Startups in Japan: here's what you need to know

Japan is on its way to becoming “the place to be” for startups.

Despite the effects of the pandemic still reverberating through the world economy, the startup scene in Japan has continued to thrive. With over 10,000 startups and counting, the country has proven to be a global hub for entrepreneurs in 2022. The question is, why?

One factor is Japan’s unique culture and history of innovation, which attracts entrepreneurs who want to try living in the country.  But there’s more to Japan’s startup scene than meets the eye.

That’s why I’d like to talk about the startup ecosystem in Japan. More and more people are becoming curious about the opportunities Japan has to offer. If you’re one of them, this guide will help you filter through the noise and find the info you need.

I’ll start with a general overview of Japan’s startup ecosystem and the many opportunities awaiting foreign entrepreneurs in Japan. Then, I’ll share a list of the top startups in Japan and the leading industries right now.

The Startup Ecosystem in Japan: An Overview

It’s no secret that Japan is a great country for anyone interested in starting a business or expanding an existing one. For starters, the relevant laws are in favor of the entrepreneur. The steps you’ll have to go through to set up your business are crystal clear.

The language barrier can be an issue for foreign entrepreneurs, but the requirements are generally straightforward.

Apart from the favorable legal climate, startups in Japan are also eligible for governmental support. The J-Startup program, launched by the Ministry of Economy, the Ministry of Trade, and Industry of Japan (METI), aims to promote startups and new businesses alike. This program is part of the Startup and New Business Promotion division of METI, which was founded solely to support startups on a national level.

Companies eligible for the J-Startup program will receive support from both the private and public sectors in different ways. For instance, the program allows companies to benefit from free workspaces and business consultation services and aids them in exhibiting their products or businesses at international fairs and events.

Certain areas in Japan offer special startup visas to help foreign entrepreneurs start their companies.  And recently, Tokyo has even started offering loans to provide further help.

The private sector is also heavily involved in the startup scene in Japan. Large companies have shifted their focus and are now investing in small businesses to diversify and keep up with the innovation happening in the country. 

It makes sense, of course. As new startups enter the scene every day, the competition is getting fiercer by the minute. Keeping up is hard, even for well-established, large-scale companies, so they choose to gain more equity by buying shares.

In 2021, the startups in Japan received 7.1 billion U.S. Dollars of funding overall. The first half of 2021, in particular, with nearly 3 billion USD of funding, was a record-breaking period for Japan-based startups, as this has been the highest amount reported in the last five years. 

This is still a lot lower than startup hotspots like the US, but funding is increasing fast.  That means Japan is in a sweet spot right now — it’s still small enough to have opportunities, but it’s clearly growing.

This isn’t to say that more funding equals a higher chance for startups to succeed, but it suggests a vibrant economic environment.  Plus it shows the increased value and trust that’s placed in startups in Japan.

Having said that, while the amount of funding received has increased, the number of startups that get funded has slightly decreased. Another report from Statista states that in 2021, the number of companies that received funding was over 1900, which is less than the 2100 startups that received funding in 2020.

Trending Industries

Japan’s known for its culture of innovation and cutting-edge technology.  

So it’s no surprise SaaS (software as a service) startups have become popular here. Companies like Money Forward, SmartHR and Freee have shown that Japanese SaaS startups are formidable.

However, the FinTech, life sciences, and healthcare industries have also been gaining popularity in recent years. 

Recent initiatives by the Japanese government regarding the life sciences and healthcare industries have also made Japan a desirable place for foreign businesses. For instance, these initiatives allow foreign healthcare startups to receive extra support from the government in the form of an acceleration program.

Robotics and advanced manufacturing are two more industries that are on the rise in Japan. These industries have always been Japan’s strong suit, and the trend seems to be continuing. Thanks to the smart manufacturing initiatives introduced by the government, robotics and advanced manufacturing startups are thriving.

For instance, the Japan External Trade Organization (JETRO) helped make advanced manufacturing the biggest industry in Japan. This initiative allows factories that implement smart systems, sensors, and robotics to benefit from tax reductions.

Another popular sector for startups in Japan is, without a doubt, FinTech. Products and services that process online payments like PayPay are reaching new highs every year.  The Japanese government even supports cryptocurrencies, which is a testament to their belief in FinTech innovation.

