Japanese entrepreneurs face high hurdles to compete in Silicon Valley. Among many factors, three stand out.

Japan’s startup ecosystem has arrived at a pivot point: for the first time, it is able to draw top-tier talent to high-growth startups at a scale that was not possible just 15 years ago.

Japan's venture capital industry has grown to unprecedented prominence. Fueled by increasing social legitimacy and support from the Kishida administration, Japan's venture capital is poised to drive the startup ecosystem to the next level.

To understand how Japan’s economy changes over time, it is important to differentiate the traditional, new, and hybrid parts that coexist—observers who look at only the traditional areas may conclude that very little has changed, while those more familiar with the new areas see rapid and extensive change.

Japan is determined to foster a startup economy. But every startup ecosystem is built on several components and a strategic conception of how they fit together. Cracking this puzzle will be Japan's challenge.

Japan's startup ecosystem, which grew as a relatively peripheral segment of Japan’s economy throughout much of its recent history, is now front and center in getting attention from the government and big business.

Japan and the United States would benefit immensely from cultivating closer ties between their startup ecosystems and other efforts to spur shared innovation.