Greater Selectivity and Prolonged Private-Stage Financing in Japan’s 2025 Startup Funding Market

Fundraising in an Era of Greater Selectivity and Prolonged Private-Stage Financing

In 2025, the aggregate funding for Japanese startups was JPY 761.3 billion (excluding debt financing), broadly unchanged YoY from the JPY 779.3 billion recorded in the January 2025 tally, when adjusted for recording lags. During the same period, the number of startups that received funding, including undisclosed amounts, decreased 6% YoY, from 2,869 to 2,700 companies.

While the average deal size held steady YoY at JPY 310 million, the median fell from JPY 77.6 million to JPY 62.4 million.

For deals with disclosed amounts in 2025, overall volume remained steady YoY (compared to data aggregated in January 2025), but the distribution shifted significantly. Deals under JPY 10 million increased to 448 (+98 YoY), whereas those in the JPY 10 million to under JPY 500 million range decreased to 1,680 (-115 YoY), indicating a thinning out of the core segment that typically drives the median.

In contrast, deals in the JPY 500 million to under JPY 1 billion range remained resilient at 176 companies (+9 YoY), and the JPY 1 billion to under JPY 5 billion bracket held at levels comparable to the previous year. Within the upper tiers, deals from JPY 5 billion to under JPY 10 billion decreased to 10 (-4 YoY), while those JPY 10 billion and above increased to 5 (+1 YoY). Although these large-scale deals are few in number, rounds of JPY 5 billion and over accounted for 20% of the aggregate amount, effectively underpinning the overall total. However, as smaller deals often involve longer reporting lags, the underlying trend toward smaller deal sizes may be more pronounced than current statistics suggest.

This distributional shift aligns with data from the Speeda Funding Series(*1). Over 2024–25, aggregate funding for Series A companies fell from JPY 168.4 billion to JPY 139.1 billion, and the company count decreased from 519 to 501. In contrast, Series B funding grew from JPY 172.6 billion to JPY 192.4 billion even as the number of companies decreased from 351 to 312, suggesting a trend toward accelerating selectivity, with capital becoming increasingly concentrated in a smaller number of high-conviction deals.

For Series D and beyond, aggregate funding increased from JPY 98.5 billion to JPY 105.3 billion as the deal count rose from 89 to 104 companies. However, the average funding per deal contracted, signaling a bifurcation in the late-stage market. Specifically, while a select group of startups successfully closed large-scale growth rounds, there was a simultaneous increase in smaller rounds intended to extend the operating runway or make tactical adjustments. Thus, the late-stage landscape was characterized by prolonged private-stage financing, in which both high-growth firms and those merely buying time coexist.

As a result, while the average deal size remained relatively stable, the median fell to JPY 62.4 million in 2025. This trend suggests that capital is becoming increasingly concentrated in startups with clearer paths to growth, while startups were sustained through small-scale bridge rounds. This shift likely stems from uncertainty in the listing environment, which has both prolonged the pre-IPO period and subjected follow-on investments to more rigorous selection criteria.

(*1) Detailed figures for the Speeda Funding Series are provided in the “Japan Startup Funding in 2025” report published on January 27 (Tuesday), 2026 (full report available in Japanese only).

Top 20 Startups by Funding Raised: Strong Investor Interest in Industry-Focused Startups

Among the top 20 most-funded startups, investment is concentrated in businesses deeply specialized in specific industries. Amid structural industry challenges and worsening labor shortages, these companies are fundamentally redesigning onsite operations and industry practices to build a competitive edge. Capital is increasingly flowing toward companies that look beyond simple efficiency gains and aim instead to transform the underlying structures of their respective industries.

The top-funded startup in 2025 was Mujin, which raised funding led by NTT Group and Qatar Investment Authority. While the company had previously focused on automating manufacturing and logistics through intelligent robotics, its product has since evolved into a platform providing integrated control across multiple robots and facilities to optimize entire worksites.

In January 2026, rocket developer Interstellar Technologies announced it had raised a cumulative total of JPY 20.1 billion in Series F funding (including JPY 5.3 billion in loans). The ranking above reflects the JPY 13 billion confirmed via the company’s official corporate register as of the stated date of calculation by Speeda Startup Insights. Alongside a JPY 7 billion investment from lead investors Toyota Group and Woven by Toyota, the company is collaborating with both entities on engine manufacturing. By leveraging this capital to build a vertically integrated model that combines frequent rocket launches with telecommunications satellite operations, Interstellar Technologies aims to establish a sustainable competitive advantage.