Top Japanese Startups in 2022

As we’ve seen, Japan is a powerhouse for startups. 

In 2021, many companies managed to raise record amounts of funding.  Let’s take a look at a few that outperformed the others. Here are some of the startups that received the most funding in the first half of 2021 in Japan.

SmartHR

It’s no surprise that SmartHR — a SaaS startup — tops the list.

SmartHR is a Tokyo-based human resources management tool. Founded in 2013, the company aims to bring cloud technologies and team management tools together. Thanks to cloud integration, the software allows for a seamless workflow while managing teams or employees.

The company currently has about 19 investors, and it became Japan’s 6th unicorn, with over 250 employees. Want to learn more about Japanese unicorns? I’ll get into that in a bit.

SmartNews

Founded in 2012, SmartNews is an AI-powered news app that delivers personalized news using AI. The company promises to only deliver trending news that will interest the reader. It does so by sorting through all the news available via AI and delivering a selection of articles to each user.

SmartNews currently has approximately 300 employees, and it’s also one of Japan’s 10 unicorn startups. The company is based in Tokyo and has raised over $409.6 million in funds.

PayPay

PayPay is a FinTech startup that became a success story at a lightning fast pace after its start in 2018. A mobile payments provider, their app has ridden the digital payments wave in Japan to become one of the most popular apps in the country.

Paying homage to its startup roots, PayPay also launched a program for smaller startups. With this acceleration program, new startups can use PayPay’s code and resources to develop mini apps. These mini apps create new ways to integrate PayPay and are featured in PayPay’s mini app platform.

Atonarp

Based in Tokyo, Atonarp is a company that provides digital products in the medical and pharmaceutical fields. 

They contribute to advancing medical diagnostics through digital molecular profiling. The company was founded in 2010 and has been thriving in recent years, especially in 2021. According to Atonarp, their goal is to “make real-time molecular information accessible and affordable.” 

Atonarp is one of the few companies that work in R&D that made it into the top 20. R&D is one of those fields where it’s harder to raise funding, but Atonarp managed to raise a record amount last year. 

While Atonarp is the closing entry in our startup selection for 2022, you can find more examples of thriving new businesses in Japan in our Japan startups list. All the companies featured on it have been personally vetted by our team.

The Many Hidden Unicorns of Japan

Despite its relatively small ecosystem compared to the United States, Japan has minted quite a few unicorns. 

Unicorns are companies that have reached over a billion dollars in market value. As of 2022, there are 10 unicorns in Japan.  This isn’t a huge number compared to places like the US and China, but Japan’s market is unique.  So this number can be a little misleading.

There are a lot of companies that aren’t technically unicorns, but may be just as promising — they’ve been called hidden unicorns.  These companies are just as successful, but they aren’t categorized as unicorns due to a technicality. 

Either their valuation is just below 1 billion USD, or they break 1 billion but not until after their IPO (Initial Public Offering).  In Japan, companies tend to go public earlier.  That robs them of the ability to gain “unicorn” status, even though they likely would have in most other countries. 

Japan currently has over 40 hidden unicorns. It’s also worth noting that Japan didn’t have any unicorns until 2018!  That means that Japan’s startups are getting bigger and more valuable.

For instance, Mercari, an e-commerce company that offers a marketplace for used items, famously managed to become the first unicorn startup in Japan in 2018. Following its success, Preferred Networks quickly joined the list the same year, and Liquid Group joined the following year. The list grew to house a whopping 10 companies in 4 short years.

Here’s a current list of Japan’s 10 unicorns:

• Preferred Networks

• SmartNews

• SmartHR

• Triple-1

• Spiber

• TBM

• Clean Planet

• Liquid Group

• Mobility Technologies

• Hirotsu Bio Science

And you can view all 40+ of Japan’s “hidden” unicorns here.

This growth doesn’t seem like it’s going to slow down anytime soon either. Earlier this year, it was reported that the Japan Business Federation aims to have over 100 unicorns in Japan by 2027. 

This is an ambitious goal, but it doesn’t sound too far-fetched considering the progress that’s already been made.

Location Is Key: Tokyo vs. Other Areas

Choosing the right location is crucial when you’re starting a business. 

