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Startups

Japan's unicorn population a shadow of those in the US and China

SmartNews joins Preferred Networks and Liquid Group with more than $1b valuation

With its latest fundraising round, SmartNews pushed its total valuation over $1 billion, giving Japan a third unicorn. (Photo courtesy of SmartNews)

TOKYO -- The number of privately held startups valued at more than $1 billion is gradually increasing in Japan, although the population of these so-called unicorns remains a fraction of those in the U.S. and China.

SmartNews, a Tokyo-based app developer, recently raised more than 3 billion yen ($28.14 million), bringing its total valuation over $1 billion and giving Japan a third unicorn.

SmartNews, founded in 2012, operates a smartphone app that distributes news from media organizations. It recently raised 3.1 billion yen through a third-party allocation of shares to Japan Post Capital and other investors. It will put the funds into a development center and into hiring engineers.

Operating in Japan and the U.S., SmartNews has more than 20 million monthly users. It has won trust from investors in the U.S. because of its rapid growth as a source of viewers for media company websites. It is bringing these sites more eyeballs than Yahoo!.

According to CB Insights, there were two Japan-based unicorns at the end of July -- Preferred Networks, an artificial intelligence developer, and Liquid Group, which has a cryptoasset exchange under its wing.

Online flea market operator Mercari went public in June 2018, shedding its unicorn status. For a time, Preferred was Japan's only unicorn.

While listed companies' market caps are determined by share prices, the value of privately held startups is based on investment conditions determined by venture capitalists and other investors. The higher the value, the more favorable terms these young companies can set to raise further funds.

Japan's government has adopted a target of 20 unicorns in the country by 2023.

In much of the rest of the world, the number of unicorns has been increasing at a pace faster than in Japan. At the end of July, there were 380 unicorns globally, up about 50% from a year earlier. The total included 187 in the U.S., 94 in China, 19 in Britain and 18 in India.

In the U.S. and U.K., the number of startups is growing rapidly partly because a linguistic advantage allows them to sell products and services around the world. In China and India, unicorn births are on the rise because of those countries' huge domestic markets.

Another factor behind the growing number of unicorns is big companies establishing venture capital entities. In addition, overseas governmental investment funds are actively investing in startups.

In the U.S., investment by venture capitalists increased 58% in 2018 from the previous year to an all-time high of $130.9 billion.

But pundits are warning that startup investing has become overheated. As evidence they point to American ride-hailing giant Uber Technologies, whose share price stumbled after the company listed in New York in May.

Living up to expectations will continue to be a challenge for highly rated startups.

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