IPO Exits in Japan (2014–2016)

Venture Capitals make money by investing in a startup that will eventually be acquired or IPO and taking a percentage of the return that they get through the exit.

In Japan, IPO exit seems to be much more common than US since the IPO criteria for the Tokyo Stock Exchange is not as high as that of NASDAQ. Therefore, whenever our fund invest in a Japanese startup, we always consider how likely and how fast the company can meet the listing requirements, usually setting the target within 4–5 years.

I believe this exit strategy is unique to Japan market and not much shared to foreign markets. Therefore, in my next few posts I’d like to gather data and insights to see how Japanese investors are earning returns on Japanese deals. This post will be just a basic sharing post to give you an image of the whole picture.

Number of IPOs over the past decade

(Source) US: statistia JP:Deloitte Touche Tohmatsu

By comparing with US market, Japan market is increasing its number of IPOs recently since the economic depression in 2008. When looking at the companies actually listed within the past 3 years, tech related companies are occupying 40–43% of the whole.

There is no tech category on the Tokyo Stock Exchange so the classification is based on my perspective.

Market cap of tech companies

Data from IR. $1=¥115

2014: Large IPOs such as Recruit Holdings and Gumi Inc are pushing up the average size of IPO companies but even without these two, the average was the largest compared to that of the following 2 years.

2015: Number of IPOs increased 15% but the size per company was relative low, containing mostly domestic companies.

2016: Although the average market cap seems high, the increase is coming mainly from LINE.

When looking at the breakdown of which stock exchange companies were listed, the number of companies listed on Mothers have increased although the whole number has not changed much, meaning that small IPOs are increasing.

Initial PER of tech companies

Net profit based on the latest number from the IPO date.

Both the average and the median PER is decreasing from 2014.

Years to IPO for tech companies

Companies below 7 years have decreased from 7 in 2014 to 3 in 2016.

Appendix

[2014 IPO Tech companies]

Market Cap as of July 11th, 2017. Data from SPEEDA. $1=¥115

[2015 IPO Tech companies]

Market Cap as of July 11th, 2017. Data from SPEEDA. $1=¥115

[2016 IPO Tech companies]

Market Cap as of July 11th, 2017. Data from SPEEDA. $1=¥115