SoftBank Group Corp.’s Vision Fund has invested its $100 billion cash pile in 75 unicorns around the world. Not a single one is from Japan, its own backyard.

That may be because the pickings are slim: While the U.S. has 179 unicorns, China 93 and India 18, Japan has just two, according to CB Insights. How can a country that pioneered the Walkman and android robots fail to produce more valuable startups? The explanation may be somewhat arcane, but helps get to the bottom of a damaging cycle that’s left Japan with an uninspiring pool of fledgling innovators.

The listing standards for the small-cap Tokyo Stock Exchange Mothers Index are exceedingly low. To join Nasdaq, its New York counterpart, companies need a minimum of 1.25 million traded shares upon listing. That compares with just 2,000 for Mothers. This short hurdle, among others, means young, cash-hungry firms can tap public markets pretty easily, and sidestep the grinding process of courting investors through multiple rounds of funding.

The trouble is, size begets size. The bigger a company at listing, the greater the likelihood of attracting large chunks of institutional money and growing still larger. What’s left is an index stuffed with unreliable runts: 96 percent of Mothers’ 283 components have a valuation of less than $1 billion, compared with roughly one-third for Nasdaq. The Japanese index was notorious for its scandal-studded constituents in the past, and remains volatile.

Just two Japanese unicorns have gone public in the last two years, with mixed results: Flea market app Mercari Inc. is down 4 percent since raising $1.2 billion last June, while business-card scanner and networking firm Sansan Inc. is up 33 percent after listing last month. The two unicorns left include four-year-old Preferred Networks Inc., whose app uses artificial intelligence to automate the coloring of manga, and cryptocurrency trading platform Liquid Group Inc.

With few appealing options, the likes of SoftBank CEO Masayoshi Son take their venture-capital dollars elsewhere. But the bigger the funding vacuum, the greater the incentive startups have to list early and small. And so the cycle continues.

There are cultural challenges to Japanese innovation, too. Attracting young graduates to unsteady jobs can be a tough sell: Many would rather join established firms. Japanese founders also have a reputation for crippling timidity when asking for money.

Attitudes are changing. Startups are losing their stigma and luring more graduates, Yoshito Hori, managing partner of venture-capital firm Globis Capital Partners said last week. Funding of early-stage tech firms has reached $1.7 billion this year compared with $1.6 billion in 2018. But even Hori, whose firm backed Mercari and Sansan, said that there’s still not enough money around to back mega venture-capital funding rounds. The truth is that the real opportunities in Japan are in private equity, with plenty of mature firms desperate for a turnaround and aging founders looking for buyouts.

Still, a prime minister can dream: Shinzo Abe’s government aims to produce 20 unicorns by 2023. The chances of pulling that off are sobering.

Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking.

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