Will Unicorns be Born in Japan? A comparative study of private equity market development and policy reforms

This study explores why Japan has produced relatively few unicorns compared with other advanced and emerging economies, despite strong entrepreneurial potential and abundant savings. It argues that the underdevelopment of Japan’s private equity markets constitutes a key structural bottleneck. We examine institutional causes and policy directions aimed at strengthening private equity markets and supporting high-growth firms. Drawing on experiences from the United States, the European Union, the United Kingdom, China, and the Republic of Korea, we conduct a comparative institutional analysis of core mechanisms for market-based equity financing: small public offerings, equity crowdfunding (ECF), and private placements, as well as secondary trading. Our analysis identifies structural regulatory constraints that raise entry barriers for issuers and limit investor participation in Japan. Based on these findings, we identify institutional issues that are currently lacking, including simplified disclosure frameworks, higher and tiered thresholds for small public offerings, flexible regimes for ECF, modernized rules for private placements and secondary trading, and the expansion of the scope of qualified investors, as well as digitized capital-raising processes. These measures would lower entry barriers, broaden investment opportunities, and improve risk capital allocation, while maintaining market-based investor protection. By fostering vibrant private equity markets, Japan can mobilize idle capital, stimulate entrepreneurship, and enhance competitiveness, thereby supporting innovation-driven economic growth and increasing the likelihood of more unicorns emerging. This study underscores the central role of institutional design in shaping entrepreneurial finance and offers policy-relevant insights for economies seeking to transition toward innovation-driven growth supported by vibrant private equity markets.