“Why Are More Startups and Investors Looking Towards Japan?”

https://youtu.be/asUxD_5LSBo?t=8085

Speakers:

・ Justin Waldron

Co-founder & President, Playco

・ Mark Bivens

Managing Partner, Shizen Capital

・ Takayuki Nakajima

Country Leader and Head of Expansion Japan, Deel, Inc.

・ Shiho Watabe (moderator)

Startup ecosystem advisor to the Shibuya city government, SWAR Inc.

First, Watabe, who specializes in marketing strategies for startups, asked the speakers, “What are the challenges and opportunities unique to the startup industry in Japan?”

Mr. Waldron of Playco, a co-founder of a mobile gaming startup headquartered in Tokyo, said, “Like the gaming industry, the local industry is developing by combining decades of accumulated experience and knowledge with new waves of technology. I hope that bringing ideas and methods from different perspectives, coming from startup talents from overseas, will create more global companies in Japan.”

As a country manager of Deel, an employee management solution to leverage human resources beyond national borders, Mr. Nakajima said, “With the world’s third-largest GDP, fourth-largest trade volume, and eighth-largest working population, Japan is a huge market. So we can expect further growth if we can make it easier for people to work and do business across borders. In addition, the number of foreign workers has tripled in the past few decades, which has a deeper meaning than mitigating the declining population. Diversity in organizations is becoming the norm, with the younger generation of startups looking overseas for the best AI and blockchain talent that is in short supply locally.”

Mr. Bivens, who has invested in startups around the world and currently living in Tokyo as the Managing Partner of a venture capital firm Shizen Capital, said, “The startup industry in Japan today looks like where France was 15 years ago. It is still siloed and conservative. However, France also started from there and has become what it is today. Japan is facing macroeconomic challenges such as excessive government debt, an aging population, shortage of labor, and stagnation of large corporations before any other developed country. If Japan can solve these problems, it will have a chance to grow internationally.”

Below is a selection of noteworthy remarks from the speakers.

If anyone is going to thrive in the Web 3.0 era, it is Japan. (Web 3.0 is not new to Japan)

Justin: Web. 3.0 (an evolution of the current internet as a more decentralized and autonomous place) seems to be about the direct relationship with your customers and how much “deep” value you can provide to them. The fragmentation of businesses serving specific communities’ needs is empowered by the advance of the internet. But this is exactly how Japan has operated for years. With its dense population, Japan is economically forced to be extreme about how to serve specific customer needs.
This is why Japan offers a lot in the era of Web 3.0. NFTs (Non-Fungible Tokes) work like Japan’s idol group loyalty program. The technology feels new but its psychology does not. NFTs on blockchain found an opportunity to form a very deep connection with the customers where they want to buy into the community. But actually, this is what Japan has seen for a while (e.g. AKB48’s 2008 loyalty program in which fans buy records for rewards made westerners scratch their heads).
Tokyo is how the Internet looks like in real life in the Web 3.0 era. Harajuku is like Shopify in physical form.

Opportunity out of crisis – Japan’s first-mover advantage thanks to its serious universal macroeconomic and social issues. 

Mark: Japan’s problems will be experienced by many other developed countries like Germany in near future (aging population, talent shortage, big corporations’ stagnation, debt to GDP ratio of Japan over 250%). Since Japan is one of the first developed nations to experience these issues, Japan will likely be the first to come up with innovative solutions for the rest of the world.

Forget the “make it in Japan, and then scale to the world” mentality. 

Mark: In terms of the market size, Japan is no US or China. With the shrinking population, global expansion will be inevitable.

Diversity of nationality and culture built into the DNA of the startups is essential for a business to expand globally.

Mark: You have to build a diverse team from Day 1 so you have various cultures and perspectives built into the services and products required to be successful in the global market. Diversity will lead to cross-pollination; a synergy that allows people from different nationalities or cultures to bring goodness and ideas to other places.

Takayuki: Japan has tripled in foreign workers in the past decades, and this trend will accelerate further due to the shortage of domestic talent in areas like AI and blockchain & increase in job creations in Japan. Diversity in organizations is becoming a norm for the younger generation of startups in Japan. Technology is removing cross-border business friction caused by legal, compliance, finance, and eventually language barriers in the global workplace.

In the Web 3.0 era, communities with shared values transcend borders between nations. 

Justin: More startups (especially B2C) will center their strategy around communities vs. geographical locations.
In the US, they will opt-out of having a solo HQ locally and opt into having multiple global offices where the best talent is. 8/10 of top game companies are based out of the US. Talents are emerging from everywhere.

Common problems of Japanese investors – lack of agile decision-making and diversity in perspective.

Mark: When investors move faster, entrepreneurs can deliver faster. Waiting and assessing risks will be your liability as an investor. Invest in the future like western investors, instead of asking for 5-year historical revenue for seed investment.