside is that Japan is not a country short of money. It is a country short of money in venture. The Government Pension Investment Fund is the largest pension fund on the planet, around $1.7 trillion USD, and it sits almost entirely in stocks and bonds with barely a rounding error in venture. The capital exists. It simply isn't pointed anywhere near a startup.

None of this is to claim money is the only thing that matters. Exit opportunities, talent mobility, and yes, culture all play their part. But capital is the lever Japan can actually pull on purpose, and it's the one I want to spend a couple of articles examining.

What comes next

If the goal is more capital flowing through Japan's startup system, the interesting question is how you get it flowing. There are several distinct taps a country can open: tax incentives that change the math for investors, pension and institutional money that's currently sitting on the sidelines, new fund structures, and more. Each deserves its own discussion, and each will get one in the pieces that follow.

For now, the thesis is simple. Startups follow the money. Japan has the money. The work ahead is getting it in the hands of talented founders.