You Can Now Invest in Japanese Startups with Crypto

Seize the future! Venture into Japanese startups with crypto. This guide unpacks advantages, tackles risks, and paves the way for innovative global investments

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You Can Now Invest in Japanese Startups with Crypto

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In a groundbreaking move, Japan is opening the doors to a new era of investment by allowing startups to raise funds through cryptocurrencies. This shift in regulations, a significant departure from the country's traditionally stringent stance on digital assets, is set to revolutionize the startup ecosystem. The Japanese government's decision to permit startups to issue crypto tokens instead of stocks is a testament to the country's commitment to fostering innovation and aligning with global standards. This move not only diversifies the income streams for new businesses but also reflects Japan's evolving approach towards embracing digital assets. As the world of finance continues to be disrupted by blockchain technology, Japan is positioning itself at the forefront of this transformation, creating a growth-oriented environment for domestic businesses and investors alike

In recent years, Japan has emerged as a hotbed for technological innovation and startup growth. This trend, coupled with the increasing global popularity of cryptocurrencies, has paved the way for a unique intersection – investing in Japanese startups with crypto. This title encapsulates the exciting prospect of combining traditional venture capital with the decentralized world of cryptocurrency to unlock new avenues of investment and support for the flourishing startup ecosystem in Japan.

The Japanese Startup Landscape

A. Overview of the Thriving Startup Ecosystem in Japan

Japan's startup ecosystem has been gradually gaining momentum, fueled by increased government support, growing investor interest, and a burgeoning entrepreneurial culture. Key elements of Japan's thriving startup ecosystem include:

  1. Government Initiatives: The Japanese government has implemented various initiatives and policies to foster entrepreneurship and innovation, including funding programs, regulatory reforms, and startup incubators.
  2. Venture Capital Investment: There has been a notable increase in venture capital investment in Japanese startups, with both domestic and international investors recognizing the potential of Japan's technology and innovation-driven ventures.
  3. Startup Hubs: Cities like Tokyo, Osaka, and Fukuoka have emerged as vibrant startup hubs, offering access to talent, funding, and networking opportunities for aspiring entrepreneurs.
  4. Corporate Engagement: Japanese corporations are increasingly engaging with startups through corporate venture capital funds, accelerators, and innovation labs, fostering collaboration and driving technological advancements across industries.

B. Key Sectors and Industries Driving Innovation in the Country

Several sectors and industries in Japan are driving innovation and serving as focal points for startup activity:

  1. Technology and Software: Japan's technology sector continues to innovate, with startups focusing on areas such as artificial intelligence, robotics, internet of things (IoT), and software development.
  2. Healthcare and Biotechnology: With an aging population and increasing healthcare needs, startups in healthcare technology, biotechnology, medical devices, and telemedicine are gaining traction in Japan.
  3. Fintech: Fintech startups are disrupting traditional financial services in Japan, offering innovative solutions in areas like payments, peer-to-peer lending, blockchain technology, and digital banking.
  4. Mobility and Transportation: Japan's transportation industry is witnessing innovation through startups developing electric vehicles, autonomous driving technology, mobility-as-a-service platforms, and smart transportation solutions.
  5. Sustainability and Environment: Startups focused on sustainability, renewable energy, waste management, and environmental conservation are addressing pressing global challenges while driving economic growth in Japan.

C. Success Stories of Notable Japanese Startups

Several Japanese startups have achieved notable success and international recognition:

  1. Rakuten: Founded by Hiroshi Mikitani, Rakuten is one of Japan's largest e-commerce and internet services companies, offering a diverse range of online retail, digital content, and fintech services.
  2. LINE Corporation: LINE, a messaging app developed by Naver Corporation, has evolved into a multifaceted platform offering messaging, digital payments, gaming, and social networking services, with a significant user base in Japan and globally.
  3. Mercari: Mercari is a popular online marketplace and e-commerce platform that enables users to buy and sell new and used goods through its mobile app, facilitating peer-to-peer transactions and promoting sustainability through reuse.
  4. Preferred Networks: Preferred Networks specializes in artificial intelligence and machine learning technologies, developing solutions for autonomous driving, robotics, healthcare, and industrial automation, with strategic partnerships with leading companies in Japan and abroad.
  5. Sansan: Sansan provides cloud-based business card management and networking solutions, leveraging AI technology to digitize and organize contact information, streamline business processes, and enhance professional networking capabilities.

