Yoii's 2026 Startup Fundraising Forecast
Yoii has analyzed the 2026 funding landscape for Japanese startups based on a survey of 100 companies and venture capitalists. While both groups agree that 2025 was a difficult year, venture capitalists maintain a more optimistic outlook for the future than entrepreneurs. A significant perception gap exists regarding priorities: startups focus on product development, whereas investors prioritize the competence of the management team. The data suggests an increasing market polarization, where capital is concentrated in high-potential sectors like AI and deep tech. To succeed, startups are encouraged to improve capital efficiency and explore diverse financing methods beyond traditional equity. These insights serve as a strategic guide for navigating a climate of stricter investor selectivity and evolving exit expectations.
1. The 2026 Market Outlook: Divergent Sentiments and a Polarizing Future
Understanding market sentiment is a strategic imperative for any founder preparing to raise capital. While both startups and VCs were in firm agreement about the difficulties of 2025, their outlooks for 2026 reveal a significant divergence. This split in expectations is the first critical gap founders must comprehend to set realistic fundraising targets and craft a compelling investor narrative.
The consensus on 2025 was clear and unambiguous: the environment was tough. A majority of respondents, including 63.4% of startups and 53.3% of VCs, described the funding climate as "difficult." This pressure was felt most acutely by early-stage companies. A staggering 70% of startups at Series A and earlier reported significant fundraising challenges, indicating a distinct chill in the market for ventures still in their formative phases.
However, when forecasting for 2026, these aligned perspectives begin to fracture. VCs are markedly more optimistic than the founders they fund, creating a core expectation mismatch that will define the year.
Drilling deeper into the VC community's forecast reveals a divided house. The optimistic camp points to external factors, with one VC noting, "As the funding environment for startups improves in global markets like the U.S., there is a possibility that the Japanese market will also move in a better direction. Investment themes are also gradually diversifying, including AI and quantum computing."
In contrast, the pessimistic view is grounded in structural market realities. One concerned VC stated, "The growth market is stagnant, and there are almost no major M&A buyers. Consequently, time constraints such as fund maturity are increasing for investors, so there are no particular factors for improvement."
Another highlighted a fundamental shift in evaluation criteria, observing that the market has moved from prioritizing "top-line growth to profitability."
Despite these differing sentiments, one point of consensus emerges: the market is undergoing a "great polarization." Both startups and VCs agree that capital will become increasingly concentrated in a smaller number of top-tier companies. This shared understanding sets the stage for the next critical question: in this highly selective environment, what defines a "top-tier" company in the eyes of an investor?
2. The Great Disconnect: Founders are Selling Product, VCs are Buying People
The market's consensus on "polarization" begs the question: what is the primary filter VCs will use to separate top-tier companies from the rest? The survey reveals a stark answer that many founders may find surprising: it's not the product, but the people. Strategic alignment between a startup's internal priorities and an investor's evaluation criteria is the bedrock of a successful fundraising campaign, yet the data shows a fundamental disconnect between what startups are building and what VCs are buying.
For startups, the key focus for 2026 is overwhelmingly on the product itself. "Product Development / R&D" stands out as the top priority for 36% of founders, followed by "Talent Acquisition / Organization Development" (23%) and "Marketing / Sales" (21%). This internal focus is amplified by recent technological shifts.
As one founder explained, "Taking the lead in the generative AI wave will be a competitive advantage. Since development productivity increases, we want to develop multiple products simultaneously."
In stark contrast, VCs are looking beyond the product to the people behind it. The most critical factor in their investment decisions is the "Quality of the Management Team," cited by 39% of VCs. This is followed by "Market Size / Growth" (21%) and the "Assumed Valuation at EXIT" (14%). Tellingly, "Product Quality / Uniqueness" ranks a distant fourth at just 9%, indicating that in the current climate, VCs view a great product as table stakes, not the primary driver of their investment decision.
This disconnect reveals a crucial insight into the VC mindset in an uncertain market. While a great product can win in a stable market, only a resilient, adaptable team can pivot, persevere, and protect capital in a turbulent one.
One VC articulated this view perfectly: "In seed and early-stage investment decisions, the most important factor is the entrepreneur... The company will inevitably face tough times in its management, and what is required is the ability to make decisions then, including pivoting. The quality of the entrepreneur and the team is crucial."
This fundamental misalignment—founders selling product features while VCs are buying team resilience—is the root cause of the process friction and valuation mismatches that dominate founder anxieties.
3. Headwinds vs. Tailwinds: Navigating Process Friction and Sector Focus
The fundraising journey is an emotional process fraught with tactical challenges. This section dissects the primary concerns weighing on founders and contrasts them with the high-growth sectors that are capturing VC excitement and, more importantly, their capital.
For founders, the anxieties are centered on the mechanics and outcomes of the fundraising process. Their top concerns reveal a landscape where securing capital is becoming more costly in terms of both equity and time.
- Valuation Mismatches (39%): The most significant concern is the widening gap between founders' valuation hopes and the reality of investor offers in a more conservative market.
- Failure to Raise Desired Capital (25%): Nearly a quarter of founders are worried they will not be able to secure the total amount of funding they need to execute their plans.
- Process-Related Friction (36%): A combination of anxieties around "Investor Negotiations/Communication" (18%) and the "Length/Complexity of Process" (18%) points to a high overall "cost of fundraising."
