I have been in the “VC industry” since 1988, which can be said to be a pre-modern era. The reason for the parentheses is that I have to admit that there was a huge gap between the situation in Japan at that time and the US-born VC profession, but on the other hand, I was very fortunate to be closely involved with the US at that time and to be exposed to the prototype of venture capital investment. Nowadays, the environment surrounding startups has become much more widespread and the amount of money invested in them is enormous. However, as if in response to the “lost time” after the bursting of the real estate bubble in Japan, even now, more than 30 years later, I feel that we are still not quite able to catch up in essence. 

When Yasu and I developed the idea of establishing InterValley Ventures in 2016, there were two things that we were focused on: Investment Thesis. One is to Think Different, which is exactly the same as when you start a startup, you need to be clearly differentiated. You need to have a logic that makes sense to you at the same time.

The other question is how to contribute to the internationalization of Japanese startups. I would like to consider the latter first here. 

Until just a few decades years ago, the only Japanese ventures that succeeded in internationalization were Honda with its Super Cub and Sony with its transistor radio. This was during the post-war period and the high growth period of Japan in the 60’s, but at the same time, there were no representative examples after that. Needless to say, it is Mr. Son who has made a name for himself overseas since then. However, Softbank itself has been changing its business rapidly through acquisitions, so it is uncomfortable to lump it in the category of internationalized startups. There is no doubt that Mr. Son is an outstanding global manager, though.

Of course, everyone from Rakuten to Mercari is boldly attacking, but the fact is that the absolute number is still small. Why is that? I can think of a number of short-sighted reasons, but one thing I can say without a doubt is that this situation is extremely important for curbing the sinking of Japan in the mid-to-long term, which is beginning to be seen in various situations. 

Has the VC market gone international? 

Recently, it is said that foreign funds have started to come into the Japanese independent VC market as LPs. This is certainly a big step forward. In the past, Apax Globis Partners, where I was a member, established a fund in 1999, but to be precise, the Globis stand-alone fund after the dissolution of the joint venture can be said to be the forerunner. In any case, the fact that the fund has met the investment criteria of foreign money, including expected returns, is a step forward, and the fact that it has led to a significant increase in the volume of funds is an important perspective. Nevertheless, this trend has only been going on for the past few years, and we are talking about a very limited number of fund managers, so we will have to keep an eye on this trend and hope for the best. 

On the other hand, however, when I think about it, it is a fact that there was a time about 20 years ago when foreign VCs were making inroads into Japan, thanks to the momentum of the Internet bubble. Apax Partners, which had a joint fund with Globis, was one of them. Fortunately, I found a valuable list on the website of NTVP, led by Mr. Muraguchi, which gives a hint of those days. <https://ntvp.com/link_10.html>

Many of the names are very nostalgic for me, as they are both rivals and co-investors. The fact that UTEC is listed as one of the “other VCs” on this site also reminds me of the times. This was a time when the university VC category did not yet exist. 

< List of foreign VCs (2000s)>.

• Intel Capital
• Investor Growth Capital Asia
• Whitney & Co.
• Warburg Pincus (Japan) Ltd.
• Walden International Japan
• AIG Japan Partners
• HQAP Research (H&Q Asia Pacific)
• The Carlyle Group (VC Group)
• Constellation Ventures, Inc.
• GE Equity Japan
• General Atlantic Partners, Inc.
• Net Capital
• HSBC Holdings, Inc.
• Goldman Sachs Japan Co.
• J.P. Morgan
• JOHO Capital
• Dell Ventures Japan
• Prudential Life Insurance Company
• UBS Capital Japan 

I remember that there were Rothschilds and others, but it is not the purpose of this article to cover them all.

Aside from Intel, which is a pioneer of CVC, I think almost all of them have withdrawn from the market, but at the same time, I noticed that no Silicon Valley VCs have ever come to Japan. On the other hand, as you know, there are some cases of advancement in China. 

It is true that at that time, Japan was also experiencing a global boom in response to the Internet revolution, but in addition to that, Japan had the appeal of technology and pioneering user cases from a foreign perspective. A typical example is mobile Internet communications. Starting with the world-leading i-mode, Japan was clearly leading the world in fostering a user culture that included the integration of digital camera technology and photo mail. However, the paradigm shift to smartphones with the introduction of the iPhone in 2007 and the subsequent Global Financial Crisis (Lehman Shock) did not allow this advantage to last. In my opinion, with the emergence of China, Japan has ceased to be a global benchmark in the field of technology startups. And, even back then, it could be said that the driving force was docomo and the major manufacturers who introduced feature-packed mobile devices to the world, and startups were just a part of that ecosystem. 

After the Lehman Shock, it is true that at least startups expanded their activities in Japan as well, but they were overwhelmed by the acceleration of innovation, especially in the U.S., and somehow managed to optimize their essence for Japan (by imitating it), thus following a path of success that was “closed” to the domestic market. Is it too radical to say that this is a historical perception? And I’ve become convinced that this is the root cause of the pessimism about the rapid internationalization of Japanese startups.

Is PayPal’s acquisition of Paidy the dawn of a new era? 

The VC and startup industries were abuzz with the 300 billion yen (US$2.75 Billion) acquisition price announced on September 8. People are all excited that the time has finally come in Japan when startups are bought at the Unicorn value. I think this is definitely true. In the first place, Japanese companies do not have the will or the means to price their startups like that, but even the reach of foreign companies has been extremely limited. In that sense, this deal is an epoch-making one. However, it is too early to rejoice easily. As some media outlets have pointed out, there are some background factors that should be kept in mind. 

1. At the moment, both the tech giants and the financial markets are flush with money, and it is easy to achieve transaction prices that seem generous from a Japanese perspective.
2. The worsening relationship between the U.S. and China has made it difficult to invest in China, and the relative importance of Japan has increased.
3. As in the case of Google’s acquisition of pring, there is a view that this is just a “buy time to enter the local market” deal that will allow the company to quickly acquire the user base it has already acquired in regulated domestic financial services and save the time and effort of dealing with regulations and customizing for Japan. 

Of course, I’m sure there is some appreciation for the unique technology, such as the Paidy’s screening function. But at this point, I’m not sure if it’s an overwhelming differentiator that can be deployed globally. 

On the other hand, in August, there was the deal of Square in the US acquiring Australia’s AfterPay for US$29 billion. It is also a post-payment (Buy Now Pay Later) fintech company similar to Paidy. While AfterPay’s already established customer base was important, Australia’s population is only one-fifth of Japan’s, and a tenfold increase in price for a market that is one-fifth the size of Japan’s was clearly based on a different pricing logic than that of Paidy, even if we take into account the market share of each service. It is natural to think that Square’s strategy is to make AfterPay a global platform. 

Japan’s startup market is being tested to see if it can go beyond acquisitions as a way to enter the local market and develop into investments in technologies and business models that can be applied globally in the future. 

Now, how can we contribute to the internationalization of startups in Japan?

A new style of “mature” Japan is required to go beyond the growth model of “catching up and overtaking” that has been in place since the Meiji Restoration and the scrap-and-build approach that has survived wars and natural disasters. It may sound like a cliché, but I am convinced that the key is “diversity”. InterValley’s mission is to bridge this gap, which is the reason for its name.