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 Monday, Feb 25, 2019, Issue No. 981

– What’s New — How to Value Your Start-up Company in Japan
– News — Chinese invasion prediction from ex-military chief
– Corrections/Feedback
– Travel Picks — Naked Man Festival in Niigata, Flea Market in Oi Shinagawa
– News Credits


+++ How to Value Your Company in Japan

Entrepreneurs the world over all at some point have to contend with a
simple question: “What is my company worth?” In the US and other
developed economies, generally this is a pretty straight forward
question, answered by a plethora of valuation calculators (e.g., the
DCF and Berkus methods) as well as by funding websites like Crunchbase
and FounderSuite, which offer comparable deal details. But here in
Japan, where fundings and M&A valuations are usually kept secret, and
where smaller companies take longer to gain traction because of
cautious partners and suppliers, knowing what you are worth now and in
the near future can be tough to discover. So today’s Take is for
anyone based in Japan who is thinking of starting a new company, or
who is already operating a small business and wants to bring in
outside investors.

The three most common times any founder or shareholder thinks about
what their company’s worth is when: a) they are first getting started,
b) they are running out of capital, and c) they are selling the
business. Of course, as the seller of shares, you will be thinking
optimistically about your future numbers, especially given the
emotional reinforcement you get whenever you read the latest
rags-to-riches start-up exit chronicled in the media. On the opposite
side of the fence are two other audiences: firstly, potential
investors who are also generally optimistic about your business, or
they wouldn’t be talking to you, and secondly the pessimists who want
to hold you back or knock you down.

The pessimists here in Japan typically tend to be accountants, banks
you are trying to lend money from, big suppliers you want better terms
from, and partners who want to buy your firm cheaply – in other words,
some of the biggest “stakeholders” in your business. Generally, none
of these people could imagine paying future value for your business
when they are so used to picking up bargains calculated solely on a
historical basis. The idea that a company can be front-loaded and
built for a hockey stick yield over 5-10 years is alien to them and
indeed is the antithesis of the incremental development business model
that has been espoused in Japan for generations. However, thanks to
Softbank’s Son, 500 Startups Japan, and other visionaries, this
mindset is now breaking down. If you are getting a company started
here, remember that you’re in a country which is famous as the home of
risk aversion, and therefore you need to ignore the pessimists and
seek out a better audience – it does exist and may only be as far away
as some of your close friends and acquaintances.

[Article continues below…]

——- International MICE Expo Japan (IME2019) ——-

In 2018, 31 million visitors came to Japan, over 3,000 international
conferences were held here, and the Rugby World Cup and the Olympic
and Paralympic Games are just around the corner.

Holding an event in Japan is not difficult any more, as many new
meeting facilities and hotels open one after the other. Working with
the right partners is now the key to success in organizing a MICE in
Japan. IME 2019 will be held on Thursday Feb 28 at Tokyo Int’l Forum
and will help you find your right partner.

Come and join as a buyer at IME 2019.

[…Article continues]

Right now, Japan is somewhere in between the pawn shop mentality of
the city banking crowd, and the giddy optimism of backers of companies
like Uber (losing US$200m per month but still worth between
US$76bn~US$120bn). This means that we are finally seeing some
companies with US-style valuations and business plans emerging, but
they are still few and far between. Perhaps the best recent example
was, which was acquired by KDDI for about JPY20bn (approx.
US$180m) late 2017. Soracom launched right out of the gate in 2015
with a JPY650m Series A funding round, then just a year later it did
two more rounds in quick succession to bring the funding total to a
very respectable JPY35bn. To our knowledge, Soracom was not profitable
when it was sold, but it certainly did represent a huge opportunity in
a space that KDDI had tried many times to fill. Kudos to KDDI for
understanding that and ignoring the bean counters.

But most start-ups are not Soracom, and so here are some guidelines
for the rest of us.

It’s important to preface this guide by remembering that these numbers
are for companies with in-built leverage. In other words, if you are
running a stock-standard accounting or IT firm with perhaps sales
increasing at 10% a year and with 10% profit margin (a respectable
number in Japan, where more than 70% of companies earn no profits at
all), then even though you are profitable your growth is not that
really interesting to venture investors. Instead you should be talking
to a bank – who will lend you 20% or more of your revenue at low
interest (3% p.a. or less).

