This guest post is authored by Mark Bivens. Mark is a Silicon Valley native and former entrepreneur, having started three companies before “turning to the dark side of VC.” He is a venture capitalist that travels between Paris and Tokyo (aka the RudeVC). You can read more on his blog at http://rude.vc or follow him @markbivens. The Japanese translation of this article is available here.

Japan witnessed its first successful unicorn take flight this week in the IPO of Mercari.
Since its launch in 2013, Mercari has become Japan’s leading online flea market platform, allowing people to buy and sell secondhand items on a smartphone app with a brilliant UX. In just five years, the startup has reached a valuation of $6 billion, the largest IPO for a tech company since Line Corp. went public in July 2016.

Hats off to the investors who backed Mercari, especially East Ventures who subscribed to the vision during the company’s seed round. And deep bow to the tireless leadership of Shintaro Yamada and his team at Mercari for your collectively heroic efforts!

My hope is that Mercari represents a watershed moment for tech innovation in Japan. I’ve encountered mixed prognostications here in Tokyo this week. Some view it as a game-changer. Others remain skeptical, contending that Mercari remains an exception in a culture which stigmatizes failure.

Numerous people in both camps have told me that the absence of unicorns in Japan has been an embarrassment to the world’s third largest economy and former technology powerhouse viewed with intimidation in the West.

True, the U.S., Europe, and China possess herds of tech unicorns. Even today, I would submit that Europe punches above its weight in its proportion of unicorns. As I had explained in a recent interview to ITmedia News, Europe now counts about 30 technology unicorns, over 25% of the U.S. figure, which is impressive given that Europe only receives 1/10th of VC funding with substantially lower fundraising rounds compared to the U.S. As a VC during the breakout years of Europe’s tech sector, I have been fortunate to witness and invest in this magical phase.

And magical it is. The birth of unicorns in Europe has awakened international investors to the Old Continent’s potential. Capital from America and China has found it way into Europe. Now it appears that a few savvy investors from Japan are discovering the potential as well. Perhaps Mercari can unleash a similar stampede.

Granted, the term unicorn is annoyingly overused and increasingly inaccurate. However, investment bankers, research analysts, and investors love it (not to forget tech journalists, of course). Government officials across the globe have also almost universally adopted the unicorn mantra. Some use it as a metric on which to score points in petty rivalries about whose nation boasts the best tech ecosystems. One could also argue that a proliferation of unicorns is a sign of inefficiency in the capital markets.

Although I am hopeful that Japan will produce more tech unicorns in short order, I submit that the real litmus test will come in the form of a more macabre milestone: Japan’s first unicorpse.

Now please don’t misunderstand me. I applaud each and every aspiring unicorn venture, and I wish them no harm. I also salute the as-of-yet unsung heroes: the entrepreneurs who are still struggling out of the spotlight to reach escape velocity. Some of you will hopefully join the unicorn club, whereas many of you will not cross the $1B barrier but still build great companies of lasting value. Just as I wept at the end of Seabiscuit, I would not take pleasure in seeing a bunch of dead unicorn carcasses.

However, although Aileen Lee’s term refers to an arbitrary valuation threshold (remember: $1B is just another number), there is something stratospheric, ostentatious, and memorable about the $1 billion mark. On today’s scales, when you’ve crossed $1B, you’ve made it beyond the big leagues; you’ve become a near-mythical creature.

By the same token, a $1B failure will also be monumental. The topic of faltering unicorns is still a bit taboo, and the projected “dying unicorn lists” are not publicized (I know of one in particular that has recently attracted Japanese VC funding to the surprise of the local insiders).

But make no mistake, there has been and will be more blood. Probably several more unicorpses around the world. Such is the nature of venture building. This is actually a good thing, because global success stories of game-changing disruption cannot exist in an environment devoid of colossal failures.

Japan’s first unicorpse, whenever it happens, will represent a new inflection point. How the community reacts will reveal the true potential of Japan’s innovation ecosystem.