JAPAN Law and Practice Contributed by: Reid Monroe-Sheridan, Takahito Fujii, Haruya Suzuki, Yutaro Ito and Tomohiro Oshige, southgate
registering its formation, and the fund is required to update its commercial registration upon the occurrence of a change in its registered informa - tion thereafter. 2.4 Particularities Corporate VC (CVC) activity is an important part of the VC ecosystem in Japan. CVC investors view investments in, commercial partnerships with, and acquisitions of start-ups as a means to enhance their R&D and other innovation activi - ties. As in other markets, many CVCs view com - mercial synergies as key part of their investment strategy and place a lower emphasis on financial return than traditional VC funds. Additionally, the Japanese government is active in its support for start-ups and VC funds. For example, the government provides financial support to start-ups through the Development Bank of Japan and makes LP investments in VC funds through the Japan Investment Corporation (JIC). As of the end of January 2025, the JIC had announced 49 investments in VC funds since 2020. In 2024, the JIC made nine investments in both domestic and international VC funds, with investment amounts ranging from approximate - ly JPY1.5 billion to JPY4.5 billion. Additionally, certain recent tax reforms, which are discussed in 4.2 Tax Treatment , have been established to incentivise VC investments. 3. Investments in Venture Capital Portfolio Companies 3.1 Due Diligence In Japanese VC financings, full legal due dili - gence is typically conducted by the lead inves - tor, and more limited legal due diligence is some - times conducted by follow-on investors.
The key areas of focus in legal due diligence are usually capitalisation, intellectual property, com - pliance and labour, but other areas may also be covered depending on an investor’s risk appetite as well as the nature and size of the transaction. Most investors conduct detailed intellectual property due diligence given the significant problems that may arise when a start-up fails to comply with Japanese laws regarding employee inventions. Investors also tend to scrutinise com - pliance with labour and privacy laws because these are areas often overlooked by many start- ups, particularly in the early stages of the com - pany. In some cases, such as where a start-up is in a novel industry, investors will examine the start-up’s business to ensure that it does not run afoul of any regulations covering such business. Until recently, it was uncommon for Japanese VC investors to perform due diligence in the areas of anti-money laundering or anti-bribery and corruption compliance, export restrictions, and sanctions compliance, but the entry of large overseas institutional investors into the Japa - nese market has been leading an increasing number of investors to examine these issues as well. Since start-ups typically do not pay the legal fees of the lead investor in a round, the lead investor is not considered to be conducting due diligence for the benefit of all investors. Accordingly, there are cases where multiple investors in a round conduct their own independent due diligence. In addition to legal due diligence, investors typi - cally conduct financial due diligence and occa - sionally business due diligence too, though usu - ally only in larger rounds.
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