If you want to excite venture investors, then you need the following
factors to build intrinsic value:
* Technology, licenses, brands, or processes that will vault you over
the competition and disrupt an otherwise boring industry
* New business in a new business sector (such as the early entrants to
the mobile phone business or crowd-based FX transfers)
* A stellar management team with a sprinkling of PhDs or previously
successful entrepreneurs as partners
* Good timing and a compelling value proposition to customers

None of the above businesses need to be purely technology-based,
although obviously technology is the big point of leverage these days.
Indeed, the current trend is an increasing move towards investments in
the personal finance, medical, transport, food, retailing, sports, and
of course travel sectors. In fact, any sector big enough in Japan to
provide you with JPY10bn of business by taking 1% market share in 7-10
years will do. For example, in inbound travel, a 1% market share
equates to JPY40bn (US$360m) a year – the Japan market is huge.

So how to value your business in Japan? Firstly, you need to
understand how investors think about returns and what is normal in the
marketplace currently. There are two forms of successful exits that
investors look for:

1. Public Listing

As a rule of thumb in Japan, companies can go public when they hit
certain performance metrics and after doing compliance clean-up.
Typically in the technology sector, the metrics are revenues of
JPY1.5bn – JPY2.5bn, pre-tax profits of 20% or more, and at least 3
years of strong top line growth, with at least the last year being
profitable. Of course there are huge variations in this formula, but
if you look at typical IPOs on Mothers (Japan’s main start-up market)
most companies fit this profile.

Providing that you can hit these numbers and you’re good at telling
your corporate story, the current market will probably give you a
valuation of about 20x – 50x on your pre-tax profits, meaning that
your JPY500m of profit on JPY2.5bn of revenues will lift your IPO
valuation to around JPY10bn – JPY25bn. So now we have some end-game
numbers that investors want to see.

Although there are no rules about what returns for start-up investors
should be, in Japan most investors expect something like the

a) Early stage investor – 30 – 50 times return. Expected exit is 7-10
years. High risk: company will be in formative stages and not
b) Mid stage investor – 10 – 20 times return. Expected exit is 3-5
years. Mid-level risk: company may have just become profitable, but is
still growing significantly.
c) Late stage investor – 3 – 5 times return. Expected exit is less
than 3 years. Low risk: company is seeking funds for existing business
lines, to increase capacity.

So now you can see that depending on which part of your company life
cycle you are taking on investors at, you can get some idea of what
valuations you can ask for and which would be defensible. In our
scenario of an early-stage business planning to do JPY2.5bn revenue
and JPY500m pre-tax profit prior to a Mothers listing, an early-stage
investor would want a 30x return once your business lists for JPY10bn
– meaning that you could ask them for a valuation of up to JPY300m. Of
course, there are many real world considerations that modify these
numbers, and in the end it’s all about how the investor views you and
your company, and the quality of your vision and story.

2. Private Trade Sale

The other form of successful exit is when you sell the company
privately, usually to a larger player who recognizes the excellence of
your product/team/technology and who wants to bring in those assets to
catalyze its own much larger business. Usually these buyers will price
the business according to one of the following:

a) Conservative estimate of future cash flow based on historical
performance. If you have been growing the bottom line by 15% a year
for the last 12-18 months, then the buyer will probably be willing to
pay for 3 – 5 years of similar growth – meaning about 2 – 3 times
your last fiscal year’s profit. Add English-speaking staff and exports
to your business, and you can probably double your buy-out to 4 times
– 6 times last year’s pre-tax earnings.
b) Replacement cost for your technology or systems, whereby you are
saving the buyer several hundred million yen at their cost levels to
replicate what you have produced. This approach is of course not
percentage based, and so could represent a massive multiplier on your
capital if you’re selling while still small.
c) Revenue impact – where the injection of your intellectual property
(and team and customers) will be far more valuable inside a larger
company, because they have the business network and capital to put
your assets to work properly.

This third scenario is the most common reason for Japanese large
companies buying out smaller ones. How to get such buyers to a
valuation is usually achieved by the two companies working together
for a while, and for the bigger one to realize the value of the
assets. With the right internal champion on the buyer side, and with
some judicious assumptions to help you guess the beneficial impact
your firm is having on the buyer’s business, you can get a pretty
decent price for your company – as Soracom did with KDDI. What are
these assumptions?
* For most Japanese companies 80% of their costs are personnel costs,
and thanks to the uniformity of the job market, you can pretty much
guesstimate how much money you can save them in terms of head count
* Alternatively, you can calculate how much your product or service
can magnify the buyer’s existing personnel performance without
increasing core costs (other than your company’s buy-out of course –
and which anyway goes on the Balance Sheet not the Profit & Loss)

From past deals we have seen, a trade sale to a strategic partner can
yield the seller between 10 times – 50 times their pre-tax profits.
This means that the net result is not that much different from a stock
listing, but it is way easier and the founders and other shareholders
get their money at the start, not dribbled out over years as is the
case with a listed company (where of course the shareholders would
panic if the founders suddenly sold all their shares).

