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Tokyo ended the Series B IPO
Why the exit closed
The likely reasons are that too many zombie companies had piled up on the stock market and that regulators want to encourage mergers and acquisitions as exits. A listing on the Japanese stock market remains an option for companies that get there.
Effect on angel investors
The change ripples back to the earliest investors. Few Japanese founders have exited for a lot of cash, so little money recirculates into angel investing, which keeps angel checks small.
Funds restructure
Japanese venture funds and their limited partners are restructuring. If a startup cannot exit by IPO around the Series B stage, the open questions are where its growth funding comes from and how it exits.
Why did Tokyo create a startup stock market?
The Tokyo Stock Exchange opened its Mothers market in December 1999 to give young, fast-growing companies a way to list. Mothers had lighter listing requirements than the main board. In April 2022 the exchange reorganized its markets and replaced Mothers with the Growth segment. Mothers had been the main route for Japanese startups to go public.
Why do zombie companies worry regulators?
Economists Ricardo Caballero, Takeo Hoshi, and Anil Kashyap popularized the term in a 2008 paper on Japan in the 1990s. They found that banks kept insolvent firms alive with cheap credit. They argued that this crowded out healthy firms, which hired and invested less in industries full of zombies. The paper is titled Zombie Lending and Depressed Restructuring in Japan.
How do acquisitions work as startup exits?
When a company is bought, its shareholders, including early angels and funds, receive a share of the purchase price in proportion to what they own. No public listing is needed. The National Venture Capital Association's data shows acquisitions make up the large majority of US venture-backed exits, with IPOs a small fraction. Acquisitions also give the buyer the startup's staff and technology.
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