Startup deals in Japan hit an all-time high as Tokyo Stock Exchange regulations push young companies toward M&A over IPOs, reshaping the nation’s innovation ecosystem.

Japan’s startup landscape is undergoing a dramatic transformation. A new rule by the Tokyo Stock Exchange (TSE) — requiring companies on the Growth Market to reach a valuation of at least ¥10 billion ($66 million) within five years or face delisting by 2030 — has ignited a wave of mergers and acquisitions (M&A) across the country.

According to market research firm For Startups, a record 199 Japanese startups were bought out in 2024, more than double the number from just four years ago. Meanwhile, the number of initial public offerings (IPOs) has plunged to only 21 so far this year, marking one of the lowest counts in recent memory.

The shift reflects a changing mindset: for many founders, “an IPO isn’t always the happy ending.” Instead, they’re choosing consolidation to gain scale and attract larger investment pools. As Takashi Nakagawa, co-founder of health-tech firm Kakehashi, explained, “For growth, we’re open to acquiring firms that are bigger than us. All options are on the table.”

A Cultural Shift in Japan’s Startup Scene

For decades, being the head of a publicly listed company symbolized prestige and power in Japan — offering access to better loans, elite golf clubs, and social status. But today, many entrepreneurs and policymakers believe that going public should serve growth, not ego.

Lawmakers like Fumiaki Kobayashi are working closely with the TSE to build a stronger M&A culture, arguing that a healthy acquisition market will help startups scale faster and compete globally. “It’s crucial to foster a good market for M&A,” he said.

Global Investors Take Notice

The trend is drawing the attention of international venture capital firms, which are cautiously increasing their presence in Japan. Major deals in recent months highlight the shift:

  • Kakehashi secured $97 million in Series D funding, led by Goldman Sachs, valuing the company at over $400 million.
  • SmartHR, a human resources platform, raised $140 million in a round co-led by KKR, reaching a unicorn valuation above $1 billion.

Takashi Sano, Chief Investment Officer of MUFG Innovation Partners, said, “The message is to grow the company, grow the business, create a business which can scale.”

Corporate Japan Joins the Startup Race

Even Japan’s traditional banking giants are adapting. Mitsubishi UFJ Financial Group (MUFG) has approved more than $1 billion in fintech acquisitions, while Mizuho Financial Group spent $300 million to acquire Upsider Holdings to strengthen its SME lending model.

“MUFG used to be conservative,” Sano added, “but now we see innovation and new business can be built not only by ourselves but through partnering with startups.”

Challenges Remain

Despite progress, challenges persist. Japan’s weak yen, rigid visa rules, and conservative business practices still deter some foreign entrepreneurs. The landmark ¥300 billion acquisition of Paidy by PayPal in 2021 remains one of the country’s largest venture-backed deals — a sign of how rare large exits still are.

Yet optimism remains. “IPO or M&A, you want to have as wide a universe of options as possible,” said Russell Cummer, founder of Paidy. “I’m optimistic about Japan’s startup ecosystem. It’s making progress — at its own pace.”