Valuations of technology companies in the USA are far above what is
possible in Japan. Generally speaking we see valuations in Japan of
about 20%-30% of those being made for companies at the same level in
the USA. While this may sound bad, and certainly it hobbles companies
from ramping up as quickly as their transpacific counterparts, the
cost of skilled people in Japan is significantly cheaper and sometimes
forcing a company to walk before it can run is a good thing. It does
nonetheless explain why there is a recent trend for Japanese start-ups
looking for better valuations to move to the USA either by themselves
or under some incubator such as 500 Startups. The recently sold
translation company, (sold to Lionbridge in January this
year), followed this route and did so very successfully.

We found the following table in Forbes from last year, and have
compared it to similar stage companies here in Japan.

1. USA Valuations

Pre-seed: raising $200K – $500K at a valuation of $1M – $3M
Seed: raising $500K – $2.5M at a valuation of $2M – $6M (revenues
expected by investors are $0 – $50K per month)
Series A: raising $3- $12M at a valuation of $10M – $40M (revenues
expected by investors are $100K – $250K per month)
Series B: raising $10M – $25M at a valuation of $30 – $100M (revenues
expected by investors are $350K – $800K per month)
Series C: raising over $20M at valuations of over $100M (revenues
expected by investors are over $1M per month) [The original Forbes article.]

2. Japanese Valuations

Pre-seed: raising JPY2m – JPY5m (US$18K – US$45K) at a valuation of
JPY10m – JPY30m (US$110K – US$330K)
Seed: raising JPY10m – JPY50m at a valuation of JPY50m – JPY300m
(revenues expected by investors are JPY0m – JPY5m per month)
Series A: raising JPY80m – JPY300m at a valuation of JPY500m –
JPY1.5bn (revenues expected by investors are JPY10m – JPY30m per
Series B: raising JPY500m – JPY2bn at a valuation of JPY2bn – JPY5bn
(revenues expected by investors are JPY30m – JPY150m per month) [Ed:
Companies usually list after this round.]
Series C: Few Japanese companies remaining at this level, and those
who are, are getting similar valuations to the USA.

Lastly, a question that we get asked a lot by new entrepreneurs is how
to get the capital of the company up to a sufficient level that allows
them to sell shares without threatening control of the business. This
question is understandable because most start-ups in Japan are funded
purely with cash (or unpaid salaries) from the founders, and generally
this first stage of funding is small – in the region of JPY1m –

So how do you increase the capital of your business to, say, JPY100m,
so that you can sell 10% of it to an investor and get some serious
money in to fund the growth of your company? The simple fact is that
you don’t have to increase your capital. Instead, you take 10% of the
shares you already have and construct a business plan that indicates
even though the shares at face value are only worth JPY10m (say,
JPY1,000 x 10,000 shares, the business plan shows that these shares
will be worth much more in 5-10 years time, and so they can reasonably
be sold at a premium. That premium explains the difference between
actual paid in capital and the price you now want for them. This idea
that people will pay more than the paid in capital value for shares is
difficult for many Japanese start-up entrepreneurs to understand. It
looks like you’re making money out of thin air and surely a JPY1,000
share is only worth JPY1,000?

No, what we need to remember is that you are no longer selling
JPY1,000 shares, but rather 10% of your company’s future. It’s your
job to look for investors who understand that valuation proposition,
the risks involved, and who can make their own judgements on whether
you can really hit those future targets. On your side, you should be
willing to “open the kimono” to allow them to evaluate your leveraging
factors, such as your own track record and credibility, your team, the
heating up of your marketplace, your competitors, and the quality of
your business plan.

Once the first investor is in at that premium price, following
investors will feel much more comfortable with the new pricing floor.
Then you are on your way.

…The information janitors/


—— German-speaking Travel Consultant Internship ——-

Japan Travel KK ( is experiencing strong growth of
its German desk for inbound travelers to Japan, and we are looking for
a German-English speaking intern to join the team, with a view of
transitioning to a full-time position and work visa in Japan. The
internship will be for a minimum 3 months and a maximum of 6 months,
after which there will be a management and peer review. You can be
either a student who needs to do an internship to meet academic course
requirements, or you can be a person in the workforce thinking to
reset your life and location. Apart from German you should be able to
speak basic English and/or Japanese (either is OK).

