Japan Opens New Funding Avenue for Startups with Crypto Assets

• Japan is introducing a new era for startups, allowing them to secure investments from venture capital firms using digital assets like cryptocurrencies instead of traditional stocks.
• This move is aimed at providing emerging blockchain technology companies with additional funding sources.
• Japan restricts limited partnerships to conventional assets like shares, stock options, and security tokens.
• The government plans to introduce legal amendments to parliament, potentially as early as 2024.

Japan is ushering in an exciting era for startups, opening up a new avenue for them to secure investments from venture capital firms by utilizing digital assets like cryptocurrencies, rather than the traditional route of stocks. This innovative change is geared towards providing emerging companies in the blockchain technology space with additional sources of funding.

This shift will broaden the scope of assets accessible to limited partnerships. Typically, venture capital firms employ limited partnerships to pool funds from various entities for startup investments, thereby minimizing their financial exposure.

At present, Japan confines limited partnerships to conventional assets like shares, stock options, and security tokens, as defined by Japanese securities regulations. However, the upcoming regulation will encompass other tokens and crypto assets, effectively enriching an investment sector that has been relatively underdeveloped in the country.

The government has plans to introduce the necessary legal amendments to parliament, potentially as early as 2024.

It’s noteworthy that blockchain-based tokens, unlike traditional shares, can be generated swiftly without the need for intermediaries or brokers. Fundraising through these digital assets is primarily conducted by companies operating in the realm of next-generation Web3 technologies, particularly blockchain.

In 2022, global Web3 startups managed to secure an astounding $15.1 billion in funding, marking a remarkable 15-fold increase compared to the figures from 2018, according to data from CB Insights. While there was a dip in funding in the latter half of 2022, partly attributed to the collapse of the FTX cryptocurrency exchange, the trend seems to have stabilized since the first quarter of 2023.

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Several companies in Japan, such as blockchain developer HashPalette, have already successfully raised substantial sums through token offerings. However, restrictions that prevented limited partnerships from investing in tokens hindered Japanese venture capital firms and institutional investors from participating in the growth of Web3 companies.

As a result, many startups chose to issue tokens in locations like Singapore or Dubai. On the venture capital front, Japanese firm Skyland Ventures ventured into token investments abroad through a subsidiary based in Singapore.

In addition to these changes, the Japanese government is also contemplating revisions to the tax code for fiscal years 2024 and beyond. This could potentially exempt crypto assets and tokens from taxes on unrealized gains based on market value, addressing concerns that have deterred some individuals from investing in this field.

Venture capital firms have been advocating for these changes for some time. While the revision of the limited partnership law is viewed as a significant step forward in Japan, it is recognized that achieving a substantial increase in fundraising through virtual currencies may necessitate further developments.

Furthermore, Japan is planning to eliminate restrictions on limited partnerships, no longer mandating that over half of their capital must be invested domestically. This strategic move is aimed at enhancing profits and providing greater capital for investment in domestic startups.