According to a report by Statista, the revenue in the cryptocurrencies market is forecasted to reach US$1,919.0 million in 2024, with an anticipated annual growth rate (CAGR 2024-2028) of 8.02%. This growth trajectory is expected to culminate in a projected total of US$2,613.0 million by 2028.

The Traditional Investment Landscape

A. Overview of Traditional Investment Methods in Japan

Traditional investment methods in Japan encompass a variety of avenues through which investors allocate their funds to generate returns. These methods typically include:

  1. Stock Market: Japanese investors often participate in the stock market, investing in both domestic and international equities through brokerage accounts and investment funds.
  2. Bonds: Government bonds, corporate bonds, and municipal bonds are commonly utilized by investors seeking fixed-income securities with varying levels of risk and return.
  3. Real Estate: Investment in real estate, both residential and commercial properties, remains a prevalent avenue for wealth accumulation and diversification in Japan.
  4. Savings Accounts: Traditional savings accounts offered by banks and financial institutions provide a secure but relatively low-yield option for individuals to store their funds.
  5. Mutual Funds and ETFs: Mutual funds and exchange-traded funds (ETFs) offer diversified investment opportunities across various asset classes, including stocks, bonds, and commodities.

B. Challenges and Limitations Faced by Traditional Investors

Despite the prevalence of traditional investment methods, investors in Japan encounter several challenges and limitations:

  1. Low Interest Rates: Persistently low interest rates in Japan diminish the yield potential of fixed-income investments like bonds and savings accounts, impacting investors reliant on income generation.
  2. Aging Population: Japan's aging population poses challenges for investors, as demographic shifts influence consumer behavior, economic growth prospects, and pension sustainability.
  3. Volatility and Market Risk: Like other global markets, Japanese financial markets are susceptible to volatility and market risk, requiring investors to navigate fluctuations in asset prices and economic conditions.
  4. Limited Diversification: Traditional investment options may offer limited diversification opportunities, particularly for retail investors with constrained access to alternative asset classes and global markets.

C. The Need for Alternative Investment Options

Given the challenges and limitations of traditional investment methods, there is a growing recognition of the need for alternative investment options in Japan. Alternative investments offer diversification benefits, potentially higher returns, and unique risk exposures beyond conventional asset classes. Some alternative investment options include:

  1. Private Equity and Venture Capital: Investing in private companies or startups can provide opportunities for capital appreciation and portfolio diversification outside of public markets.
  2. Hedge Funds: Hedge funds employ diverse investment strategies, including long/short equity, arbitrage, and event-driven approaches, aiming to achieve positive returns regardless of market conditions.
  3. Real Assets: Investments in tangible assets like infrastructure, commodities, and timberland offer inflation protection and diversification benefits compared to traditional financial assets.
  4. Cryptocurrencies and Blockchain Technology: The emergence of cryptocurrencies and blockchain technology presents alternative investment opportunities for investors seeking exposure to digital assets and decentralized finance.

Crypto as an Alternative Investment Avenue

A. Rise of Cryptocurrency as a Viable Investment Option

Cryptocurrency has emerged as a viable investment option due to several factors:

  1. Decentralization: Cryptocurrencies operate on decentralized networks, eliminating the need for intermediaries such as banks or financial institutions. This decentralization enhances transparency and reduces the risk of manipulation or censorship.
  2. Potential for High Returns: Cryptocurrencies have demonstrated the potential for high returns, with some early adopters seeing significant appreciation in the value of their investments. The volatility of the cryptocurrency market also presents opportunities for traders to profit from price fluctuations.
  3. Diversification: Cryptocurrencies offer investors a diversification option beyond traditional asset classes like stocks, bonds, and real estate. By adding cryptocurrencies to their investment portfolios, investors can potentially reduce overall portfolio risk through diversification.
  4. Accessibility: Cryptocurrency markets operate 24/7 and are accessible to anyone with an internet connection, allowing investors to buy, sell, and trade digital assets at any time from anywhere in the world.

