An Insider's comments on Japan's high tech business world

* * * * * * * * TERRIE’S TAKE – BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term
technology and media entrepreneur living in Japan.

General Edition Sunday, Oct 01, 2017, Issue No. 916

– What’s New — Not Quite the Golden Age for Japanese VC, Unless You Can
Break Dance
– News — Nothing to do next week? Do your own IPO!
– Upcoming Events
– Corrections/Feedback
– Travel Picks — Tomato Ramen in Shinjuku, Climbing Mt. Fuji
– News Credits

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Over the last couple of years, after an abortive fundraising effort in
2015, I’ve been avoiding Venture Capitalists (VCs) or attending venture
conferences, feeling that the venture funding industry in Japan is all
about herd instinct and stereotypes and thus a waste of time for a
foreign businessperson. However, I had second thoughts after a friend
suddenly couldn’t make it to the latest TechinAsia event held in Tokyo
during September, and he kindly asked me if I’d like to go in his
place. I thought this would be a good chance to see if the street talk
I’d been hearing about how we’re now in the “golden age” of Japanese
venture investing was true or not.

One of the speakers at TiA was Tim Romero, who has a very good weekly
blog where he interviews movers and shakers in the Japanese start-up
community. Tim has been around the track a couple of times himself, and
in his interviews he is relentless in getting the CEO of the moment to
share their secrets and how their industry works. Tim has been quite
upbeat about the Japanese venture scene, and his contributions alongside
TiA and Slush (a Finnish version of TiA) would indeed give you a feeling
that things are starting to improve here.

And yet among start-ups in the international community, “international”
meaning resident foreigners or regular Japanese educated in part
overseas, I still see very little VC investment taking place. So what’s
really going on?

As a bit of background, back in 2015 and the start of 2016, I personally
visited and presented to about 25 Japanese VCs, for Japan Travel KK.
Given that the Inbound market was booming I thought that the timing
couldn’t be better, and our early sales results proved that there is an
exciting business to be had. I received 24 rejections and one smallish
offer at the time, and so wound up empty-handed but a lot wiser about my
strategy and what we needed to do to present a better story.
Unfortunately, I got a somewhat depressing view of the state of venture
capital in Japan.

In the course of that one-year period, I found that I could group those
25 VCs into 3 types: 1) Clueless kids and salarymen and not capable of
researching or deciding anything, but with money to spend on a round led
by someone else. This was by far the largest group, and the lack of
smaller early stage deals shows their risk aversion – which is ironic
given the nature of their business. Group 2) were a much smaller cohort
of smart trans-pacific bilinguals who were obsessed with Silicon Valley
trends, valuations, and business results, i.e., they have a
unicorn-obsession. This group has plenty of cash and an ability to lead
a round, but won’t touch anything unless there is a vision of global
domination, which means they are making a few over-optimistic bets on
CEOs good at hype. Group 3) were smaller shops with sectoral expertise
but just not enough people to manage the influx of opportunities, and
they were the source of the most productive discussions. But, boy, are
they conservative when it comes to dealing with a foreigner…

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With Japan Travel I was told by the clueless Group 1 types that they
thought the Inbound travel market was too small and that the space
wasn’t validated because no one has led a funding in the space (which is
still true today). And yet, if they bothered to do some research (or to
read our presentation), they would have seen the tell-tale signs of a
major boom market. Now, in 2017, the Japanese Government says that the
Inbound market is worth about JPY3trn in on-shore spending alone. My
guess is that total spending on travel to Japan is around JPY5trn a year.

With the Group 2 “size matters” crowd, our focusing on one country meant
lack of scalability and therefore an inability to feed their egos.

With the Group 3 realist group, the focus was on my foreigness, my age
(not being in my twenties and thus being easy to take advantage of), and
the company valuation – they didn’t like the fact that we’d already
spent half a million dollars developing the systems and capabilities of
the company, even though this is a pittance compared to U.S. companies
doing similar types of business.

In the end, I decided to continue bootstrapping, developing the business
beyond just a portal and into an integrated travel solution provider. To
do so, I have done small “friends-and-family” rounds and steadily put
the pieces in place. You will have seen the occasional ads in Terrie’s
Take for each round we’ve raised (a big “thank you” to our investors).