Large-scale investments were also prominent in the mobility sector, with companies such as flying car developer SkyDrive and autonomous driving system developers Turing and T2 among the top-funded companies. These companies are working to redesign transportation infrastructure and address structural challenges, including driver shortages.

In the software domain, startups such as manufacturing software developer CADDi and healthtech company Kakehashi are securing the mission-critical data that underpins operations and decision-making by deeply embedding themselves in sectors where analog practices remain entrenched. As general-purpose AI continues to improve, competitive advantages will increasingly depend on a company’s ability to aggregate proprietary onsite data and systematize AI into usable workflows. This focus on real-world implementation is a primary driver of current investor interest.

While expectations for deep tech companies such as structural protein material developer Spiber remain high, the sector faces increased scrutiny over business timelines and cash flow, given its inherent need for long-term investment. According to the H1 Japan Startup Funding summary, Spiber had JPY 36.2 billion in loan repayments due by the end of 2025, but no additional disclosure has been made to date. To sustain its operations, the company has signed a business support agreement with Maya Kawana, the eldest daughter of SoftBank Group Chairman and CEO Masayoshi Son, with support scheduled to begin around H1 2026.

Although excluded from the ranking as funding could not be confirmed in the corporate register by the time of calculation, AI model developer Sakana AI announced an approximately JPY 20 billion Series B round in November 2025. The funding was raised from existing shareholders, such as MUFG Bank, and from foreign investors, including Khosla Ventures, to accelerate solution development for major Japanese corporations and public institutions.

Corporate Investors Expanding Presence in Large-Scale Funding

The investment landscape underwent a structural shift in 2025. By investor type, VC investment decreased by JPY 26.3 billion (-8% YoY) to JPY 297.3 billion, leading to a decline in their overall share of funding. In contrast, investment from corporate investors increased to JPY 148 billion (+JPY 32 billion YoY), boosting their share. However, the number of participating corporate investors fell from 742 to 701, suggesting a move toward higher investment intensity per deal. Financial institutions expanded their investments from JPY 31 billion to JPY 36.7 billion, but an increase in their median investment per company indicates they are deepening their involvement while becoming more selective.

By VC category, investment from independent and financial VCs remained relatively resilient, decreasing by only JPY 8 billion and JPY 1.2 billion, respectively, compared to the previous year’s figures as of January 2025. In contrast, foreign VC funding saw a significant contraction of JPY 12.3 billion. However, as foreign capital typically targets large-scale deals and is also subject to high annual volatility, this single-year decline does not necessarily signal a structural shift.

Meanwhile, investment from university VCs and national and local government VCs increased by JPY 5 billion and JPY 2.1 billion, respectively, suggesting that growing support from academia and the public sector is partially offsetting the broader decline in the other VC categories.

This shift in lead investors is even more pronounced in large-scale rounds of JPY 1 billion or more. Although aggregate funding remained nearly flat, a decrease in VC investment coupled with a rise in participation by corporate investors indicates that the primary source of large-scale capital is shifting away from a VC-led model toward direct investment from corporate investors.

This shift was driven by the differing investment mandates of these two groups. VCs, who must secure follow-on capital for their own funds after initial investment, tend to concentrate their resources on startups with proven traction. In contrast, corporate investors tend to participate in large-scale rounds, primarily to secure strategic synergies, such as access to technology, market expansion, or operational collaboration.

As corporate investors increasingly lead large-scale rounds, mid-stage companies may face more frequent valuation resets and greater reliance on bridge financing to reach their next milestones. The selective allocation of capital appears to have become even more pronounced in 2025, even as aggregate funding levels remained stable.

Fund Formation Trends: More Funds with Undisclosed Sizes

In 2025, 150 new funds were established with an aggregate value of JPY 474.7 billion. Mirroring the recovery in startup fundraising, fund formation initially trailed the previous year’s levels as of the end of June 2025, but full-year performance ultimately outpaced the previous year at 112 funds and JPY 387 billion as of January 2025. However, it should be noted that 67 funds (45% of the total) did not disclose their size, suggesting a significant share of this growth is attributable to undisclosed capital.

Among the 83 funds with disclosed amounts, the average fund size contracted from JPY 6.1 billion in the previous year (as of calculation in January 2025) to JPY 5.7 billion, while the median fell from JPY 4 billion to JPY 3 billion. This divergence indicates that a small number of mega-funds pushed up the average. Moreover, just 15 funds of JPY 10 billion or more accounted for around half of the total, suggesting that mega-funds increasingly support this aggregate.

