Sometimes local entrepreneurs assume that since we are a venture capital firm based out of Silicon Valley, we are primarily interested in Japanese companies that want to “go global.” That thinking is understandable. Our strengths are within our global brand and network, so of course we would want to focus on where we can add the most value. However, that is really only half of our story. We certainly want to support entrepreneurs with global aspirations, but we actually like both sides of the spectrum: inherently global AND inherently local businesses.
Inherently global companies are the ones that many would assume we consider. They may have some strong technological innovation or product that may sell just fine in Japan, but should address a global audience to get to scale. One example of this is our early investment in WHILL, the smart wheelchair company. Or a company that exports something core to Japan, like “otaku culture” in the case of our investment in Tokyo Otaku Mode.
The not-so-obvious companies that we consider are the inherently local ones. The ones that are overcoming cultural and regulatory barriers that are very specific to Japan. For example, with our investment in Spacee, the “Airbnb for meeting rooms,” we thought about entry barriers. If a foreign player with much more funding entered Japan, would Spacee win? We think yes, because getting local, generally conservative owners of office space to rent out their meeting rooms on the internet requires a deep understanding of cultural nuances and sales ability. Plus, once they’re on, switching costs and network effects create added defensibility.
Regulation is also inherently local, and highly regulated industries like financial services, agriculture, or healthcare offer some of the greatest opportunities for defensibility. While at a high level companies in these spaces may be solving universal problems like payments, crop yield, or diagnostics, at a granular level they are also overcoming the hundreds of local regulatory hurdles as well.
We like inherently local businesses because they’re defensible. It is much less likely for a foreign equivalent from Silicon Valley with hundreds of millions in funding to come and squash you. The side effect of this is that when the big players do start to think about entering your market, they will calculate whether it is cheaper to compete with you or acquire you. Because local businesses are so defensible, they are therefore more acquirable.
So we tend to like both inherently global and inherently local for different reasons. For the former, we can help them expand abroad, and for the latter, they are more likely to fend off competition from foreign players. Moreover, in some cases, we can connect our inherently local founders to foreign players to help them to a happy exit. Or at the very least, provide case studies from similar businesses that we’ve seen around the world.