If you’re thinking about starting a business in Japan, you’re probably wondering if Tokyo is your only option. I’m here to tell you that it’s not.

It’s true that the majority of startups in Japan — especially those run by foreigners — start in Tokyo.  But that doesn’t mean it’s the only option.

Japan is a vibrant country with distinct regions, and there’s more to it than just Tokyo. Other big cities like Fukuoka and Osaka also have a lot to offer.  And these cities are home to plenty of successful startups too. 

Let’s take a closer look at the startup scene in these three cities and see which industries are the most prominent in each one.

Startups in Tokyo

Tokyo isn’t just Japan’s biggest city — it’s the most populated city in the world. It’s a living, breathing megalopolis and it’s on its way to becoming a true tech hub.

Tokyo’s innovative startup ecosystem is valued at around $62 billion. Currently, there are over 1,200 startups in the city. The most prominent industries in Tokyo are robotics, SaaS, consumer services, and FinTech.

In addition to being a tech hub, Tokyo is becoming a smart city. 

It’s an ever-growing innovation center with advanced, efficient systems. Sustainability and energy security are also top priorities in Tokyo.  This helps make Tokyo a great place for startups.

Startups in Fukuoka 

Fukuoka might not be as well-known as Tokyo, but it’s making strides toward becoming the Silicon Valley of Japan.

As far back as 2011, Fukuoka’s mayor announced that Fukuoka wanted to be the place for startups. It’s been going strong ever since, with the tech industry dominating the city’s startup ecosystem.

There’s a good reason Fukuoka is called “the startup city.” The tax rates for businesses have been lowered greatly compared to the other cities in Japan, which has made it the ideal place to start a business safely. Fukuoka was also chosen by the Japanese government to be the pilot city for their innovation center initiative. This initiative includes benefits like financial aid for renting spaces, tax reductions, and a startup visa.

Both these factors have impacted the city’s startup climate, turning it into a desirable place for startups that center around innovation. Nowadays, Fukuoka houses many startups that work in fields like data, hardware, and software related to the Internet of Things (IoT), the social services industry and more.

Startups in Osaka

Being one of Japan’s oldest economic hubs, Osaka is another great city where culture and tradition blend with innovation and modernity. 

Osaka currently houses over 1,000 startups, with a good portion of these businesses operating in the life sciences industry. The city is also home to many public institutions. This allows for an interesting blend of the private and public sectors that coexist and collaborate.

This rare collaboration is one of Osaka’s greatest advantages. The government innovation initiative “J-Startup” also serves as an incubation center for hundreds of Osaka-based startups, all thanks to this collaboration.

Osaka will be hosting the World Expo in 2025, which emphasizes the city’s role as a place of innovation for both Japan and the world. This will be Osaka’s second time hosting the event since the 1970s, which further shows its rich history of innovation.

Visa Eligibility and Startup Visas

Starting a business in a foreign country has many challenges, and a visa is undoubtedly one of them. 

Luckily, Japan offers a dedicated “startup visa” to foreigners who wish to start a business. The visa has been around since 2015, and it simplifies the visa process for prospective foreign business owners.

To get a startup visa, you need to present a business plan to one of the approved municipalities. Currently, the Japanese startup visa is only available in certain areas.

Here’s a complete list of the areas where you can apply for a startup visa as of 2022:

• Hokkaido

• Osaka City

• Kobe City

• Fukuoka

• Kyoto Prefecture

• Gifu Prefecture 

• Sendai City

• Ibaraki Prefecture 

• Shibuya Tokyo 

• Yokohama City

• Aichi Prefecture

• Mie Prefecture

• Oita Prefecture

After an examination of your business plan by the municipality, you’ll get approval. Then, you can apply to the immigration office and easily get your startup visa.

As we explained, this visa is specifically tailored for startups. If you’re looking for more information on other visa types and permanent residency, you can check out our recent post where we explain the various visa types Japan offers to foreigners.

While it’s true that Japan is a goldmine in terms of opportunities for startups, it has many established tech companies as well. You can check out our Japan company list to get an overview of these companies and even explore new job opportunities.

Whether you start your own company or join an existing one, working in Japan can be a dream come true.  And with Japan’s startup ecosystem continuing to thrive, now is a great time to start your journey here.