So, back to TiA, I was interested to see if Tim was right that the VC
scene has changed, and whether, as the TiA organizers were spruiking,
we’re in a Golden Age.

The TiA event took place over two days, held at the La Belle Salle
Shibuya Garden building at the top of Dogenzaka in Shibuya – a suitably
fashionable location. I showed up on Wednesday morning, registered and
made my way in to listen to Dave Corbin, TiA’s Japan CEO, give the
opening address. There were about 400 people in the audience (my
estimate), a pretty good number considering the tickets cost JPY15,000
for the public and JPY60,000 for investors. The attendees were a 30/70
mix of foreigners to Japanese, with most of the foreigners coming from

You could see that the representation matched Japan’s influence around
the region, with the biggest delegations being from Indonesia, Malaysia,
Vietnam, and Thailand. Certainly I’m aware of an expanding number of
Japanese VC funds who are targeting their investments in these countries
because of the lack of U.S. and European competition and also because of
the rapidly expanding economies there.

I personally found the TiA lineup of speakers to be disappointing,
revealing little about how to get things done, and over-focusing on
validating the VC market in Japan. This is unfortunate, because from my
many discussions with attendees, most people where there for two things
only: networking and funding. Yes, there was a “Speed Dating” section
for pre-reserved meetings with Japanese VCs, but it was obvious that
demand (by start-ups) outstripped supply and that the quality of supply
of VCs was poor enough that TiA should seriously re-think its approach
to Japan. In particular, it needs to help educate VC firms here how to
prospect and build relationships with non-Japanese start-ups.

In spending some time hanging around the Speed Dating area, listening in
on some of the conversations and getting a feel for whether Japanese VC
has improved, I got the impression that things are still pretty
pathetic. What I saw is kids from the VC departments of larger Japanese
wannabee VC companies interviewing other kids who want to fund their
start-ups. There was a definite lack of expertise, experience, and
structure on both sides. For foreign start-ups, the interactions were
made worse by major language and knowledge gaps. I came away thinking
the following three things:

1. Low-grade human resources. Why are Japanese VCs willing to put their
least experienced people into an environment where they are picking
winners from losers? Having someone with little practical business
experience and inability to evaluate technology isn’t going to result in
competent screening of prospects from a single meeting.

2. Poor screening process. One assumes that to be meaningful, most
Japanese VCs are at least investing JPY20-JPY30m per firm, and this
money doesn’t grow on trees. For sure after the initial screening the
investment will go in front of a committee, but when you are having a
low-experience person with no screening structure or understanding of
what the other party does, this significantly reduces the quality of
deals for committee review, and a higher chance of loss of the investing
company’s assets. We can see the results of this in the poor returns
that most Japanese VCs have (and perhaps why companies don’t put their
best people in those teams).

3. Low ability to think out of the box. I approached the Fujitsu booth
on the behalf of a friend’s software company, and found out that the
staff really weren’t interested in a business that was outside their
frame of reference, even if the investee agreed to use their cloud
platform and technology stack – which surely is the reason why Fujitsu
even has a venture fund in the first place. Instead, they were there to
hand out flyers and pens, and seem to have another more obscure process
for making decisions on investment.

So, yeah, I didn’t get a very favorable impression of the quality of VCs
present, and it was disappointing to see foreign startups attracted by
the TiA hype, try to figure out what the speed dating investor was
really saying to them. Pretty much it was in the “We’ll keep you hanging
on until you stop calling us,” ilk. I did also talk to several other
more seasoned Japanese entrepreneurs there, whom I know, and they
candidly shared that they were just going through the motions rather
than expecting anything concrete to come out of the meetings.

To be fair, the TiA event was a good place to meet other start-ups, and
there were several in the tourism sector who were very interesting. They
may not find a source of funding in Japan, but hopefully other business
opportunities will help justify the cost of attending the show.