The type of work you’ll be doing is assisting German customers wanting
to plan trips to Japan. This would include the following:
* Responding to incoming leads and conversing (usually email/chat)
with customers
* Researching accommodation, transport, activities, diet
preferences/availability, entertainment, guides, and other things that
travelers require
* Using our quotation and itinerary systems to produce the customer materials
* Interacting with customers and consulting them on choices and areas of concern
* Translation of content about destinations
* Writing original content (articles) about destinations and activities
* Assisting us with German social media

For more details:

+++ NEWS

– Mitsubishi-UFJ Group gets knuckles rapped
– India’s OYO comes to Japan
– Recruit is Japan’s largest internet content player
– Chinese invasion prediction from ex-military chief
– Delivery robots likely to be first self-driving vehicles

=> Mitsubishi-UFJ Group gets knuckles rapped

By virtue of the fact that it owns a bank in the USA, Japan’s largest
commercial bank, Mitsubishi-UFJ, has had its knuckles rapped by the
U.S. federal banking regulator over defective internal money
laundering systems and violations of international sanctions. This is
the latest in an ongoing series of warnings that the bank has received
and which it doesn’t seem to be able to resolve. The problem seems to
be with the bank’s international operations, where one employee said
the anti-money laundering program was like “a dumpster fire.” So far,
in the last 5 years MUFG has been fined more than US$565m for firstly
doing business illegally with North Korea, then later with Iran and
Myanmar. ***Ed: Bank compliance is hard to do at the best of times,
and this coupled with the bank’s penchant of doing business wherever
its large Japanese trading house customers are found, means that they
are often outliers when it comes to observing US-led sanctions.**
(Source: TT commentary from, Feb 22, 2019)

=> India’s OYO comes to Japan

The Indian rental housing company OYO is about to launch its wildly
popular share house and hotel rooms business in Japan, as part of a
tie-up with Yahoo Japan. The new entity, to be named OYO Life, will
build and rent upmarket facilities targeting young people who don’t
have the savings or the will to buy their own place, but who have
disposable monthly income and who want a comfortable life. OYO says
that they will go full speed into the Japanese JPY12trn rental
property market. Their service will offer renters a quality
environment without the need for deposits, spending on appliances, or
even on furniture [Ed: Wonder if this includes a house cat?]. OYO will
also manage properties for existing home owners, providing a one-stop
simplified service to get and manage tenants. ***Ed: It will be
interesting to see if through its service standardization OYO can
influence the rental market away from deposits and race
discrimination. If they become big enough, we may be witnessing the
birth of a genuine rental revolution. Certainly other players will
pile in with even better offers if they are successful.** (Source: TT
commentary from, Feb 22, 2019)

=> Recruit is Japan’s largest internet content player

Very good article by Bloomberg, analyzing the business of Recruit
Holdings, which Bloomberg says is Japan’s largest internet content
company. The company operates 200 websites and 350 apps, making it a
daily content provider for most of Japan’s internet-using public. The
plethora of sites gives Recruit a market valuation of about JPY5.22trn
(as of Feb 25, 2019), 3 times the market cap of Yahoo! Japan and 4
times that of Rakuten. Recruit is internationally a quiet player but
in fact owns some major foreign brands, such as and Almost every month the company announces a new foreign
investment or acquisition funded from its JPY300bn war chest. ***Ed:
Especially interesting in the article is Recruit’s internal incubation
program, which allows staff to run with their own ideas, feeding
profits back into the main business. One such operation has been Study
Sapri, which got kicked off with 200 staff and JPY2bn in funding. The
business already has about 500,000 students paying JPY900 per month
for study materials.** (Source: TT commentary from,
Feb 23, 2019)

=> Chinese invasion prediction from ex-military chief

The Stars & Stripes is carrying an interesting story about retired
Japan Air Self-Defense Force Lt. Gen. Kunio Orita, who has
controversially predicted that the Chinese will invade and annex
Taiwan by 2025 then follow suit by trying the same strategy with
Okinawa by 2045. Orita apparently subscribes to the Asia-Pacific
island dominoes effect, whereby Japan should stand by Taiwan or else
become the next target after Taiwan disappears. Orita has laid out a
fairly credible process by which the Chinese would take over Taiwan,
saying that it would start with a no fly zone imposed on the island,
then baiting of the Taiwanese military, and finally a full naval
blockade. ***Ed: Interesting to see that not just Orita but also other
generals are also going on record that they think Okinawa’s anti-US
stance is being stoked by China.** (Source: TT commentary from, Feb 18, 2019)

