Japan’s VC Deals Remain Robust in 2024

Over the past couple of quarters, Venture Capital (VC) deal making in Japan has remained robust. As of Q3, $4.1 billion was deployed across 969 VC deals in Japan in 2024, PitchBook, a database that provides data, research and technology on various sectors, said.

The annualised 2024 deal value is on track to exceed 2022 and 2023 levels, suggesting that the Japanese VC ecosystem continues to grow with strong momentum, the research showed.

In Q3 of 2024, quarterly VC deal value ascended to $2.2 billion, a 92.9% quarter-on-quarter (q-o-q) jump and the highest level since 2015. This pronounced q-o-q increase was due to three megadeals closed in Q3, together making up 30.1% of Q3’s deal value.

Non-domestic investors have become increasingly interested in the VC market in Japan. So far in 2024, 179 VC deals in Japan with an aggregate value of $1.8 billion have had non-domestic investor involvement, PitchBook said.

Deal value with non-domestic investor involvement as a proportion of total deal value has ticked up by 2.8% in the same period, notching 44.8%—the highest level since 2015.

Japanese corporations and corporate venture capital (CVCs) firms continue to play an important role in the domestic venture ecosystem. In 2023, deal value and count with CVC participation as a proportion of total deal value and count notched 83% and 54.5%, respectively—the highest levels in PitchBook’s dataset.

Through the first three quarters of 2024, VC-backed companies recorded $2.7 billion of exit value generated across 86 exits. The annualised 2024 exit value is projected to be on par with the 2020 level. On a quarterly basis, VC-backed exit value has ascended consistently since Q4 of 2023, notching $1.4 billion in Q3 of 2024, a six-quarter high.

The Q3-2024’s elevated exit value was held up by select outsized deals, with Timee’s IPO on the Tokyo Stock Exchange (TSE) making up 61.9% of the quarter’s aggregate exit value.

PE Activity Gains

Private Equity (PE) activity in the country has more than doubled by count over the past decade as global investors turn their attention to the market, which continued its growth in 2024, as a near-record number of deals were already announced or closed through Q3.

Several factors play into PE’s hands, including the push from regulatory bodies and the TSE for corporations to become more efficient with their capital, a weakening yen, and the reallocation of capital away from China.

Non-domestic PE buyers have been able to capitalise on the weak yen, causing pricing for deals in the country to remain relatively cheap. The number of PE investments by non-domestic investors has increased each of the past three years, with 2024 well on pace to become the fourth.

Large brand-name investors such as Carlyle, KKR, Blackstone, and others see Japan as a fertile ground for investments, even in the battered global market.

PE fundraising has been a low spot across the market in 2024. Just nine funds closed through Q3, though included in that are two of the four largest PE vehicles ever closed in the country.

Carlyle Japan Fund V closed on $2.6 billion and Integral Fund V closed on $1.6 billion, giving the investors the ability to target large take-privates and corporate carve-outs that could become available over the next couple of years.