Startup Ecosystem in Japan

Looking back the past 30 years. BeBold #02

Twitter is going to be a privately owned social media through its $44 billion investment by Elon Musk. How will this acquisition of the century unfold?

Looking at Japan, the exchange rate b/w US$ and JPY have become JPY150/US$. When I was in my 20s, it was about JPY100/US$. We’ve become a “cheap” country…

Although still small compared to the U.S., the amount of investment in startups in Japan has increased significantly and the startup ecosystem has grown.

If you’d like to learn more about the market, you may find my article interesting.

The chart above shows how IPOs and the Nikkei Index have performed in Japan over the past 30 years.

The logos you see at the left bottom are the two startups that I cofounded. WebCrew went public at the Tokyo Stock Exchange market in 2004, and Interscope was successfully acquired by Yahoo! Japan in 2007.

After the Internet Bubble, the TWO big incidents, the Insider information deal called “Livedoor Shock” in Japan and the Lahman’s fall caused the IPO market and venture capital investment to stall like falling off a cliff.

For example, the number of IPOs has plummeted from a peak of 204 in 2000 to 19 in 2009. Also, this affected VC investments very badly because the exit opportunity as IPO was almost gone.

This is a structure unique to the Japanese securities market, but even a small cap company with a market capitalization of less than US$100M can be listed on emerging markets, making it easier for venture capitalists to collect funds.

However, due to the IPO market crash, this “affordable exit measure” was gone. Then VCs became no longer possible to go for aggressive investmnets.

This is my hypothesis, but I believe that the reason why there are few startup exits through M&A in Japan, unlike startups in the U.S., is due to the values and culture of Japanese society. Here is my own experience on the matter.

When I sold off our startup to Yahoo! Japan by M&A deal, there are two different messages that came to me.

Of course, there were some exceptions, but in general, acquaintances who worked for the large corporations messaged me that “I’m sorry for the news. I understand how you feel.” I wanted to ask them if they understand how I feel.

On the other hand, my entrepreneur friends messaged me that “Congrats on the exit!”

In Japan, especially the elder generation still has negative perception about selling companies.

As I explained above, the startup movement was once crashed by the two big incidents.

However, with the advent of the iPhone and Android, and more specifically, the App Store and Google Play, it is now possible to tap into the global market without having to leave Japan by expanding into multiple languages. This means that even students and young people with no working experience or business development experience can do business, and it made entrepreneurship in the smartphone app market has become very active.

I will elaborate how the startup ecosystem has grown in the next post. So stay tuned!