Evolution 3: Market Cap, IPO size, and PS Ratio

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

IPO Evolution In Japan III

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.


  • Before the global financial crisis hit in 2008, Japan’s IPO market would see at least 100 listings each year. After a long period of gradual recovery, 2021 became the first year Japan’s IPO market racked up more than 100 IPOs since the crisis.
  • Japan’s major stock exchange, the 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, some 93 companies went public on Mothers, a record high since the launch of Mothers in 1999.

Evolution 1: Cornerstone investment (Anchor investment)

Cornerstone investment* has become more popular in Japan since 2021. To learn more about it, please refer to Part I of this series.

※Cornerstone investment (also known as anchor investment): An agreement by an investor, usually a large institutional or sovereign investor, to subscribe for a fixed monetary amount of shares in an IPO.

Evolution 2: Global offerings and foreign investors

More and more Japanese companies have taken on the challenge to try to attract international investors at IPO, using either Global Offering or Rinpo-type Global Offering. At the same time, an increasing number of foreign investors are becoming more interested in the Japanese market. To learn more about this trend, please visit Part II of this series.

Evolution 3: Market Cap, IPO size, and PS Ratio

The market cap (the value of the company) at IPO is getting higher. In 2020, no company had a market cap at IPO over JPY 10 billion, but in 2021, there were five.

The size of an IPO offering (the amount of funds being raised at IPO, plus the amount of funds being sold by existing shareholders at IPO) has also increased significantly in 2021. Companies with the top IPO offerings in 2020 are listed below:

Companies with the top IPO offerings in 2020

Companies with the top IPO offerings in 2020

In comparison, the companies with the highest IPO offerings in 2021 are shown below:

Companies with the top IPO offerings in 2021

Companies with the top IPO offerings in 2021

Could it be that all the companies which went public in 2021 just happened to be larger than the ones that did the same the previous year? Let’s look into these companies’ revenue data and calculate their price-sales ratio (P/S ratio) in the past year, which we can get by dividing their market cap at IPO by their revenue in the last twelve months.

As you can see from the comparison below, the average P/S ratio of the top companies in 2021 is 15.05x, higher than that of 2020, which is 11.12x. Also, the median in 2021 is 13.66x, much higher than the one in 2020, 3.09x, which implies that overall there are less outliers in 2021 with a low P/S ratio.

A comparison between companies with top IPO offerings in 2020 and 2021

A comparison between companies with top IPO offerings in 2020 and 2021

The market cap at IPO in the Japan market is increasing, as investors are willing to evaluate the companies at higher multiples. The IPO offering sizes have also increased accordingly. Maybe the change was due to the Chinese government tightening its reins on the nation’s tech industry, leading to restrictions for those who had previously invested in China and consequently pushing them to reconsider Japan. Or perhaps due to quantitative easing by the US and many European countries, there has been a surplus of risk money that both institutional investors and retail investors wish to deploy. In summary, it was a good year for companies to go public in Japan.

The next evolution stages discuss SPAC, the restructuring of boards. Stay tuned!

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