(Bloomberg) — It’s been several weeks since Beau Becker applied to the Japanese immigration office to extend his one-year visa for entrepreneurs, and he’s dreading a repeat of last year’s scenario: a delayed approval process triggering a freeze on his bank account, preventing him from making payments.
“It was an absolute nightmare,” said Becker, who runs a health drinks startup. “I can only pray that they’ll renew the visa.”
His annual ordeal is one of many frustrations he and other foreign entrepreneurs face after arriving in Japan, which has been trying to lure more startup talent with special visas but is falling short in helping them stay. Rigid rules around visa extensions, as well as a banking system and real estate market that are difficult for temporary residents to navigate, are among the barriers making it difficult for them to set up businesses long term, according to interviews with more than a dozen entrepreneurs living in Japan.
At stake is Japan’s bid to bolster venture capital investment and regain its innovative edge after falling behind in disruptive technologies like smartphones, social media and AI. Three years ago, then-Prime Minister Fumio Kishida announced a plan to create 100,000 startups and 100 unicorns by 2027. Currently, though, there are only around 10,000 startups and a handful of unicorns. Aware that immigrants are a key part of the US entrepreneurial ecosystem, the government sought to import top talent to help build up a startup scene.
Japan first introduced what’s called a Startup Visa around 10 years ago, inviting entrepreneurs to launch businesses in the country. By May last year, over 700 people had come to Japan on the visa, according to Japan External Trade Organization, a government-related trade promotion group. The visa was initially only valid for six months. This has since been extended, most recently to a maximum period of two years, but it still needs to be renewed every six months. The limited term makes it difficult for potential entrepreneurs to rent apartments or to open bank accounts.
Foreign startup owners are encouraged to eventually switch to a different type of visa, such as the Business Manager visa, which enables them to extend their stay. But Becker, who holds this visa, still needs to renew his every 12 months.
Some successful startups founded by foreigners have gained public attention. Sakana AI, backed by Nvidia and run by Canadian national David Ha, has emerged as one of the country’s fastest-growing startups with a $1.5 billion valuation, drawing investment from a broad range of traditional Japanese banks and businesses. Paidy, founded in Japan by another Canadian, Russell Cummer, was later acquired by PayPal Holdings Inc. and is credited for pioneering buy-now-pay-later services in the country. Such examples, though, are far outnumbered by entrepreneurs who say they feel stymied by difficult rules and bureaucracy.
Becker says he’s never been given an explanation on why approvals for his visa extensions have been delayed. He suspects officials are concerned that his business has yet to generate a profit. Japan’s immigration now asks Business Manager visa applicants to show proof of profitability or viability through funding within two years of arriving, a difficult target for anyone starting a business from scratch. “This requirement basically makes running a startup in Japan as a non-citizen almost impossible,” he said.
Even Silicon Valley’s highest-profile startups such as Uber Technologies Inc. and Airbnb Inc. have taken more than a decade to turn profitable, and investors know that a majority of ventures fail. Yoshitake Nagaoka, immigration lawyer at Bright Legal Office which helps settle disputes over visa matters, said Japanese officials had set conditions on startups with little knowledge about them.
“Sure, they absolutely need to confirm that the business is for real. But to scrutinize whether a business is doing well or not would be taking things too far,” said Nagaoka. “There’s no need for such a stringent evaluation process.”
Japan’s immigration office would not comment on individual cases, saying its approval of Business Manager visas and their duration depended on how each applicant’s business was doing. Banks say they’re just trying to follow anti-money laundering regulations which limit accounts to legal residents.
Amarsanaa Tsembel moved to Japan in 2019 after successfully building the biggest human resource company in Mongolia, seeking a larger market and counting on a supportive environment. But a one-year visa permit meant he didn’t qualify for a housing loan. His wife and two daughters were granted visas as dependents but, concerned by the uncertainty of how long they’d be allowed to stay, moved back to Mongolia.
“My business is successful, and I’ve already invested six years of my life here,” said Tsembel. “But in return, I can’t even purchase an iPhone on a 12-month installment plan. I also can’t get approved for a housing loan or get a credit card, all because of my short visa.”
Other entrepreneurs cited similar problems about living in Japan. Opening a bank account or renting office space usually requires backing from a Japanese guarantor, a practice that doesn’t exist in other major markets. Credit card companies often decline accounts to foreigners.
“It’s death by a thousand paper cuts,” said Jordan Fisher, venture partner at Antler, which helps match foreign entrepreneurs with local partners for a smoother path to setting up companies in Japan. “I don’t think it’s one thing. You could say that risk aversion as a society is a large theme.”
Farid Ben Amor, who runs a game development business in Kyoto, said the government’s welcoming stance and rigid immigration system appeared disjointed. “Everyone is really nice and apologetic,” he said. “But the processes are totally misaligned with what it takes to grow startups. There’s a disconnect between immigration and policy making.”
Despite such difficulties, as well as the small size of the local venture capital market, many said they still saw the country as an attractive destination with social stability, a highly educated workforce and appreciation for innovative products and services. The local venture capital market has also been growing, albeit at a modest pace. A total of 118 new venture funds were created in Japan in 2023, tripling from a decade ago, according to data compiler Initial.
Becker, in the meantime, is bracing for the impact of a delayed visa. Restrictions on his bank account could block him from paying rent and credit card bills, as well as cash reimbursements for his business. The setbacks are particularly frustrating, he said, because he believes his business could contribute to the economy.
“We hire local staff, we work with domestic manufacturers. We sell online,” he said. “We’re really trying to make a better Japan.”
–With assistance from Isabel Reynolds and Eddy Duan.
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