Right now, there is a hiatus in mainstream software innovation. Many Silicon Valley thought leaders, from Elad Gil to Benedict Evans, have written about this over the past year. Japan is experiencing much of the same. The common theme at many of the conferences in Japan, whether it is B Dash Camp or Infinity Ventures Summit, is “what is the next big thing?”
Mobile was the last wave of innovation. That technology cycle brought the rise of Japanese gaming giants like GREE, DeNA, and Mixi, as well as other unicorns like Mercari and Line. We are still riding that wave, but we are on the tail-end. Mobile video, particularly when coupled with commerce, seems to be where the action is these days. Venture money is pouring in. The former CEO of Line must have saw this coming, as he started early, and has gone on to raise over $50m for his fashion & beauty video venture C Channel.
Other pockets of opportunities still exist, but most in the industry seem to feel that they are few and far between. I do too, at least on the consumer side. The opportunities on the consumer side in Japan are among the legacy industries such as healthcare and financial services. These are untapped opportunities that are still ripe for disruption. While they are highly regulated and take time to build in, in return, they are enormous. The incumbents move slowly, or lack a firm grasp of the latest technologies, or both. Not to mention that once you capture those markets, the moats are wide and deep.
Up until recently, there haven’t been many formidable players tackling these markets. As I wrote on TechCrunch recently, now there are stronger, more experienced teams forming and raising significant capital to eat away at financial services. Kyash, doing mobile P2P payments, and FOLIO, providing thematic investing to the masses are two examples. Something similar is happening in healthcare, where Medley, the current leader, has paved the way.
In Japan, what feels different right now is the caliber of founders that are starting up. We are seeing more and more founders giving up cushy, stable careers at firms like Mckinsey or Sony to venture out. Anecdotally, I remember when I left J.P. Morgan to start my company, many of my Japanese colleagues looked at me like I was crazy (my American friends, on the other hand, were more like, “hell yeah! Go change the world!”). Fast-forward to now, and many of them are starting up, joining a startup, or reaching out for advice on how to do either. Times have changed.
One reason this shift is significant is because when it comes to these traditional industries, experience goes a long way. Having at least some experience in the industries you are tackling arms you with a deep understanding of the intricacies in that market, credibility with customers and investors, and most of all, a strong network to tap into for sales and hiring. One great example of this is our portfolio company, Circle-In, founded by two alumni from the large Japanese trading house, Mitsui & Co. These “shosha-man,” as they’re called in Japan, are at the pinnacle of life-long stability in risk-averse Japan. But they threw that all away, and are now building SaaS for shipping forwarders that currently rely on paper and faxes for tracking and coordination.
The startup opportunities in Japan are among the traditional industries. Not only has the “software is eating the world” trend not quite made it to many industries here, but there hasn’t been strong competition from startups to revitalize these industries. As this shift continues, we expect to invest aggressively in these areas. Because at the moment, that’s where the ocean still shines blue.