Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Rejoice! Japan just gave birth to a healthy, happy baby.

Its new parents, including Mitsui & Co. and Development Bank of Japan, report that baby Mercari is ``rapidly growing'' and has just sprouted a horn, confirming its status as the first unicorn in the Land of the Rising Sun.

At 32 million downloads and with operations in Japan and the U.S., Mercari is a marketplace app that connects buyers and sellers of second-hand goods. Mitsui calls it a flea market, an apt description, and joined an 8.4 billion yen ($74 million) Series D round. According to TechCrunch, this funding values it at more than $1 billion, the definition of a unicorn.

Being Japan's only child, Mercari is likely to be alone in the unicorn playground for a few years to come.

That the world's third-largest economy, and one of its most highly educated and tech-savvy, has just one startup worth $1 billion beggars belief. China has 25 and even India has seven, according to CB Insights.

Counting Unicorns
Japan this week finally joined the unicorn club
Source: CB Insights list of private companies with $1b valuation
Countries with one unicorn include Japan, Argentina, Thailand, Czech Republic, UAE, France, Netherlands, Nigeria, Luxembourg

The problem isn't that the nation's nascent businesses aren't getting funding or achieving sky-high valuations, it's simply that Japanese startups, like its babies, aren't being born at all. 

Japan's startup rate is the second-lowest in the world, ahead of only Suriname (population: 580,000). Just 3.8 percent of Japanese aged 18 to 64 are starting, or have started, a business in the past three-and-a-half years, according to the Global Entrepreneurship Monitor, which tracks entrepreneurship across more than 100 countries covering 90 percent of the world's GDP. Suriname, with a GDP approximately 1/500th of Japan, comes in at 2.1 percent.

Slow Start
Japan ranks second-worst in global startup rate
Source: Global Entrepreneurship Monitor
Tracks percent of 18-64yo who are starting, or have started, a business in past 42 months

Abenomics was supposed to address this problem by ``absorbing the Silicon Valley culture of creativity, disruption and risk taking," delivering incubators to select and develop entrepreneurs, and offering training and collaboration.

Interestingly, across an array of environmental criteria that assess the situation for startups, including financing, governmental programs, education, and physical infrastructure, Japan ranks middle of the pack. 

Compared with the rest of the world, the environment in Japan is actually favorable for entrepreneurs who make a start, if they so choose. And with bankruptcies near a quarter-century low, the risks are falling.

Fear Not
Japanese bankruptcies have been falling
Source: Tokyo Shoko Research
Total bankruptcy cases with debts of over 10m yen ($88,000 as of 3/3/2016)

Where it does score poorly -- second-worst ahead of only Iran -- is in offering commercial and legal services that promote small businesses and startups. This lack of professional support exacerbates an underlying challenge found within the population itself: leaving the warm bosom of the corporate world to take a punt on your own business is neither inviting, nor considered possible.

Japan ranks at the very bottom for both how its 18-64 year old population perceives there to be opportunities to start a business, and how they assess their own skills and abilities to succeed. Only 7 percent think there's an opportunity, and 12 percent think they have the ability.

All this translates to a very high Fear of Failure, where 54.5 percent of people say they wouldn't try starting a business because it might implode. Only Greece, at 61.6 percent, ranks higher.

Fear Factor
More than half of Japanese won't launch a startup for fear of failing
Source: Global Entrepreneurship Monitor
Percent of 18-64yo who said fear of failure prevents them setting up a business

If you look at Silicon Valley, where venture capitalists sit on billions of dollars to throw at the next Facebook, Twitter or Uber, you'll note that one of the most powerful yet little-discussed forces is FOMO.

In a culture where it's already accepted that one in 20 startups will fail, it's this Fear of Missing Out on something big that often spurs founders and VCs to make crazy bets. Fear of Failure, or FOFA, isn't absent from the U.S., but at 30 percent it's amongst the lowest in the developed world.

For Japan, where employment is for life, there's little necessity to quit a stable job on a whim, so startups are founded by those seeking more money or independence. In developing economies, like Suriname, it's often the lack of a job that spurs people to try to make their own money.

Either way, starting a business is risky. Yet with research indicating that Japan's business environment for those who dare try is on par with anywhere else, it becomes clear that fear is an overriding factor.

This leads to a simple equation which suggests that if FOMO > FOFA, then startups will mushroom. If the reverse is true, where FOFA > FOMA, then startups won't sprout.

If Prime Minister Shinzo Abe doesn't want Mercari to be lonely, he needs to remove the fear factor so that Japanese will go on to make more unicorn babies. Then, maybe the country can indeed become the Land of the Rising Son.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net