A breakdown by scale underscores the shrinking size of standard funds. Specifically, funds valued at JPY 5 billion or less surged from 39 in the previous year (as of calculation in January 2025) to 61, while those in the JPY 5 billion to under JPY 10 billion range decreased from 16 to 12.

Funds under JPY 3 billion totaled 41, accounting for roughly half of all disclosed funds. Approximately 40% of these (17 funds) were launched by financial institution VCs, indicating that an increase in small-scale funds from these VCs was the primary driver behind the declining median.

In contrast, a large number of independent VCs did not disclose their fund sizes (42 in total), creating a visibility gap. Specifically, the combination of protracted fundraising and closing cycles, along with increased non-disclosure, has introduced reporting delays, making it difficult to forecast actual capital supply capacity accurately.

Amid continued uncertainty in the IPO environment, LP capital in 2025 increasingly gravitated toward two ends of the spectrum: concentrated allocations to higher-conviction opportunities through mega-funds and smaller diversified allocations through funds in the JPY 1–5 billion range. In contrast, recovery in upper‑middle funds in the JPY 5–10 billion range was noticeably slower, a trend that was clearly reflected in fundraising outcomes in 2025.

While the increase in the number and aggregate value of funds was a positive sign of broader capital supply and a potential buffer against a collapse, the overall contraction in fund sizes could compromise follow-on investment capacity, potentially widening the funding gap for mid- to late-stage companies.

Meanwhile, the establishment of large-scale funds of JPY 10 billion or more remains steady, driven primarily by financial institutions, two-party partnerships, and established independent VCs launching second or subsequent funds.

In the financial institution VC sector, Mitsubishi UFJ Capital launched a JPY 30 billion fund, while Mitsui Sumitomo Insurance Venture Capital and FFG Venture Business Partners each established JPY 10 billion funds.

Among top-tier independent VCs, there is a notable shift toward scaling up fund sizes to cultivate larger startups. The University of Tokyo Edge Capital Partners (UTEC) launched its sixth fund at JPY 46.1 billion, a significant expansion from its previous JPY 30 billion fund, with a final close expected at JPY 47–50 billion. Similarly, Angel Bridge’s newly established third fund reached JPY 26 billion, more than doubling the JPY 10 billion raised for its predecessor. In both cases, the aim was not to increase the number of portfolio companies but to nurture potentially high-growth businesses by deepening support through larger per-company commitments with aggressive capital deployment in follow-on rounds.

In contrast, independent VCs attempting to launch their first funds continue to face high barriers to entry. Without a proven track record, securing capital commitments from institutional investors or financial institutions is difficult, often resulting in funds that fail to reach a viable scale.

In this challenging landscape, ALPHA, an independent VC specialized in early-stage deals, stands out as a notable exception. Exceeding its initial JPY 15 billion target, the VC closed its first fund at JPY 20 billion. Driven by the founding team’s record of over 40 exits and backing from the Japanese government’s Emerging Managers Program, formulated in 2023, over 90% of ALPHA’s LP base comprises institutional investors and financial institutions.

IPO Scale Coming Under Greater Scrutiny

Over 2024–25, the number of IPOs fell from 133 to 108, with startup listings falling to a decade low of 31. Beyond general market volatility, a primary headwind was the revision of listing maintenance criteria for the TSE Growth Market. The policy outline, released in September 2025, introduced a notable shift in the regulatory landscape that warrants close attention.

While the new standards are scheduled to take effect in 2030 and do not alter initial listing requirements, the tightening of listing maintenance criteria is already forcing a strategic recalibration among IPO-bound startups. Over 2024–25, the median market capitalization for startups at debut surged from JPY 8.9 billion to JPY 13.5 billion. Furthermore, as several companies have already begun transitioning from the Growth Market to the Standard Market, these regulatory changes are clearly impacting both the IPO strategies of unlisted startups and the market choices of listed companies.

Looking at the major startup IPOs of 2025, excluding the top three deep tech companies, every company was either profitable in the year before listing or provided a positive profitability forecast for the IPO year, confirming a clear market shift where investors require stronger evidence of a viable path to profitability before a company goes public.

Axelspace Holdings, a developer and operator of microsatellites, headlined 2025 startup IPOs with a debut market capitalization of JPY 48.1 billion. As Japan’s fifth pure-play space IPO, the company’s valuation reflects high expectations for the growth trajectory of the space sector, as with its predecessors.

