In most cases, venture capitalists investing in a Japanese company prefer to structure their investments like a typical Silicon Valley VC financing — using preferred stock and many of the same bells and whistles that afford the venture capitalists a certain degree of control over the portfolio company. VCs who invest in Japan, though, should understand how the Japanese system and Japanese legal requirements differ from those in the U.S. before undertaking such an investment.
Quite often, these investors are either represented by U.S. attorneys unfamiliar with the Japanese system or local Japanese counsel unfamiliar with the U.S. system. U.S. attorneys may try to persuade Japanese portfolio companies to execute Silicon Valley-modeled venture capital agreements without a clear understanding as to how such agreements are treated under Japanese law. Local Japanese counsel may be unfamiliar with the various terms and protections a U.S. investor typically obtains in its U.S.-based investments and expects to obtain in its Japan investment.