B. Advantages of Using Crypto for Startup Investments

Investing in startups using cryptocurrency offers several advantages:

  1. Global Access: Cryptocurrency enables investors from around the world to participate in startup investment opportunities without the limitations imposed by traditional banking systems or geographical boundaries.
  2. Reduced Friction: Cryptocurrency transactions typically involve lower fees and faster settlement times compared to traditional banking transactions, reducing friction in the investment process and enabling quicker access to capital for startups.
  3. Fractional Ownership: Cryptocurrency platforms often facilitate fractional ownership of assets, allowing investors to purchase small fractions of startup equity or tokens, which can increase accessibility and diversification for investors with limited capital.
  4. Programmable Money: Smart contracts and blockchain technology enable programmable money functionalities, such as automated revenue sharing, dividend distribution, and voting rights, enhancing transparency and efficiency in startup investment processes.

C. How Crypto Investments Are Changing the Game for Investors

Cryptocurrency investments are changing the game for investors in several ways:

  1. Decentralized Finance (DeFi): DeFi platforms leverage blockchain technology to offer financial services such as lending, borrowing, trading, and asset management without the need for traditional financial intermediaries, providing investors with greater control over their assets and investment strategies.
  2. Tokenization of Assets: Cryptocurrency enables the tokenization of real-world assets, such as real estate, art, and commodities, allowing investors to gain fractional ownership and liquidity in traditionally illiquid asset classes.
  3. Global Market Access: Cryptocurrency exchanges and decentralized trading platforms provide investors with access to a global marketplace, enabling seamless trading of digital assets across borders and currencies.
  4. Innovation and Experimentation: The cryptocurrency ecosystem fosters innovation and experimentation, with startups and developers continuously exploring new use cases, business models, and technologies to unlock value and disrupt traditional industries.

The Emergence of Crypto Platforms for Startup Investments

A. Introduction to Platforms Facilitating Crypto Investments in Japanese Startups

In Japan, as in many other parts of the world, there has been a rise in platforms facilitating crypto investments in startups. These platforms leverage blockchain technology and cryptocurrency to provide investors with opportunities to participate in funding rounds and access early-stage projects. They offer a new avenue for fundraising and investment, often with features that enhance transparency, accessibility, and efficiency in startup financing.

B. Key Players in the Market and Their Unique Features

  1. CoinList: CoinList is a platform that helps startups raise capital through token sales and initial coin offerings (ICOs). It provides compliance services, investor accreditation, and a secure platform for conducting token sales, making it easier for startups to access global investors interested in cryptocurrency investments.
  2. Binance Launchpad: Binance Launchpad is an initiative by Binance, one of the world's largest cryptocurrency exchanges. It facilitates token sales and fundraising events for blockchain projects, offering a platform for startups to reach Binance's large user base and community of cryptocurrency enthusiasts.
  3. Liquid by Quoine: Liquid is a cryptocurrency exchange and trading platform based in Japan. It offers a token sale platform called "Liquid Infinity" that enables startups to conduct initial exchange offerings (IEOs) and raise funds from a global pool of investors. Liquid provides regulatory compliance, security features, and liquidity for token issuers and investors.
  4. Zaif: Zaif is another Japanese cryptocurrency exchange that facilitates token sales and crowdfunding campaigns for blockchain projects. It offers a user-friendly interface, secure wallet services, and support for a variety of cryptocurrencies, making it a popular choice for investors interested in participating in token sales and ICOs.

C. How These Platforms Are Fostering Global Investment in Japanese Startups

Platforms facilitating crypto investments in Japanese startups are fostering global investment in several ways:

  1. Access to Global Investors: By leveraging cryptocurrency and blockchain technology, these platforms enable Japanese startups to access a global pool of investors interested in blockchain projects and cryptocurrency investments. This expands the fundraising potential for Japanese startups beyond traditional venture capital and angel investors.
  2. Efficient Fundraising Process: Cryptocurrency-based fundraising platforms streamline the fundraising process for startups by providing automated compliance checks, investor accreditation, and token sale infrastructure. This reduces administrative overhead and allows startups to focus on developing their projects and engaging with investors.
  3. Increased Liquidity: Cryptocurrency investments in Japanese startups can enhance liquidity for both investors and token issuers. By tokenizing startup equity or assets, these platforms enable fractional ownership and secondary trading of tokens, providing investors with liquidity options and exit strategies.
  4. Transparency and Security: Blockchain technology provides transparency and security features that enhance investor confidence in the fundraising process. Smart contracts and decentralized ledgers ensure transparency in token issuance, allocation, and distribution, reducing the risk of fraud or manipulation.

