UnicoMarketing: 2014 in review – Japan’s biggest startup deals

The premier of Softbank’s Pepper, the emotionally intelligent robot, was a major storyline this year.

Tech in Asia said konnichiwa to Japan in 2014, setting up shop and holding Tokyo’s very own Startup Asia conference. There were some huge tech stories this year – Mixi’s resurrection, Bitcoin’s fall and possible recovery, even long-awaited positive news from the likes of Sony and Nintendo.

But Tech in Asia‘s primary focus is finding the best of startups so today we are going to look back and highlight some of the biggest news to hit Japan’s startup ecosystem (and be reblogged endlessly on Facebook and Twitter).

Though I firmly subscribe to the notion that all entrepreneurs are winners and all investors are fine examples of noblesse oblige, for this line-up I had to make some tough choices and omit a lot of worthy candidates.

Are you a fan (or an owner disguised as a fan) and angry that I ignored your favorite company? Talk about it in the comments!

Best domestic investment?

Seed money was plentiful in 2014 but it was series A and B investments which made the biggest headlines. In Japan, where series C is often substituted for IPO, securing US$10 million or more in funding is a clear sign that the startup is becoming a notable player. Looking back, the top funding story of the year is not going to be worth hundreds of millions of dollars a la Flipkart or Tokopedia, but it’s still a startup well worth watching.

To be considered, a startup needs to have earned a big funding round or several sizeable rounds within the year. Money is not everything, however, and the company’s likelihood of overseas success was a big factor in determining who made the cut. Go global or go home.

Winner: Smartnews

With a hefty US$36 million investment lead by Gree and Atomico, Smartnews tops the list. The news curation app spent much of the year toiling as number two to market leader Gunosy. In reality, Nielsen is reporting that Smartnews now has more monthly users than Gunosy. Maybe that’s why it pulled in more cash too.

The company has just started international operations and is also moving into native ads to increase its revenue. There has been no whispers of IPO coming out of the company, making it a possible candidate for a huge round down the line.

Founders Ken Suzuki (l) and Kaisei Hamamoto (c) with chief journalist Rich Jaroslovsky (r)

Runner up: Mercari

Over the course of 2014, Mercari also raked in a fair bit of investment capital with US$14 million in one round and another US$21 million shortly thereafter. The C2C marketplace (users sell and buy each other’s clothes) is arguably the strongest of Japan’s alternative ecommerce startups. The ecommerce leader, Rakuten, is even taking notice, launching its own version of Mercari’s service last month.

The app is now taking its business to America where early reports say it is establishing positive traction.

Best international investment or acquisition by a Japanese tech company

The hundreds of millions of Japanese VC dollars pouring into Southeast Asia is evidence that Japan’s tech world no longer exists in a vacuum. This year, two of Japan’s biggest tech companies made huge plays on some major startups operating in hotly contested industries. Their international influence is becoming a proxy battle for their hotly contested domestic supremacy.

Winner: SoftBank

Which investment do you want to choose? The US$250 million splash into Malaysia’s GrabTaxi? The collective US$837 million into India’s Snapdeal (ecommerce) and Ola (taxi app)? Or even its participation in Tokopedia’s US$100 million round?

Any way you cut it, SoftBank established itself as a potential king-maker outside of Japan. All of its investments face tough fights in their home market but they can rest a little easier knowing that they have the backing of a telco with deep pockets and a reputation for investing in good Asian startups. Alibaba, anyone?

Softbank is betting that many people will be seeing this screen in the future.

Runner up: Rakuten

Rakuten’s investment and acquisition strategy has been a bit hit or miss. For every Viki, there are many acquisitions which have not panned out. The Viber deal, worth a reported US$900 million, puts Rakuten squarely into the most-closely watched tech conflict today – the messaging app wars.

Viber’s acquisition revealed that it had 100 million active users, putting it far behind Line in that particular vanity metric. Fast forward a few months later, and Viber now has more monthly active users than Line. If Rakuten can figure out how to make money off of it, this is going to be a jewel of an investment.

Best acquisition in Japan

Close observers of Japan will know that exits via acquisition are not terribly common in these parts. Outsiders might scoff at the stubbornness but Japanese companies don’t die too often either. Of the 5,586 companies older than 200 years, 3,146 of them are Japanese.

For these entrepreneurs, however, teaming up with larger corporations offered the best way to further their business. Judging by these deals, it’s hard to argue against them.

Winner: Nanapi

Nanapi, Japan’s most visited life-hacking website stunned the startup community when it agreed to an acquisition offer by telco KDDI. The deal, suspected to be for US$77 milion, was not an isolated purchase, however.

Simultaneously, KDDI launched an ambitious project to supplant Yahoo Japan and Google as the most visited mobile website. It formed the Syn Alliance with Nanapi as a central figure among a collection of younger tech firms. Nanapi’s startup days might be over but it’s not done battling giants.

Founder Kensuke Furukawa at the Nanapi office

Iemo

Founded by serial entrepreneur Mary Murata, Iemo is a home design curation website acquired by DeNA for an undisclosed amount.

Though it was acquired alongside Mery, a ladies fashion service which had almost 10 times the monthly active users, it was Murata who gained the most from the deal. She became a senior vice president of DeNA and was placed in charge of their Curation Platform Business. With DeNA’s revenues steadily dropping, the company is looking to alternative businesses to regain its luster. Murata was acquired and now she can help shape the future for one of Japan’s tech giants.

Best IPO

Since so many Japanese startups have sub-US$100 million market caps when they IPO, the outliers really stand out. While a number of startups IPO’d in 2014, the top dog here was a no-brainer.

Winner: Gumi

In the boom-and-bust world of gaming, Gumi was left for dead when it busted out. But CEO Hironao Kunimitsu did not give up and managed to bring his seven-year old company back. Numerous tie-ups with the likes of Sega and Line strengthened the firm and it all culminated in a successful IPO application that predicts the company will bow just shy of a billion dollars in market cap, depending on the foreign exchange rate.

CEO Hironao Kunimitsu at Startup Asia Singapore 2014 hinting at the big IPO to come

Runner up: Recruit

Admittedly, Recruit is not a startup. But it is a technology company that rocked a US$1.9 billion market cap when it premiered on the Tokyo Stock market. While there were definitely some notable IPO’s this year (local favorite Crowdworks comes to mind), it does not feel right to talk about tech IPOs in Japan and not mention Recruit.

For the startup purists out there, don’t worry too much. Recruit is putting some of that cash right back into the ecosystem, with a US$50 million fund and a stylish, free-to-use co-working space.

See: Sorry China, the US and Southeast Asia agree that Japan is most important partner in the region

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