I realize that TiA does not represent the whole universe of Japanese
venture capital, and there were many active players in the market who
didn’t show up. But nonetheless, what I did see reminded me that the
Japanese VC community is still immature and prone to risk-aversion –
meaning that there will be precious few unicorns or even tech IPOs
coming out of this market. While Softbank with its super fund is shaking
things up and is making the overall sector numbers look pretty juicy,
the reality is that Softbank is targeting much bigger investments in
much later-stage companies, and current industry data is very skewed.
The fact is that VCs are still not doing much for real startups here.
Especially if you are not in your 20’s, Japanese, and have a talent for
PR and breakdancing (yes, a security firm CEO started his pitch this way).

…The information janitors/


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+++ NEWS

– Japan decides regulation is best Bitcoin strategy
– Bicycle insurance is a hot commodity
– Unusual merger in sushi sector
– Nothing to do next week? Do your own IPO!
– Unintended consequences in the waste paper sector

=> Japan decides regulation is best Bitcoin strategy

While China and other countries around the world are banning Bitcoin and
the exchanges that handle them, Japan has seen an opportunity to expand
it’s influence in the virtual currency markets, by deciding instead to
regulate Bitcoin and other crytocurrency players. The Financial Services
Agency (FSA) has said it will issue licenses for 11 Bitcoin exchanges,
meaning that the exchanges will be following security and accountability
guidelines and be audited by the FSA. Another 17 applications are under
review and 12 other firms had to shut down their operations after being
denied licenses. ***Ed: Actually, it’s remarkable that there will be
this many Bitcoin exchanges in Japan, and it clearly shows that the
Japanese, as a major trading nation, expect huge advantages out of
potentially becoming the financial center for digital currencies. This
could be how Tokyo returns to relevance as a financial hub.** (Source:
TT commentary from, Sep 29, 2017)

=> Bicycle insurance is a hot commodity

A recent legal decision which awarded a massive (for Japan) JPY95m
payment to an injured pedestrian after she was bowled over by a 5th
grader school boy, has set the scene for a dramatic increase in the take
up of 3rd party insurance coverage by cyclists and their families. Sompo
Japan Nippon Koa Insurance says that it has signed 25% more insurance
contracts in the first 6 months of this year than for the whole of last
year. That is: 400k contracts already versus the 300k from last year.
Other insurance companies are reporting similar results. The trend has
been further accelerated by Hyogo Prefecture passing a local ordinance
requiring ALL cyclists there to possess insurance. Kyoto and other
prefectures are expected to follow suit. ***Ed: This a text book case of
a collective phobia (about personal risk) fueling knee jerk reaction and
in the process a whole new business sector (bicycle insurance wasn’t
even available 10 years ago). Cancer insurance policies was another good
example. This must surely offer some good market positioning clues to
western firms looking to expand their market in Japan.** (Source: TT
commentary from, Sep 24, 2017)

=> Unusual merger in sushi sector

Interesting move by three major players in a normally very conservative
sector. Rice wholesaler Shinmei will buy control of two of Japan’s top
5 sushi chains, Akindo Sushiro and Genki Sushi, to create a massive
dominant player in the local market – especially in conveyor belt sushi.
The new arrangement will allow Shinmei to control about 30% of the
domestic market, worth about JPY600bn in 2016. Furthermore, although the
sushi market is projected to decrease in volume with the aging society,
one of the partners, Genki Sushi, has more than half of its stores
abroad, so Shinmei thinks it can use this as a springboard to create a
dominant global brand. ***Ed: It will be interesting to see if they can
pull this off. Interesting, also, to see that Shinmei is buying its
shares from a UK fund – Permira. We would love to know Permira’s
strategy a few years ago when they acquired those stakes in the first
place.** (Source: TT commentary from, Sep 29, 2017)

=> Nothing to do next week? Do your own IPO!

