The main sources of capital in Japan are the government, banks, insurance players and the corporate sector, according to the investors. They said roughly 80 percent of the funding comes from them while about 20 percent comes from commercial venture capital firms. There's also growing interest from institutional names, Riney said.
"If you look at the size of the growth stage round, they've also increased," he added.
Riney explained that in the past, start-ups would sometimes prematurely go public in order to raise funds. That, he said, stunted growth as companies concentrated early on becoming profitable, so they could please shareholders.
He added that now he was seeing more sizable rounds of funding, "where companies are able to raise anywhere from $10-to-$70 million, $100 million privately — which is basically unprecedented for Japan." As a result, they are able to stay private for longer and focus on generating growth.
Mistletoe's Nakajima said the next challenge will be for Japanese start-ups to attract investment from overseas, and to be acquired. Currently, most start-ups exit that early stage of their development by going public, but the size of initial public offerings are relatively small compared with other countries.
Overall, the amount of money Japanese start-ups are raising is small compared with what companies can raise in Silicon Valley, China and even Southeast Asia. For example, ride-hailing service Grab said last July that it expects to raise $2.5 billion in funds from a single financing round.