Promotion of Startup Investments
This week, the Asset Management Nation Parliamentary Association, initiated by former Prime Minister Kishida last November, presented its proposal document titled "Proposals for Asset Management Nation 2.0" to current Prime Minister Ishiba, outlining various policy proposals to advance Japan's position as an "asset management nation" across five key pillars. One of these pillars is “Enhancing Financial Services for SMEs and Providing Diverse Investment Products”, which includes a section on startup investments. Here are the details:
To accelerate the supply of growth capital to startups, the government should relax and make more transparent the PE (Permanent Establishment) tax exemption, which has been a barrier to investments in domestic VCs, toward global standards. Additionally, to promote investment from overseas investors to startups, the Ministry of Economy, Trade and Industry should start discussions with relevant ministries such as the Financial Services Agency to make the LPS (Limited Partnership for Investment) system more understandable for overseas investors.
Regarding Japan's accounting standards for goodwill, which are hindering startup M&As, relevant parties should promptly conduct appropriate discussions and reach conclusions on revising these standards. The Financial Services Agency should also follow up on these discussions.
Additionally, the Open Innovation Promotion Tax System should promote M&As and investments to diversify exit options for startups and support their further growth.
To support sustainable growth investments in high-growth startups, it is important to strengthen the functions of the TSE Growth market, in addition to enhancing funding supply including later stages through the above measures. Therefore, the TSE should review the listing maintenance standards for the Growth market, along with supporting information dissemination to investors by listed companies, strengthening cooperation among parties supporting IPOs, and supporting listed companies in their growth efforts. These initiatives are expected to build investor confidence in startup IPOs and lead to the provision of high-quality growth funds by asset managers.
GPIF and mutual aid associations should increase their investments in alternative assets, including domestic PE and VC, without concentrating on specific asset classes, from the perspective of benefiting their members.
Providing advanced and diverse financial services as a financial group across business types in accordance with customer needs benefits customer convenience. From this perspective, the Financial Services Agency should steadily proceed with reviewing the bank-securities firewall regulations. As a prerequisite, financial institutions should ensure appropriate customer information management, conflict of interest management, and prevention of abuse of dominant bargaining positions.
To facilitate funding by financial groups, the Financial Services Agency should consider expanding the investment targets of financial institutions' specialized investment subsidiaries, and the Financial Services Agency and Ministry of Justice should advance discussions with financial institutions on issues related to warrant-attached loans under the Interest Rate Restriction Law. Additionally, to accommodate temporary massive funding needs such as large-scale M&A financing, the Financial Services Agency should consider temporarily allowing exceeding limits in large credit extension regulations.
To revitalize investments in startup company shares (unlisted shares) by professional investors (qualified investors), the "Japanese Rule 506," which was announced in last year's economic measures to create a fundraising environment comparable to the United States, has now made it possible to solicit through various media including the internet in professional private placement systems as of February this year, and further clarification of requirements for individuals to become professional investors was implemented in March. The Financial Services Agency should continue to promote awareness of the system among professional investors, and the Japan Securities Dealers Association should review the self-regulatory rules that generally prohibit securities companies from soliciting unlisted shares, taking into account the needs of market participants while being mindful of investor protection. Additionally, the Financial Services Agency should review the filing exemption threshold for issuance disclosure documents.