Japan’s startup ecosystem is gaining new levels of attention as startup firms are increasingly born from elite Japanese universities, attract top Japanese talent, and collaborate with large incumbent Japanese companies. However, the lack “unicorns” – private companies whose valuations exceed 1 billion USD – has been a common cause of concern. Mercari, a C2C e-commerce service, became Japan’s sole unicorn in 2016, joined in 2017 by Preferred Networks, an industrial robotics AI company. However, with Mercari’s 60 billion yen IPO in June 2018, the largest on Japan’s small cap Tokyo Stock Exchange “Mothers” Market, there is now only one Japanese unicorn—or just a handful, depending on the source. In contrast, there are 117 in the United States (a majority in Silicon Valley alone), 73 in China, 15 in the United Kingdom, and 11 in India, according to CB Insights.

Is the lack of unicorns in Japan evidence of an anemic startup ecosystem? Or are there are other forces at play? This opinion paper contends that when taken in a historical perspective, Japan’s lack of unicorns demonstrates the very success of a critical institutional shift in Japan’s startup ecosystem that improved the situation remarkably since the late 1990s. As such, the current situation should be considered at an evolutionary stage where unicorns can now emerge in Japan if venture capitalists begin to take diverse strategies in investing –especially after the large IPO of Mercari.