Japan Opens Doors for Local Venture Capitalists to Invest in Web3 Startups

Japan opens doors of opportunity for local VC investment in Web3 startups, potentially revolutionizing the market for local investors.

Japan opens doors for local venture capitalists to invest in Web3 startups

Jimmy Aki | Last updated: February 19, 2024 15:46 EST | 2 min read

Image by Jimmy Aki, Midjourney

On February 16, the Ministry of Economy, Trade and Industry (METI) made an exciting announcement: the Japanese cabinet has approved a proposal allowing domestic venture capitalists (VCs) to invest in Web3 startups. This groundbreaking move is set to revolutionize the investment landscape and pave the way for further innovation in the blockchain industry.

Japan Encourages Local VCs to Enter the Web3 Arena

According to METI, the approved revision entails amendments to four key acts, including the Act on Investment Limited Partnership Agreement. This act aims to bolster startups and industries by increasing domestic investments. The legal reform will now enable Japanese venture capitalists to invest in projects that exclusively issue virtual currencies, a privilege that was previously reserved for international investors.

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In addition to VCs, limited partnerships (LPs) will also reap the benefits of this exciting reform. LPs are investment partnerships formed specifically to invest in unlisted venture companies. By investing through LPs, VCs can mitigate risks and enjoy limited liability. Previously, regulations restricted the transfer of virtual currencies for investments received from LPs. This discrepancy meant that Japanese Web3 startups often sought backing from international investors instead.

Thanks to the recent amendment, LPs in Japan are now empowered to invest in medium-sized companies and startups involved in cryptocurrencies. With these new regulations in place, the Web3 community eagerly anticipates a surge in the number of innovative crypto and blockchain startups originating from the Land of the Rising Sun.

This unprecedented move has been warmly welcomed by the industry as it dismantles the barriers that have hindered Web3 companies in Japan. To make it clear, the ministry’s announcement stated that the Japanese cabinet has approved the bill, which has now been submitted to the legislative body for deliberation.

Web3 Startup Investment Thrives in Japan

Japan is determined to foster an agile and efficient investment environment by streamlining bureaucratic processes and minimizing administrative obstacles. As their commitment to transformational investment grows, the government has already made considerable strides.

For example, late last year, the Japanese cabinet approved a revision to the 2024 tax regime. This progressive move aims to exempt corporations from paying taxes on unrealized gains from cryptocurrencies, provided they hold onto the assets for an extended period.

The current tax framework categorizes third-party-issued cryptocurrencies held by corporations as either profits or losses, based on the difference between their market value and book value at the end of the fiscal year. However, the proposed revision seeks to abolish this mark-to-market valuation for long-term holdings. Under the new framework, companies would only be taxed on the profits realized from the actual sale of cryptocurrency.

This potential change in the tax regime comes after a clarification by the country’s tax agency in June 2023, stating that crypto issuers would not be subject to the approximately 35% capital gains tax on unrealized gains.

In June 2023, Japan’s Prime Minister, Fumio Kishida, expressed that “web3 is an opportunity for Japanese economic growth.” Consequently, the Prime Minister emphasized the government’s commitment to fostering an environment conducive to the advancement of web3.

Q&A on Japanese Venture Capitalists Entering Web3

Q: What are the benefits of allowing Japanese VCs to invest in Web3 startups? A: Allowing Japanese VCs to invest in Web3 startups enables domestic investors to tap into the potential of the blockchain industry. This move not only stimulates the growth of startups but also facilitates technological innovation and job creation in Japan.

Q: How will this reform impact the Japanese startup ecosystem? A: The reform is expected to have a transformative effect on the startup ecosystem in Japan. By opening the doors to local VCs, the country can attract more investment capital, nurture entrepreneurial talent, and create fertile ground for innovative ideas and projects.

Q: Will this change lead to an influx of foreign investors in the Japanese Web3 scene? A: While the primary objective of this reform is to encourage domestic VC investment, it may also attract foreign investors who see potential in the Japanese Web3 market. The combination of local and international capital could create a thriving ecosystem with cross-border collaborations and knowledge exchange.

Future Outlook and Investment Recommendations

The opening up of Japan’s investment landscape to local venture capitalists marks an exciting turning point for the country’s blockchain and Web3 industry. With the power of Japanese capital backing innovative startups, we can expect to see remarkable advancements in decentralized technologies and digital assets.

For investors interested in the Web3 space, paying attention to the emerging Japanese blockchain ecosystem can prove fruitful. By strategically investing in promising Japanese projects and leveraging the country’s supportive regulatory environment, investors can position themselves for potential long-term gains.

In conclusion, the Japanese government’s decision to allow domestic VCs to invest in Web3 startups is an essential step in the country’s journey towards becoming a global leader in blockchain innovation. With a fertile ground for investment and a commitment to fostering an environment conducive to web3 growth, Japan is poised to make a significant impact on the future of decentralized technologies.

Reference List

• Approved Revision
• Japanese Venture Capitalists
• 2024 Tax Regime
• Crypto Tax Clarification
• Web3 Opportunities in Japan

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