=> Delivery robots likely to be first self-driving vehicles

While Uber and Waymo in the USA are focused on passenger transport by
self-driving cars, the Japanese see last mile package delivery as a
more relevant application of robotic vehicles. The Nikkei says that
both Japan Post and Yamato Holdings are testing driverless vehicles in
public spaces. Anticipating the significance of autonomous parcel
deliveries, the government is readying some new road safety guidelines
for release in March. These guidelines will move oversight/control of
roads being used by testers from local jurisdictions at present to
national jurisdiction in the future. This means that testers will be
able to avoid having to completely close down a public road while
their robotic vehicle is traveling on it. ***Ed: In other words,
bureaucratic intervention at a national level to remove bureaucratic
control at a local level. Ain’t bureaucracy great?** (Source: TT
commentary from, Feb 21, 2019)

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

———- sign-up opportunity ————

If you are a company owner, investor, biz dev person looking for
international market entry, or someone on the other side of the table,
you should be a member of International Deal Gateway (IDG – This free introduction-only investor/investee
business network is built by the same team that helped create the
global 12,690-member Entpreneur’s Organization (EO) and the global
27,000-strong Young President’s Organization (YPO). In just six
months, IDG has accepted almost 1,000 members and expects to be at
5,000 by the end of 2019. These numbers mean serious deal flow for
your fund and a qualified audience for your deals.

What’s different about IDG is that while the network is built on a
blockchain base, the actual participants are all proven business
people who already know each other and/or who are familiar with and
abide by the ethics promoted by both the EO and YPO. This means
members can have confidence putting up real deal information, and
while the secretariat quality-controls the participants. Personal
reputation and community visibility are cornerstones of the membership
acceptance process.

To apply to become a member, complete the application form at [IDG signup form – Referral Code: 37BDEC]. Your
application will be evaluated by a panel of founders and local (Japan)
members, and you will be advised of acceptance within 2 weeks.
Thereafter, you are free to register your interests, post deals, offer
services, and otherwise participate.

How does IDG make money? It is volunteer at the country level, with
currently no membership fees (this may change in the future). Actual
deals are free to look at and respond to, and if any are processed
they will attract a small service fee from the operators in Canada.
More details available.

For more information, visit: [IDG website.]



No upcoming events this week.


——— Japan Travel Corporate Travel Services ———-

Japan Travel’s Type-2 licensed travel agency business is one Japan’s
few independent foreign-owned inbound DMCs. One of our specialties is
looking after corporate groups of 10-300 people. To date we have
assisted in the successful holding of training events, incentive
travel, conferences, off-sites, and team bonding programs. We have
looked after the full gamut of services, such as: international air
travel, hotels, local travel, event logistics and venues,
entertainment, micro-management of dietary needs, and special needs

We are highly motivated and are happy to work in a variety of roles
tailored to suit your needs: as a full-fledged corporate travel agency
partner, as a logistics partner for a particular issue, or as a source
of innovative experiences and venues. Looking after hard-to-please
high-tech groups is our specialty!

For corporate travel assistance, contact us at:
Or visit our pages at:



=> No corrections or feedback this week.



=> Bishamondo Naked Man Festival, Urasa, Niigata
One of Japan’s most bizarre winter festivals

March 3rd each year sees the Naked Man Festival take place at Urasa’s
Bishamondo, in Niigata. It is known as one of the top three bizarre
festivals in Japan and dates back hundreds of years. Semi-naked men
parade through the streets leading to the local temple, accompanied by
people carrying giant candles. Once they arrive, they jump into an icy
pool of spring water. From there they dash into the main hall of the
temple where there is a steaming mob of other men all pushing and
shoving to try to squeeze through a small gap into the inner area. It
is a writhing mass of men, all chanting in unison, and lit by candles
in an all-wooden building on a winter night – quite an impressive
sight! The streets outside the temple are lined with stalls serving
food and drinks, with a BBQ fish in warm sake being a local favorite.
Venue: Bishamondo When: Mar 2nd – Mar 3rd 2019 , 6:00pm – 8:00pm.

=> Tokyo Shinagawa Shopping
Oi Keibajo Flea Market

On weekends, when Oi Keibajo, or Tokyo City Keiba, are not holding
horse races, they also hold flea markets. The large-scale markets are
held in the car park of the race course and the recommended time to
visit is from morning to early afternoon. The markets to not
specialize in anything in particular, meaning that you can discover
almost anything movable for sale there. Japanese antique shopping or
second-hand kimono shopping is probably one of the best market
activities, with the kimonos selling for only a fraction of what they
usually would in stores. There is also a food van/food stall area for
you to enjoy lunch after a hard morning of shopping. The flea market
typically starts at 8:30am and ends at 2:30pm. You can expect around
300 – 600 vendors, depending on the day. Entrance is free and the
event is only cancelled if there is heavy rain. It’s only a 3-minute
walk from Oi Keibajo-mae Station on the Tokyo Monorail, and 10-minute
walk from Tachiaigawa Station on the Keikyu Line.



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