Japan's emerging breed of entrepreneurs was dealt a serious setback by the sudden downfall of Internet startup Livedoor over alleged securities laws violations -- but the blow was far from fatal.
Take Noriyuki Yamazaki, former IT chief at Livedoor, whose founder Takafumi Horie was convicted and sentenced to two-and-a-half years in prison on Friday for breaching securities laws.
Yamazaki has moved on, founding Zero Start Communications, which runs the new "posh me!" social networking site for aspiring actors and musicians.
"The Livedoor incident really squeezed the venture business environment here," Yamazaki, dressed casually in a T-shirt and leather jacket instead of the traditional shirt and tie, said at a recent interview.
"It also spurred me to strike out on my own," Yamazaki said.
After an initial blow, the entrepreneurial spirit in Japan is still thriving. Venture-capital spending has rebounded, and the Tokyo Stock Exchange's Mother's index -- home to the country's top high-tech startups -- is showing a recent resurgence of listings.
Horie's fall was a powerful cautionary tale.
A brash celebrity who had riled Japan's staid corporate world with buyout attempts and an in-your-face attitude, Horie's slide began with his arrest in January last year.
The judge on Friday said he masterminded a network of decoy investment funds, and sentenced him to two-and-a-half years in prison. Horie immediately appealed and posted bail at ?500 million (US$4.2 million).
The Mother's index tumbled 50 percent the year after Horie's arrest. The index lost another percentage point on Friday following Horie's guilty verdict, to 1,010.37.
Particularly bruised have been individual investors, whose ranks have been growing with the arrival of electronic trading from PCs and mobile phones to make up over 75 percent of trade on the Mother's market.
More than 1,600 shareholders filed a lawsuit against Livedoor and Horie last year, seeking more than ?10 billion in damages incurred when Livedoor shares plummeted over the firm's alleged wrongdoing.
The so-called "Livedoor Shock" threatened to stifle the emergence of an entrepreneurial class tired of the "Japan Inc" model of recent decades in which the cream of the crop of younger workers flocked to cushy, stable jobs at established corporations rather than risking it with new ventures.
There are signs of change, however. Recent deregulation measures have made it possible to launch venture businesses with relatively small amounts of capital.
Venture-capital spending, which dipped after the dot-com bust in 2001, is on the uptrend amid a resurgent economy. The amount of capital invested in emerging Japanese companies surged 46 percent to ?234.5 billion last year, according to the Tokyo-based Venture Enterprise Center -- though that figure is still minuscule still compared to the US and Europe.
Meanwhile, new listings on the Mother's market for emerging companies, which dipped 35 percent in 2005, have rebounded to 41 companies last year.
Analysts say wider changes like the breakdown of lifetime employment practices are leading some of the country's best and brightest to set up their own ventures.
"Whatever the effects of Livedoor, they will be short term," Hori said. "There's still some skepticism surrounding Japanese entrepreneurs. But the future is very bright."
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