All too often, even well-intended reforms in Japan that look good on paper end up not changing things very much. A perfect example of this problem is Prime Minister Fumio Kishida's new tax incentive for investments in startup companies. The problematic detail is that using that tax break requires retail investors to take on huge risks by having to send their money to individual companies rather than professionally-managed angel funds (angels invest in smaller and younger firms than Venture Capital funds). Few ordinary investors will do that; nor should they.
 
           Worse yet, it's not easy for ordinary investors to place their money in a fund because the law allows no more than 49 investors to invest in any single fund. Moreover, in an effort to protect ordinary people, these LPs are limited to corporations, institutional investors, or individuals with at least ¥100 million ($750,000) already invested in stocks and bonds.
 
           Kishida's proposal was modeled after a program in the US, but a better model for Japan is France's highly-successful tax incentive plan since, in the 1900s, France's obstacles to entrepreneurship resembled those in Japan. It's remarkable how much things have changed since. Since 2000, France has created almost 38,000 new startups, now valued at $276 billion, up from just $11 billion in 2010. About 2,500 of the startups are involved in "deep tech," i.e., technology solutions based on profound scientific or technological breakthroughs. Such deep tech startups received about 28% of the VC funds invested in all startups. 36 of these startups have become "unicorns," i.e. private companies valued at $1 billion or more. In 2010, there were none.
 
           If France can succeed in overcoming its previous anti-entrepreneurial habits and mindset, why not Japan?
 
           For the details, see https://richardkatz.substack.com/p/learning-from-the-french-revolution

Richard Katz