A new securities marketplace, Valu, allows anyone, including private
individuals, to create their own securities and pseudo-IPO. Valu’s
securities mechanism is tokens, similar to ICO blockchain tokens being
issued overseas, and investors can buy and sell the tokens on Valu’s
marketplace. Just like ICOs, the tokens are typically used as purchasing
rights for products and services of the issuer, and thus do not fall
under the auspices of the FSA. This is smart, because if those tokens
also represented actual shares or debt instruments, as is allowed in
some countries for ICO’s, then Valu and its issuers would be quickly
pulled up by the FSA. ***Ed: Actually ICOs are not yet illegal in Japan,
they are just so bleeding edge that the authorities haven’t issued any
rules about how they may be offered, if at all. The uncertainty is what
is keeping most would-be ICO issuers from doing so here, and instead
they are typically doing their raises elsewhere in Asia (HK for
example). BTW, Valu already has 60,000 users and has already been
baptized by fire in one insider trading scandal so far – ICOs are truly
the Wild West in the funding world.** (Source: TT commentary from, Sep 21, 2017)

=> Unintended consequences in the waste paper sector

In a significant blow for trading in garbage, particularly waste paper
to be recycled by low-cost Chinese factories, the Chinese government has
banned imports of 24 types of garbage, in the name of reducing pollution
levels in that country. This is a low-value but high volume sector worth
about US$10m a month (at wholesale prices), and now more than 10,000
tons of waste paper a month are building up in warehouses in HK, the
USA, and Japan. An unintended side effect of the ban is that there is
now also a shortage of packing boxes and wrapping for e-commerce
companies, and cardboard prices have more than doubled. ***Ed: Waste
paper exporters here in Japan are placing hope in a November decision by
the Chinese government as to whether they will make the ban permanent or
not.** (Source: TT commentary from, Sep 28, 2017)

NOTE: Broken links
Some online news sources remove their articles after just a few days of
posting them, thus breaking our links — we apologize for the inconvenience.



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Time: 6:30pm Doors open
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None this week.



=> Taiyou no Tomato-men, Shinjuku
Tweet Italian-inspired Ramen

Setting itself apart from the ramen crowd, ‘Taiyou no Tomato men’ serves
up visually distinct bowls of tomato-based ramen at its many locations
around Japan – as many as 21 stores, since launching in Kinshicho back
in 2006.

The signature offering here is the Tomato Cheese Ramen (¥830 ex. tax) –
which serves up their tomato soup-based ramen bowl topped with masses of
powdered cheese and some basil. It comes recommended as part of a set
including crispy cheese gyoza and ‘Chibi-riso’ – the latter a small
serving of rice that serves as a way to finish any remaining soup, by
creating a mini risotto (‘Ra-riso’) at the end. Neat!

The main tomato soup combines a rich, tomato sauce with a low-fat
chicken (paitan) soup – which also explains the numerous chicken ramen
options dotted around the menu e.g. Cheese Chicken Ramen and Camembert
Cheese Paitan Noodles. The latter is an exclusive bowl to the Shinjuku
Toho branch visited, along with Gorgonzola cheese fondue-style tomato
noodles and Camembert Neapolitan style cheese tomato noodles.

=> Reminiscing the Climb up Mount Fuji
Tweet Up and down the mountain in 13 hours

For next summer why not plan a trip to climb Mount Fuji? Ever since I
first set foot on Japan soil, I have always wanted to climb the
legendary mountain. The most popular period for people to hike up is
from July to the end of August, when the official climbing season ends
and local support of people on the trails and mountain facilities end.

Located just outside of Tokyo, Japan’s highest mountain peak is 3,775.63
meters above sea level. Yes, there is a sign that gives a more detailed
height instead of the 3776 meters that we all learn about! An active
strato-volcano that last erupted in 1708, Mount Fuji straddles the
boundary of Shizuoka and Yamanashi prefectures. It has an exceptionally
symmetrical cone, which is snow-capped several months a year, and of
course is a well-known symbol of Japan, frequently depicted in art and
photographs, as well as being visited by sightseers and climbers like me.

Since I wasn’t that fit before the climb, I took the most popular (and
maybe easiest) route. After a full dinner, I took the last bus from
Kawaguchiko station and reached Fuji Subaru Line 5th Station (start of
Yoshida Trail) at about 9pm. There were many signs along the trail, and
the hike was not technically difficult. A strong headlight is
recommended as it was almost pitch black at the lower stations where
hikers are more spread out. From the eighth station, many hikers from
the various paths converged and at times we had to wait, as the trail
was jammed with people. It got colder and colder as I ascended, and I
piled on more and more shirts. Somehow I managed to survive with 4
shirts and 1 jacket.



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