Current trends among startups and how they keep momentum

Current trends among startups and how they keep momentum in Japan

Yusuke AsakuraVisiting Scholar at Stanford UniversityFormer-CEO of mixi, Inc.

[email protected]

2015/4/7

Entrepreneurship in Asian High-Tech Industries

1

Self introduction

How startups keep momentum

Startup trends in Japan

2

Self introduction



3

How startups keep momentum after IPO in Japan

Overview of mixi Inc.

4

• Founded in1999 originally as online recruitment information media provider for Web engineers.

• Social networking service “mixi” launched in 2004.

• Main features were such as diary, community and photo sharing.

• Listed on the Tokyo Stock Exchange in 2006

• Became dominant social media platform in Japan

Market cap of mixi in the first 5 years after IPO

0

1,000

2,000

3,000

Q2Q1Q2 Q3 Q4Q1 Q4 Q2Q1Q3Q2Q4 Q1Q3Q4Q3Q2Q1Q4Q3

Market cap(USD million; USD 1 = JPY 100)

FY2006 FY2007

IPO4

FY2008 FY2009 FY2010 FY2011

NT acquiredby mixi

Sales of mixi from FY 2011 to the time I became the CEO

Became CEO

Sales(USD million; USD 1 = JPY 100)

2418

2127

313335

3834

3130

58

0

10

20

30

40

50

60

Q3 Q4Q4Q3Q2 Q2Q1Q4Q1 Q3Q2Q1FY2011 FY2012 FY2013

Acquired bymixi 3

Problems mixi faced with

•Competitor

•Customer

•Company

Finding out essential value of the company

8

General Value

• mixi as Social Networking Service

Essential Value

• Capability of service

development

• Cash : USD 120M

• “mixi” brand

Basic strategy

9

• Improving the bottom line of existing

business

• Diversification through

• New business development

• External business acquisition

• Recreation of corporate culture

Set of actions and the essential issue tackled with

10

■Developing new businesspeti jete“User first week”Launch of innovation centerAlliance on game platformi-mercury capitalScrum VenturesDeploy GatenohanaMonster Strikemuuk

■Cost reductionTermination of part-time contractClosure of call centerClosure of US officeClosure of Shangai officeInternal relocationAssignment of business

■GovernanceRedefinition of missionCross-division weekly check-inEffect measurement of each productRegular internal surveySplit-up of mixi marketingManagement accountingHR rotation programPublic offering : $63M

■Acquisitionmixi researchKamadoYYCConfianzaMystery shopping business

Moving the company beyond

original business

Triggers to regrowth

11

• Blockbuster app

• Buyout of profitable services

• Assignment of underperforming business

Boosting top-line growth through business diversification

Became CEO

Sales(USD million; USD 1 = JPY 100)

58

2418

2127

313335

3834

3130

0

10

20

30

40

50

60

Q3 Q4Q4Q3Q2 Q2Q1Q4Q1 Q3Q2Q1FY2011 FY2012 FY2013

Acquired bymixi 3

Fiscal soundness and mega-hit app triggered regrowth

0

1,000

2,000

3,000

4,000

5,000

Q4 Q1Q2 Q2Q3Q1 Q4 Q1 Q4 Q2Q3 Q2 Q3 Q1

Market cap(USD million; USD 1 = JPY 100)

FY2011 FY2012 FY2013 FY2014

Became CEOAcquired bymixi 4

14

• Obligation to grow

• Brave new frontier

• Forget about current sales and profit margin

• There is NO synergy

• Accept cannibalism

• ‘Big Company Disease’ is preventable

Some lessons learned from the case

15

Self introduction



GDP of Japan in the last 20 years

16SOURCE: Cabinet office Government of Japan

Real GDP of Japan(JPY Trillion; 1994-2014)

0

100

200

300

400

500

600

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

+1%

Japan’s GDP doesn’t show significant growth in the last 20 years

17SOURCE: SPEEDA, International Monetary Fund (IMF)『World Economic Outlook Database』

Real GDP(USD Trillion; 1994-2014)

02468

1012141618

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

China

United States

Japan

5

16

0

CAGR(%)

Internet and Mobile sectors are key drivers of Japan’s economic growth

18SOURCE: GLOBIS CAPITAL PARTNERS, Ministry of Internal Affairs and Communications

Real GDP Growth(%; Compound Annual Growth Rate; 2005-2011)

-4.4-3.7

-1.6-1.2-0.4

0.40.60.9

7.6

13.5

-5

0

5

10

15

Retail

-1.0

Other IT

Electric machinery

Transport machinery

Mobile communication

SteelInternet services

Average

Transportation

Wholesale

Construction

IPO activity surged in 2014

19

Number of IPOs on TSE Mothers1 Quick Facts

44

32

24

12

64

13

22

4037

2013 201420122008 2009 2010 2011200720062005

1 Market of the high-growth and emerging stocksSOURCE: TSE, Nikkei, GLOBIS CAPITAL PARTNERS, NASDAQ, Bloomberg

• Median Market Cap at IPO on TSE Mothers is US 55 million in 2013

• 70% of newly public companies are internet-related business in 2014

Aggressive economic growth policy triggered cash inflow to VC funds

20SOURCE: Incubate Fund

501(19%)

