New Platform to Boost Japanese Startups and IPOs by Enabling Unlisted Company Trading

Japan's burgeoning startup ecosystem and its initial public offering (IPO) landscape are poised for significant growth with the introduction of a novel trading platform designed to facilitate capital raising for unlisted companies.

Previously, investors had limited avenues to divest their stakes in private companies, primarily through IPOs or mergers and acquisitions. However, the Financial Services Agency's recent registration of Smartround Securities as a brokerage for secondary market trading of unlisted shares marks a pivotal step in expanding private market accessibility and attracting greater investment into domestic startups.

According to Sylvain Thieullent, CEO of Horizon Trading Solutions, providing investors with a more streamlined method for buying and selling shares will inevitably lead to increased capital flow for growing enterprises. This, in turn, is expected to result in companies entering the public market with better preparation, ultimately elevating the caliber of Japan's IPO pipeline.

Smartround's initiative aligns with a global trend of regulatory bodies actively reshaping private markets, mirroring efforts seen in the U.S. and U.K. Jeremy Tan, CEO of Tiger Fund Management, highlighted that the platform supports regulators' objectives to improve corporate governance among unlisted companies. It also offers investors enhanced oversight and provides founders with a mechanism to engage with minority shareholders.

Tan further elaborated that the new platform has the potential to foster greater transparency and disclosure from unlisted firms, particularly through the digitalization of ledgers and corporate records accessible to investors. He noted that to utilize this platform, founders and senior management of unlisted companies will be required to meet specific disclosure mandates.

The primary challenge, as identified by Thieullent, is cultivating liquidity and improving price discovery within the unlisted market without creating an illusion of the same transparency that characterizes publicly traded stocks.