Evolution 1: Cornerstone investment (Anchor investment)

A Look into the Evolving IPO Landscape in Japan — Part I

IPO Evolution In Japan I

While the majority of startups outside of Japan have been getting their exits via mergers and acquisitions (M&A), most startups in Japan exit by IPO, or going public. And 2021 was the year in which we witnessed some major changes in Japan’s IPO market.

Source: Tokyo Stock Exchange

Source: Tokyo Stock Exchange

Background

  • Before the global financial crisis hit in 2008, Japan’s IPO market would see at least 100 listings every year. After a long period of gradual recovery, 2021 became the first year to rack up more than 100 IPOs since the crisis struck.
  • Japan’s major stock exchange, Tokyo Stock Exchange, has a number of boards: The First Section, the Second Section, Mothers, JASDAQ, and TOKYO PRO Market.
  • Mothers is the most popular board for high-growth startups. In 2021, 93 companies went public on Mothers, a record high since the launch of Mothers in 1999.

Evolution 1: Cornerstone investment (Anchor investment)

If you are familiar with the IPO process or IPO markets in the United States and Hong Kong, you may be surprised to hear that cornerstone investments* had been banned by the Tokyo Stock Exchange for a long time in Japan.

Cornerstone investments (also known as anchor investments), are when an investor, usually a large institutional or sovereign investor, reaches an agreement to subscribe for a fixed monetary amount of shares in an IPO.

Some benefits of cornerstone investments for the issuers (the companies that are going public) are ①generating positive momentum and PR, ② reducing pricing risk in the book building process, and ③ enhancing engagement with future major shareholders.

In 2020, the Tokyo Stock Exchange relaxed its restrictions on cornerstone investments. As a result, several startups have successfully secured cornerstone investors in the IPO market.

Here are some examples:

  1. Net Protections: Has a combined cornerstone investment of up to USD$155 million from Aspex, Jupiter, and WCM
  2. Safie: Has a combined cornerstone investment of up to USD $100 million from Tybourne and Janchor
  3. ExaWizards: Has a combined cornerstone investment of up to USD $40 million from GIC, Capital World, and Janchor
  4. Finatext: Has a cornerstone investment of up to USD $23 million from GIC
  5. Visional: Has a cornerstone investment of up to USD $10 million from ZVC
  6. Coconala: Has a cornerstone investment of up to USD $1.9 million from Fidelity.

The next three evolution stages discuss global offerings & foreign investorsMarket Cap, IPO size, and PS ratio; and SPAC, the restructuring of boards. Stay tuned!

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