The government plans to lift regulations that have required domestic venture capital funds to invest at least 50% of the money they raised in Japanese start-ups, The Yomiuri Shimbun has learned.
According to sources, the new system could be introduced as early as this summer.
A venture capital fund is a type of high-risk, high-return pooled investment fund that lets investors buy equity stakes in early-stage start-ups struggling to secure financing. The special provision is expected to increase cashflow to domestic start-ups by encouraging foreign investors, who have been cautious in light of the “50 percent rule,” to invest in such funds.
International corporate collaboration is essential in fields where foreign companies are ahead of Japanese companies, and the government aims to promote a synergistic effect in which investment in foreign firms could lead to the growth of domestic firms in areas such as decarbonization and digitization.
The 50 percent rule, soon to be abolished, is stipulated in the current Limited Partnership Law for Investment. The government submitted a bill to the ordinary Diet session that would revise the Law on Strengthening Industrial Competitiveness to establish a special exemption to the 50 percent rule for venture capital funds approved by the Economy, Trade and Industry Ministry from the former law.
In the new system, venture capital firms will be required to ask the government for approval when investing in foreign companies 50% or more of the money they raised.
Ever since the Limited Partnership Law for Investment was enforced in 1998, Japan has been slow to attract investment money, while monetary ease in other developed countries has opened the floodgates on cash supply.
According to the Venture Enterprise Center, which studies start-ups, domestic venture capital investment in 2019 was less than ¥300 billion, far behind the ¥14 trillion seen in the United States and the ¥2.4 trillion in China.