Why LINE’s IPO Is GREAT for Japan’s Ecosystem

About a week ago, Peter Rothenberg of Tech In Asia wrote an article titled “Why LINE’s IPO won’t be good for Japan’s ecosystem.” His argument was that since LINE was technically just a spinout from Korea’s Naver, and none of the Japanese employees had much equity, there were no local founders, investors, or even employees that would greatly benefit from a financial windfall. As a result,  there wouldn’t be new angels to invest and serve as role models for local entrepreneurs. While Peter is basically right about the money, I don’t agree with his general claim that LINE’s IPO “won’t be good” for Japan’s ecosystem overall.

First of all, LINE was never a startup to begin with, so while more equity compensation may have spawned more angel investors, I don’t think it would have created role models for Japanese entrepreneurs. LINE CEO Takeshi Idezawa and former CEO Akira Morikawa are both terrific mentors, for sure, but they are not entrepreneurs. Still, their shares are worth about $4 million and $2 million respectively, and that doesn’t even include their cash compensation. So yeah, that may not be Silicon Valley money, but that’s enough to make angel investments! Morikawa-san in particular has already been making angel investments since he left his post at LINE. He is also a mentor for our founders at 500 Startups Japan.

More importantly, LINE raised over a $1 billion, meaning that they now have a mountain of cash in their corporate coffers —cash that they’ve specifically earmarked for strategic investments and acquisitions in their prospectus. They recognize that the messaging wars are over. Competing with the likes of Facebook Messenger and WhatsApp is a hopeless effort, and now they need to focus on their core markets: Japan, Thailand, and Taiwan. To grow further in these markets, they’ll be looking for services that complement their messaging app.

So what this IPO means is that there is now another big M&A player in Japan’s startup ecosystem, which is exactly what Japan needs. As I’ve written many times before, in order to kickstart the startup ecosystem, we need more exits here. Because more exits lead to better returns, and better returns lead to more entrepreneurs and investors to back them.

 

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  • James, does 500 Startups Japan keep a list of interesting Japan exits? I’m sure you track closely your own portfolio, but I wonder if a wider list might help in monitoring Japan’s progress or lack thereof? Is that kind of list easily available somewhere?

    • jamesriney

      I’m not sure whether there is a comprehensive list yet. That would be interesting to see.

      To be clear, “exits” also include IPO. Since the bar to go public is much lower in Japan, that list would be much longer than if it just included M&A.