Risks and Challenges

A. Potential Risks Associated with Investing in Japanese Startups with Crypto

Investing in Japanese startups with cryptocurrency involves various risks, including:

  1. Regulatory Uncertainty: Regulatory frameworks surrounding cryptocurrencies and startup investments may evolve, posing legal and compliance risks for investors and startups alike.
  2. Volatility: Cryptocurrency markets are highly volatile, and the value of investments can fluctuate dramatically over short periods, leading to potential losses for investors.
  3. Lack of Investor Protection: Unlike traditional financial markets, cryptocurrency investments may not have the same level of investor protection measures, such as insurance or regulatory oversight, increasing the risk of fraud or loss of funds.
  4. Market Liquidity: Some tokens issued by Japanese startups may suffer from low liquidity, making it difficult for investors to buy or sell their holdings at desired prices, especially in times of market stress or downturns.
  5. Technology Risks: Startup projects may face technical challenges, security vulnerabilities, or failures in product development, resulting in project delays, losses, or the complete failure of the investment.

B. Mitigation Strategies for Investors

To mitigate the risks associated with investing in Japanese startups with crypto, investors can consider the following strategies:

  1. Diversification: Diversifying investments across multiple startups and asset classes can help spread risk and reduce the impact of losses from any single investment.
  2. Due Diligence: Conduct thorough research and due diligence on Japanese startups, including their business models, teams, technology, market potential, and regulatory compliance. Evaluate the credibility and track record of the founding team and advisors.
  3. Risk Management: Set clear investment goals, risk tolerance levels, and exit strategies before investing. Consider using stop-loss orders or setting limits on investment amounts to manage downside risk.
  4. Stay Informed: Stay updated on market trends, regulatory developments, and technological advancements in the cryptocurrency and startup investment landscape. Join communities, forums, and social media groups to gather insights and exchange information with other investors.
  5. Investment Horizon: Consider your investment horizon and financial goals when investing in Japanese startups with crypto. Long-term investments may help mitigate short-term volatility and fluctuations in cryptocurrency markets.

C. The Evolving Nature of Risks in the Crypto Investment Landscape

The risks associated with crypto investments are constantly evolving due to various factors, including regulatory changes, technological advancements, market dynamics, and investor behavior. Some emerging risks in the crypto investment landscape include:

  1. Regulatory Changes: Regulatory developments and enforcement actions by government authorities can impact the legality, trading, and taxation of cryptocurrencies and startup investments, leading to uncertainty and compliance challenges for investors.
  2. Cybersecurity Threats: The increasing prevalence of cyberattacks, hacks, and security breaches targeting cryptocurrency exchanges, wallets, and blockchain networks poses significant risks to investor funds and asset security.
  3. Market Manipulation: Cryptocurrency markets are susceptible to manipulation and fraudulent activities, such as pump-and-dump schemes, insider trading, and market manipulation tactics, which can distort prices and deceive investors.
  4. Emerging Technologies: The adoption of emerging technologies such as decentralized finance (DeFi), non-fungible tokens (NFTs), and blockchain interoperability solutions introduces new investment opportunities and risks, including smart contract vulnerabilities, protocol risks, and interoperability challenges.
  5. Market Sentiment and Speculation: Investor sentiment, market hype, and speculative behavior can influence cryptocurrency prices and market dynamics, leading to irrational exuberance, FOMO (fear of missing out), and asset bubbles that may burst unexpectedly.

Forward Looking Thoughts

These forward-looking thoughts open possibilities for increased innovation, economic growth, and the establishment of Japan as a global hub for crypto-powered startups.

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