Why Launch 500 Startups Japan? Timing, Opportunity, and Impact
When I moved from startup CEO to venture capitalist, it was a strange feeling. I was no longer in the driver’s seat. I was operating a gas station, filling up the tanks of promising startups for the entrepreneurial roads ahead. It took some time to get used to not being in control, and not feeling directly “responsible” for the outcomes of the companies I funded. Filling up the gas tank was the easy part (easy in terms of level of stress, not probability of success). The hard part was navigating the winding, slippery roads in terrifyingly thick fog and avocado-sized hail.
But with that stress came excitement. That sense of fulfillment you get from building something from ground zero. You get that reassuring feeling that the culmination of the tiny things you do every single day can eventually make a significant impact. That one day you can look back, and the change you envisioned will be real. That… that right there… you made an important contribution to making that happen.
So during my hiatus from entrepreneurship, I thought about what I wanted to do next. People asked me whether I would ever start a company again. “I’m not sure yet,” I said. “Maybe.”
It took many long walks, discussions with friends, and episodes of deep thought before coming to a realization. Whatever we decide to do, we should always chose something that will maximize our impact. Impact is the sum of all of our contributions to this world. And with more impact, comes more fulfillment.
Launching 500 Startups in Japan has the potential to have the greatest impact the Japanese venture world has ever seen.
For most foreign investors, Japan is a black box. And that’s a good thing, because there is so much opportunity here for those that understand it. The common perceptions of Japan are that it:
- is a risk averse society
- lacks capital for entrepreneurs; and
- has a closed corporate culture
In many ways, all of these things are true. But things are beginning to change, and I want to explain to you how.
First of all, to recognize the signals of change, we first have to understand why things came to be the way they are. And to do that, we have to go back to Japan’s heyday. The 1980s.
What a typical job fair in Japan looks like: hundreds of hopeful students lining up for a stable corporate job.
Thirty years ago, the rational path for smart, young Japanese was to join a big company. Because regardless of whether you did your job well, you would essentially be guaranteed a job for life with regular promotions and pay increases as you got older. Joining a big company was all reward and no risk.
But that was decades ago, and a lot has changed since then. People that were born in the late eighties and early nineties never saw the bubble era, when these large corporates were at their peaks. They grew up in the “lost decade.” Some would argue the “lost two decades.” Today, they are coming into the workforce at a time when the big “stable” companies are issuing massive layoffs.
Big companies no longer offer the stability they once did. So the risk-reward ratio no longer makes sense for today’s smart, young Japanese. To add to this, Japanese engineers don’t get paid anything close to Silicon Valley levels. So if you are a smart Japanese engineer, the potential upside of starting or joining a startup far exceeds that of joining a big company.
The perceptions surrounding the entrepreneurial path have also begun to change. Not only have these young people never experienced an era of ultimate stability in large corporates, but they’ve also grown up in a world of massive and rapid wealth creation through entrepreneurship. The Facebooks, the Ubers, and the Airbnbs of the world have created an unprecedented number of young millionaires — not the traditional companies that their parents encouraged them to join.
To give you a sense of how significant this change has been, look at a comparison of 2008 vs 2014. The University of Tokyo and Kyoto University, two of the best universities in Japan, saw an increase of 57% and 31%, respectively, in the number of “dorm room startups,” or startups that were born by university students. These are the universities that manufacture talent for the highly coveted jobs in government, banking, and big corporates. In the same time frame, the number of public companies started at universities nearly doubled.
Times are changing, but what hasn’t changed very much is the lack of seed capital for these entrepreneurs to get their ideas off the ground. Unlike in the US, or China, or many other places where your dentist might write you a check for your dinky startup, the concept of angel investing is still very nascent in Japan. To give you perspective, the difference is about $167m in Japan vs $24b in the US. For crowdfunding, the difference is even more significant. In Japan it is a meagre $10m vs a whopping $2.7b in the US.
Even venture investment in Japan is comparatively insignificant. It is about $961m, compared to $48b in the US — a difference of 50x. So if you do some quick math, there is about $1.2b available for entrepreneurs in Japan, vs $75b in the US. $1.2b is less than Andreessen Horowitz’s fourth fund. For the third largest economy in the world, that disparity is way too big.
Here is where 500 Startups can make an impact. We will be the most well-known seed-stage Silicon Valley VC to actively invest in Japan. No other local seed investor will have as far a global reach, with as deep an understanding of the local market. With our investment, Japanese startups will no longer be stuck in a black box. They get a globally recognizable brand, Silicon Valley expertise, and a network to help them compete on a global scale. We open up doors to abroad for investment and M&A never before seen in the local startup ecosystem.
To me, that is impact. If there is one thing we can do for Japan, it is to make a material impact on entrepreneurship and innovation. We hope to increase the size of this $1.2b pie. Let’s make it $5b, $10b, and beyond, so that Japanese startups can finally compete on a global scale. That is why we are doing this, and that is our mission for 500 Startups Japan.