I mentor the leaders of several venture companies. Although my company is publicly listed, I still see myself first and foremost as a venture CEO. That’s why I initially turned down the role, feeling it would be inappropriate and even a little presumptuous. But given my position as a director at The Tokyo New Business Conference, an economic organization, I ultimately had no choice but to accept. In my conversations with these leaders, one major challenge that emerged was the worsening funding environment in recent years. For many venture companies, the typical path to growth is to invest ahead, win customers, and then expand their products and services. As a result, they often remain in the red for some time. During this period, it is difficult for them to secure loans from banks, so they end up relying on risk capital from investors. Until about four or five years ago, that capital was relatively abundant, but recently it has begun to dry up.

Venture capital (VC) had played a major role in supplying this kind of risk capital, but overall the stance of VCs has become more cautious. There are probably a variety of reasons, but one is surely that past investments have not borne much fruit. And without recovering those funds, they cannot move on to new ones. In practice, capital returns in one of three ways: the portfolio company goes public, it gets acquired through M&A, or a new investor steps in. These scenarios are what we call an “exit.” In Japan, however, the range of such exits remains limited and still very much a work in progress. I’ll touch on going public later. M&A, meanwhile, has been increasing, but largely in cases of companies without successors. For venture companies, M&A as an exit is still only in its infancy. As for trading unlisted shares, developments are heading in that direction, but examples are still few and far between.

And when it comes to going public, the window of opportunity has been narrowing. According to reports, initial public offerings in the Tokyo Stock Exchange (TSE) Growth Market over the past six months are down 70% from last year (“Growth company IPOs fall 70% as TSE reforms lead to greater selectivity,” Nikkei, September 26).

Of course, the narrowing of IPO exits does not simply mean the market is being closed off. The clear intention of the TSE’s reforms is to revitalize the market and strengthen Japan’s economic foundation. The trigger was its 2023 proposal “Measures to Achieve Management Conscious of Capital Costs and Stock Prices.” The message here is that listed companies should be mindful of their capital costs and stock price, and work to achieve sustainable growth in corporate value. To support these revitalization measures, the criteria for maintaining listing are being progressively revised. The TSE has three main markets: the Prime Market, the Growth Market, and the Standard Market. In the Prime Market, the requirement is a free-float market capitalization of at least 10 billion yen. For the Growth Market, a similar standard of 10 billion yen in market capitalization will apply five years after listing. It is likely that new standards will also be introduced in the Standard Market in the future to help revitalize it. Taken together, these measures have raised the hurdles for venture companies seeking to go public.

Risk capital from investors is flowing toward a small number of standout ventures, making it harder for the many others that have not yet reached that stage to raise funds. In line with the changes to listing criteria mentioned earlier, securities firms also appear to be shifting course, reducing support for smaller companies aiming to go public or delaying their listings to pursue larger-scale IPOs. Broadly speaking, this backdrop has deepened the kinds of concerns I noted earlier among venture company leaders.

The reforms introduced by the TSE are in some respects a test for venture companies and entrepreneurs, but I believe the direction they are heading in is exactly right. In a country like Japan, where the population is aging and declining, economic growth will not come about on its own; various measures will be required. Revitalizing the market, encouraging many companies to pursue sustainable value growth, and channeling Japan’s world-leading household financial assets into these efforts will likely form a major pillar of strategies to strengthen the nation’s economy. I have touched on this topic before in this column, so please see here:

Realizing sustainable growth under the “New Form of Capitalism” (January 2025)

Finally, there are things that business leaders, myself included, must reflect on. Until recently, I believe the stance of the TSE was along the lines of: “We encourage you to go public. Getting listed will allow you to raise funds for growth, secure talent, and strengthen your creditworthiness. Use your listing as an opportunity to further enhance corporate value.” The reality, however, is that many executives treated listing as the goal, and their companies’ growth stalled there. Rather than using an IPO as a springboard for further growth, for many companies it became the endgame and the peak of their development. Instead of easy listings, the focus should be on companies that have shown resilience by continuing to grow under difficult conditions and that are likely to grow further by going public. Otherwise, the cost ultimately falls on investors. That is a natural conclusion. Put another way, it is the complacency of senior companies and their management that has led to this situation.

I am grateful for the new perspectives I have gained from listening to young venture entrepreneurs. At the same time, I take seriously the message behind the TSE’s market reforms and intend to pursue sustainable growth that enhances corporate value for my own company.

Hirotaka Shimizu
Chairman and CEO
Kamakura Shinsho, Ltd.

Image material：PIXTA