1,158(45%)

922(36%) CVC

IndependentFinancial

13(35%)

6(16%)

18(49%)

Newly launched VC funds(2013-2014/10)

Size of raised funds(USD million)

Number of GPs

Financial support through government-backed investment funds

Organization for Small & Medium Enterprises and Regional Innovation;• has invested 580 million USD

in more than 90 funds since 1999

• invest in private VCs upto the half amount of fund size

The Innovation Network Corporation of Japan(INCJ);• Capitalized at 3billion USD• Invest in both of startups and VCs USD

2,581 million

Independent VCs are playing active roles in Japan’s startup ecosystem

21SOURCE: Incubate Fund

Venture capital business is becoming more profitable in terms of IPO

22

Average ratio of stock price at IPO to the value of stock at the last round before IPO*(Multiple)

* Please note the data may not be comprehensiveSOURCE: Japan Venture Research

4.584.77

2.30

1.552.04

6.26

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2.39

1.29

4.14

2.36

Volume of VC investment is surging

Volume of VC investment*(USD million; USD 1 = JPY 100)

1,154

729

557

759747768

1,1821,221

1,452

0

250

500

750

1,000

1,250

1,500

2011201020092008 20142012 201320072006

3* Please note the data may not be comprehensiveSOURCE: Japan Venture Research

More cash flow to VC leads to more sizable private finances


Sizable private finance cases in 2014*(USD; 2014; USD 1 = JPY 100)

Game83M

Commerce16M

Commerce12M

Commerce25M

C2C market38M

Utility14M

Chemical12M

News apps24M

Bio tech36M

Enterprise14M

Wheel chair12M

Cloudstorage24M

Commerce24M

News apps35M

Game14M

Commerce11M

Commerce18M

Bio tech30M

Enterprise13M

Bio tech10M

Fin-tech16M

Bio tech13M

Automotive10M

Bio tech26M

Internet service

More Japanese startups are going global

25

Mercari

Smart News

gumi

Metaps

Moi

Mobile C2C shopping app.Opened US office and launched US version in 2014.

Android monetization platform and credit card processing service.Focusing on Asian region.

News curation apps for smartphones and tablets.Opened US office and launched US version in 2014.Ranked #1 on App Store

Providing TwitCasting, realtime video broadcasting platform.Opened US office in 2013.

Social games provider for smartphone and feature phone.Subsidiary companies in 8 countries.Listed on TSE 1st in 2014.

SOURCE: TECH IN ASIA

Given the current GDP, the volume of acquisition deal in Japan is lower than expectation

26

Number of deals in 90sNumber of deals from 2000 to August of 2013 GDP

(USD billion; 2013)

12,411Germany

US

Japan

72,111

2,198

117,666

18,563

19,532 3,730

4,899

16,768

Japan X Japan X Japan X

32.8

5.6

1

6.3

1.1

1

3.4

0.8

1

SOURCE: Industrial Growth Platform, Inc.

Acquisition accelerating1

27

Announced Acquirer Target2 Service of target company

1 Picked up only notable cases. Not meant to be comprehensive2 Target name is based on service name. Not corporate name except Aratana.

Aggregate Value(USD million)

10/2014 MERY:Ladies fashion curation serviceiemo:Home-design curation service50

9/2014 Japan's largest lifehack media siteNA

10/2013 Rewarding app for customers who visit participating storesNA

9/2013 C2C market place for coaches and people who seeks lessons10

2/2015 18 Fashion-oriented VIP flash sales site

3/2015 116 Consumer-to-consumer ticket marketplace

3/2015 30 Social appE-Commerce solution

SOURCE: SPEEDA, Tech Crunch, TECH IN ASIA

• Strong demands for startup but not

enough supply

• Scarcity and immobility of talents

• More acquisitions needed

My observation about current startup environment in Japan

29

Appendix

Population)Japan has the 10th largest population in the world while aging society is going on

30

29 30 28 25 25 27 28 26 22 20 18 18 17 16 16 15 13 12

50 55 60 67 7276 79 83 86 87 86 84 81 79 77 73 71 68 63 58 54 50 47 44

79

11 12 15 18 22 26 29 32 34 36 3737

3739

3938

3635

899101111

124

2015

127

2013

127

1960

93

2030

483

1950

589

117

2060

87

1955

5

97

2050

92

2055

112

2035

107

2040

102

20452025

121

20201995

125

1990

123

1985

121

1980

117

1975

112

1970

104

1965

986

2010

127

2005

127

2000

127Under 14

Over 6515-64

SOURCE: The national census, National Institute of Population and Social Security Research

Actual Forecast

Population of Japan(million)

