Japan is planning to provide new avenues for startups to secure fresh capital from venture capital entities using digital assets instead of conventional stock offerings to expand their funding options. According to a recent report by Nikkei, the Japanese government aims to table the proposal in parliament early next year.
With the change, limited partnerships would have access to a wider variety of assets. Venture capital firms usually employ limited partnerships to pool funds with other businesses for startup investments, limiting their risk to the money they invest.
Historically, the Japanese venture capital ecosystem has been regarded as more conservative compared to its more audacious counterparts, such as Silicon Valley. Stringent regulations and a penchant for risk aversion have defined the investment scene in the country. Currently, the purview of limited partnerships in Japan is confined to traditional assets such as security tokens, stock options and shares. The proposed rule change seeks to incorporate other crypto assets into the list, thereby expanding a relatively underdeveloped investment sector within the nation.
Venture capital has become more significant in Japan’s business environment over the past few years, and predictions indicate that it will continue to gain ground in both the capital markets and the public sphere. Pitchbook data show that the average fundraising size increased by more than 390% between 2022 and 2023, from $65 million to $321 million. The move follows the Japanese government’s commitment made late last year to encourage more investment in startups and other areas of the economy to focus its personnel and financial resources.
The government also intends to eliminate constraints on limited partnerships, which previously mandated that more than one-half of their capital be invested domestically. The expectation is that this will create additional investment opportunities, subsequently enhancing profits and increasing capital allocation to domestic startups.
The third-largest economy in the world, Japan is thought to have a more developed and stringent regulatory environment for cryptocurrencies than most of its Asian competitors. Its recent tightening of the rules is considered a response to criticism leveled at the country two years ago for failing to keep up with other countries’ implementation of digital asset regulations.
The country adopted an investor protection bill in June intended to create a legal framework for stablecoins and designate them as assets tied to fiat currencies. In the same month, it also introduced new antimoney-laundering regulations for cryptocurrencies that call for people and businesses to track the provenance of an asset as well as the sender and recipient.
As more countries such as Japan move to enact laws easing the use of cryptos, industry companies such as Coinbase Global Inc. (NASDAQ: COIN) could see interest in their products growing around the world.
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