Two Things To Accomplish at 500 Japan, Part 2

Available In: English

Note: This was originally written for a Japanese reader, to be published in Japanese. Other readers may lack some context. Japanese version is here.


In my last post
I talked about cross-border M&A as one of the things we would like to accomplish at 500 Japan. In this post I’ll talk about the other: help build a “truly global” company from the land of the rising sun.

“Truly global” is ambiguous, so we should be clear about what it means. First of all, it does not mean a company that primarily speaks English. Although that certainly helps. It is about the percentage of sales or users that are outside Japan. I’m not sure what is the right percentage. Both Google (now Alphabet) and Facebook make more than 50% of their revenue outside of the United States, and are undoubtedly truly global companies. But that bar is perhaps too high. A more reasonable target may be more like 30%.

When we say “truly global,” we are also talking about size. Hardly anyone would argue that Toyota, Sony, or Panasonic are not truly global. What they all have in common is scale. Simply having 30% of your revenue coming from outside Japan is not enough to say that you are truly global if you are not creating enough value to be noticeable. These three companies not only have more than 30% of revenue coming from outside Japan, but they also have market caps of over $20B. Japanese startups should aspire to reach that level. But for the “truly global” definition, I think a “unicorn” threshold of $1B is a good start.

Truly Global Company: A company that is valued at $1B or more that has at least 30% of their revenue or users outside Japan (This is strictly how we define it. Opinions may vary).

Truly global companies have not been built from Japan in a long time. Toyota, Sony, and Panasonic all fit this criteria, but they represent a golden age. While that era seems long forgotten, there is no reason to believe that companies of that magnitude cannot be built again. There are examples like Mercari and Cyberdyne that are well on their way. But what has to change are local ambitions, and a new understanding of what it takes to actually go global.

It takes money. Venturing into a new market is ridiculously capital intensive, and in an age when companies now scale to billions in less than 10 years, speed is the name of the game. That is why companies like Uber and Airbnb raise billions at breakneck speed to do it. But with only about $1.2B invested into local startups every year, startups in Japan are fundamentally undercapitalized. How can they possibly compete at a global scale?
funds available english

While the number of funding options have recently increased in Japan, growth capital is still insignificant. That is why we joke that the Japanese IPO is the Series B. Historically, if you wanted to raise more than $20m, you essentially had to resort to the public markets. Companies like Mercari, Soracom, Smartnews, and Bizreach have all recently raised $20m+ rounds, signaling that the environment is shifting. However, like M&A in Japan, the pace of change is not fast enough.

To speed things up, we want to serve as a bridge to foreign capital. The venture capital business = the relationship business. With the 500 network, we have relationships with funding partners from all over the world. We hope to leverage these channels to help our companies raise the capital they need to compete globally.

follow_on_fundingAnd if at some point, we can get a top-tier firm like Sequoia, Founders Fund or Andreessen Horowitz to invest in one of our companies, we believe that that news could bring more attention to Japan. More attention often leads to more capital. That is one of the reasons we invited Geoff from Founders Fund to visit in May. Although it is too early to say whether they will invest, if we can lay the groundwork to make that happen, that signal could put Japan on people’s radars again.

geoff_lunch_tokyo

Introducing Founders Fund’s Geoff Lewis to local entrepreneurs (from left to right: Molcure’s Yoichiro Hara, Axelspace’s Yuya Nakamura, AgIC’s Shinya Shimizu, 500’s Yohei Sawayama, Founders Fund’s Geoff Lewis, 500’s James Riney)

Money is obviously not the only ingredient to success when expanding abroad. You also need to have a local network. Not only knowing who is who, but also having warm introductions to the who’s who of the market is critical to getting anything done. Whether it is getting connected to business partners, learning about the market, or hiring the best people, your network matters. Our team of 120+ people live all over the world, and have invested in about 1,500 companies across more than 50 countries. So no matter where you plan to expand, we have someone somewhere that can give you a running start.

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This article on going global would not be complete without at least touching on the topic of English. Whether it is fair or not, English is the lingua franca of the business world. And the reality is that Japan consistently ranks towards the bottom in English proficiency in Asia. This is undeniably a handicap for companies wanting to “go global.” Unfortunately there is not much we can do about this — we’re not English teachers.

That said, we think Japan has a grossly underutilized asset called “soft power.” There are many people that love Japan and want to live here. In fact, there are some that would work for half the salary they would get in Silicon Valley. Japanese startups should use this to their advantage. If you’re serious about building a global company, then tap into the global talent pool. Our reach and brand can help you get the word out that you’re hiring.


We sometimes hear from local entrepreneurs that the Japanese market is “big enough,” and that they have no ambition to expand abroad. We agree that Japan is big enough to build domestically focused companies of meaningful size, and we have no qualms about investing in entrepreneurs with no global ambition. However, we also encourage entrepreneurs to think bigger and be bolder. There was a time when Japanese companies were the juggernauts of the global economy. It obviously can be done. So when you decide that you want to defy the odds and build a “truly global” company, give us a call.

 

Thanks to David Corbin and Tim Romero for reviewing my draft

 

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  • Ansel Simpson

    The continued study of English or better stated ‘the ability to utter English words’ beyond university has not yielded results.

    As William Saito stated, “The language of the world is not English, it’s broken English.” I’m from So. Cal., and he’s right. The solution is to develop cultural fluency which includes improving listening and thinking skills within a specific communication objective. This can be accomplished without leaving Japan.