However, for the most recent fiscal period ending May 2026, Axelspace Holdings forecasts an operating loss of JPY 3.9 billion on revenue of JPY 3.6 billion, reflecting its continued heavy strategic investment phase. However, its order backlog had reached JPY 10.4 billion as of January 14, 2026, indicating that its business base is steadily expanding. While government projects have historically been the core driver, the company has begun acquiring private-sector and overseas clients. This diversification, bolstered by an enhanced microsatellite operation system, is being closely watched as a key indicator of its future growth potential.

M&A Activity Remains High, Could Absorb Strategic Pivots

Startup acquisitions and subsidiarizations remained robust in 2025, climbing to 167 transactions and maintaining the momentum seen in 2024. This trend was buoyed by the expansion of the broader M&A market, which reportedly reached record highs in both deal volume and aggregate value for Japanese companies in 2025.

A key driver of this activity was a clear alignment of interests: Startups are being forced to recalibrate their strategies in response to stricter listing maintenance criteria on the TSE Growth Market, while large corporations are increasingly pursuing aggressive management strategies to capture growth.

A landmark exit in 2025 was UPSIDER. Mizuho Bank acquired a 70% majority stake in UPSIDER Holdings for JPY 46 billion (note that the accompanying table shows the total implied valuation for a 100% acquisition). Given the future IPO still on the horizon, the management team intends to retain its remaining equity while accelerating growth through collaboration with the Mizuho Financial Group.

Since 2021, the market has seen a steady stream of large-scale M&A deals exceeding JPY 10 billion, particularly within the fintech sector. Notable examples include Google’s acquisition of pring, PayPal’s acquisition of Paidy, and MUFG Bank’s takeover of Kanmu. Given the currently stagnant IPO window, a critical challenge for the ecosystem is how to cultivate and increase the volume of similar, high-valuation exits across sectors beyond fintech.

There were also several instances of companies withdrawing IPO applications in favor of M&As. As disclosed by its CEO on Note, Thinkings had already begun IPO preparations but ultimately opted for an M&A to pursue greater value creation amid the AI-driven shifts in the business landscape. Such moves signal a growing paradigm shift, in which both startups and investors are moving away from the idea of an IPO as the only viable exit strategy.

Key Indicators to Watch

In 2025, the trends of greater selectivity and prolonged private-stage financing intensified. While aggregate funding remained flat, a decline in both the number of funded companies and median deal sizes resulted in a skewed distribution. On the investor side, the share of VC investment declined as corporate investors and financial institutions expanded their presence. Notably, in large-scale rounds, corporate investor involvement shifted from a diversified minority stake approach toward larger, more concentrated investments in a smaller pool of startups.

While the outlook from 2026 onward centers on restoring exit liquidity, a near-term recovery in the IPO market remains unlikely as the market navigates stricter listing maintenance criteria and a tightening interest rate environment. Moving forward, the market's trajectory will depend on four critical benchmarks:

First, whether M&As can be increased within Japan’s industrial structure. With the TSE now explicitly advocating for M&As, diversifying exit strategies beyond IPOs has become more urgent than ever.

Second, whether the share of corporate investor capital in large-scale rounds continues to grow. While this influx of corporate investor capital helps underpin the market, an over-reliance on these players introduces risks.

Third, whether median valuations for Series A and B rounds will stage a reversal. If more startups can quickly identify winning strategies and demonstrate repeatable growth amid the changes brought by generative AI, mid-tier capital is likely to shift back from bridge rounds toward growth investments.

Fourth, whether funds in the JPY 5–10 billion class recover and the disclosure rate of deal values improves. This tier serves as the backbone for consistent support from Seed through Series B and beyond. Any contraction in this capital supply weakens follow-on capacity and widens the mid- to late-stage funding gap. Furthermore, the persistence of undisclosed deal amounts suggests that protracted fundraising cycles and closing uncertainty remain prevalent.

As long as corporate investors maintain their proactive stance, a sharp drop in overall investment is unlikely. However, if exit liquidity fails to recover, the market faces a further polarization between companies securing growth capital and those forced into prolonged private-stage financing.

Text: Ryo Hirakawa, Atsuko Mori
Editing: Atsuko Mori
Design: Nanami Kawasaki
Illustrations: Nut Dao
Localization: Lynn Allmon, Laura Wakefield, Saori Morita