Internet penetration)More than 90% of people over 13-59 use internet

31

100.496.596.194.694.190.988.187.585.379.577.3

0

10

20

30

40

50

60

70

80

90

100

110

2003 20052006 2008200920102011201220132004 2007

Number of internet user in Japan(million)

SOURCE: Ministry of Internal Affairs and Communications

22.3

48.9

68.976.6

91.496.697.498.597.9

73.3

0

20

40

60

80

100

30-39

20-29

40-49

13-19

50-59

60-64

70-79

65-69

80-

Average82.8

6-12

Internet penetration rate by generation in Japan(%; 2013)

Smartphone)iPhone has become the most successful smartphone in Japan

32

Penetration rate of device in household(%)

SOURCE: Ministry of Internal Affairs and Communications, IDC Japan, MMD

0

25

50

75

100

2008 2009 2010 2011 2012 2013

PC

Tablet

Smartphone

Mobile

Domestic shipments of smartphone by vendor(%; 100%=5.2 million; 2014/7-2014/9)

Samsung

11%

4%

Other

9%Sony6%

Kyocera

64%Apple

6%

Sharp

Smartphone device survey(%; N=18,182; 2014)

Xperia

iPhone

15%

13%AQUOS

44%

12%DIGNO

ARROWS 7%

GALAXY 5% 2%

Other

2%

MEDIAS

Mobile contents)Japan’s mobile contents market shows strong growth

33

0

5,000

10,000

15,000

20,000

25,000

2011

19,061

2010

16,550

2009

15,206

2008

13,524

2007

9,681

6,465

10,085

7,345

11,716

8,510

14,997

4,835

8,689

5,525

2012

5,641

3,150

4,0747,329

3,666 4,272

23,507

11,601

2006

9,307

2005

7,224

+18%

Market size of mobile contents and commerce(million USD; 1USD = JPY100)

1 Calculated based on global digital goods market size and U.S. market share among global mobile contents marketSOURCE: Ministry of Internal Affairs and Communications, GLOBIS CAPITAL PARTNERS, Mobile Contents Forum, Deutsche Bank, ResearchMoz,

ITU - ICT Statistics

Mobile ContentsMobile Commerce

US mobile contents market is estimated to be 6.8 billion USD1

E-Commerce)B2C E-Commerce shows steady growth led by key players and smartphone penetration

34

111,660

95,13084,590

77,88066,960

60,890

0

20,000

40,000

60,000

80,000

100,000

120,000

2008

+13%

201220112010 20132009

Market size of B2C E-Commerce in Japan(million USD; 1USD = JPY100)


1.79 2.08 2.46 2.83 3.67

Share of E-Commercein Japan’s consumer Market (%)

3.11

Key E-Commerce companies

SNS 1/2)Line is the most commonly used service in Japan. Japanese users prefer to communicate anonymously

35

59.6

52.0

39.3

21.7

16.4

13.5

10.3

13.7

11.4

20.8

5.96.8

3.4

4.8

2.7

3.7

4.1

Facebook

Twitter

Line

4.4Twit Casting

Viber

5.2

5.0

Tumblr

Pinterest

Kakao talk

Instagram

5.3

mixi

5.2

Google+

Used previsouyUsing now

Survey on SNS/communication service(2014; N=562)

Survey on anonymous use of Twitter by country(2014)

75%

31%

19%

56%

60%

42%

55%

48%

36%

40%

32%

45%

13%

14%

539

France 278

UK 9%

US

13%

498

6%Japan

8%

402

Anonimity

Korea

100%

Real name

494Singapore

Both

569

SOURCE: MMD, Ministry of Internal Affairs and Communications

SNS 2/2)People in their 20s is the most active users

36

Mobage

mixi

Twitter

Facebook

LINE

GREE

14.4

8.6

22.3

39.6

70.5

14.4

Survey on web service use by generation(%; 2013)


16.6

57.0

80.3

34.1

22.9

47.1

65.4

19.2

16.4

16.4

42.0

13.3

11.8

13.9

9.8

12.5

20.3

42.6

2.7

3.9

7.0

3.5

15.2

22.3

1.0

0.7

1.7

3.0

5.0

4.3

10-19 20-29 30-39 40-49 50-59 60-

Example of Venture Capital Firms in JapanInvestment volume*(USD million; 2014)


8889910111113141415192224

3240

5669

113JAFCO

WiL

Doll Capital ManagementAtomico

Fidelity Growth Partners JapanNissay Capital

Nippon Venture CapitalSMBC Venture Capital

Globis Capital PartnersGlobal Brain

The University of Tokyo Edge Capital

Innovation Network Corporation of Japan

B Dash Ventures

Gree Ventures

Mitsubishi UFJ Capital

YJ CapitalRecruit Incubation Partners

Itochu Technology Ventures

Hiroshima Innovation Network

Mizuho Capital

Venture Capital Firms Type of VCFinancial

Independent CVC Foreign

Governmental Organization9

9999

99

99

99

99

999

99

Governmental Organization

Documents

Current trends among startups and how they keep momentum