As one startup respondent noted, "The due diligence process becomes longer as equity investors become more selective. If investors cannot invest, we need to consider alternative financing. However, these alternatives require different knowledge and expertise, which takes more time."
While founders grapple with these process headwinds, VCs are turning their attention toward a few powerful sector tailwinds. Their optimism is highly concentrated, with one area of technology dominating their interest for 2026. "AI / Deeptech" is the clear leader, identified by 51% of VCs as the sector with the most growth potential. This is far ahead of the next-tier sectors, "SaaS / Software" (15%) and "Healthcare / Life Sciences" (15%).
The rationale behind this intense focus on AI and Deeptech is twofold. First, there is a belief that foundational research is finally ready for commercialization, with one VC commenting that "the concept of social implementation is finally permeating Japanese academia, and the number of deep tech startups is rapidly increasing."
Second, a powerful flow of capital is reinforcing this trend from "large domestic companies and the government." This intense focus on AI/Deeptech can also be seen as a direct response to the pessimistic concerns about a stagnant growth market. VCs are betting that foundational technological shifts are one of the few forces powerful enough to create new markets and generate the outsized returns needed, even when traditional M&A and IPO paths are constrained.
For founders to overcome their process anxieties, they must find ways to align their company's narrative with these powerful VC ambitions for outsized growth, capital efficiency, and a clear path to exit.
4. A Founder's Playbook for 2026: Bridging the Gap and Aligning for Success
Based on direct feedback from both sides of the table, it is possible to build a strategic framework for startups to align with the new VC mindset. This playbook translates investor demands into a set of actionable priorities for founders, while also clarifying what founders should, in turn, expect from their capital partners.
Path to Alignment: Translating VC Demands into Startup Actions
Capital Efficiency and Technology Adoption
- VCs demand a disciplined balance between aggressive investment for growth and financial prudence. They want to see that founders understand the high cost of equity, as "Equity requires higher capital efficiency than debt."
- Craft a Capital Efficiency Narrative. Go beyond platitudes. Present a unit-economic-driven model that shows how every dollar of VC funding will be deployed to lower customer acquisition costs, increase lifetime value, or create a distinct operational advantage by leveraging technology like AI.
A Clear Path to Profitability and Sustainable Growth
- The era of growth-at-all-costs is over. Investors are now scrutinizing the underlying unit economics and the logic behind a company's journey to profitability, citing metrics like the "Rule of 40" for SaaS.
- Map a Defensible Path to Profitability. Even if pre-profit, you must present a clear, logical roadmap to positive cash flow. This plan must be grounded in solid assumptions and prove to investors that growth is being earned sustainably, not just bought.
A Concrete EXIT Strategy and Business Scale
- With stricter listing standards, VCs must believe in a viable, large-scale exit that can generate fund-making returns. As one VC stated, "We need to think about which exit scenario to pursue from the moment we invest."
- Articulate a Credible EXIT from Day One. Think beyond the product. Demonstrate a clear understanding of the market dynamics, potential acquirers, or the specific metrics required for a successful IPO. Show how the business will achieve a scale that commands a premium exit. |
Simultaneously, founders have their own set of demands for VCs. This is a due diligence checklist for founders when evaluating potential capital partners.
- Mid-to-Long-Term Risk Appetite: Founders want investors who are not swayed by short-term market volatility and can underwrite a long-term vision.
- Flexible and Diverse Funding Schemes: There is a strong desire for capital partners who offer more than simple equity, including venture debt, secondaries, and other tailored financing solutions.
- Stronger EXIT Support and Experience: Founders are concerned about the lack of deep M&A or IPO experience within some VC firms and seek partners who provide tangible, experience-based guidance.
Use these demands as your own reverse-diligence framework. Does your potential VC partner demonstrate a long-term risk appetite in their portfolio, or do they churn investments based on market sentiment? Can they articulate clear, tangible ways they have supported portfolio companies through an exit? Scrutinize your potential partners as thoroughly as they scrutinize you.
5. Conclusion: Key Imperatives for the Road Ahead
The 2026 startup funding landscape will be defined by a great polarization. As investor selectivity intensifies, capital will flow decisively toward companies that can clearly and convincingly address the market's new expectations. The gap between the well-prepared and the unprepared will widen dramatically. For founders preparing to enter this discerning market, the path to success requires a strategic shift in focus.
Based on the insights from over 100 startups and VCs, three imperatives emerge for founders preparing for their 2026 funding rounds:
- Lead with the 'Who,' Not Just the 'What.' In a polarized market, the quality and resilience of your leadership team is the single most important asset. Sell your team's story with the same conviction you sell your product's.
- Demonstrate Capital Efficiency: Every dollar of investment must have a purpose. Present a clear, data-driven plan for converting capital into sustainable business value. Show investors you are building a resilient business, not just a cash-burning machine.
- Begin with the End in Mind. An exit strategy is not an afterthought; it is a core component of your investment thesis. Demonstrate from day one how you will build a company of a scale and strategic importance that commands a premium exit.
The challenges of the 2026 market are significant, but they are not insurmountable. By internalizing these insights and proactively addressing the expectation gaps identified in this report, founders can transform a challenging environment into a powerful opportunity for growth and success.
Norbert Gehrke
