On a warmer winter morning the founder of 500 startups, Dave McClure, showed up in the Tokyo Lab Paak space in the heart of Shibuya. His presentation was insightful, clear and somewhat of a wake up call for Japan. Not just Japanese startups, its VCs and the ecosystem, but potentially for all of Japan.
A small event organized by the guys from Progate, whom I like to call one of the most genuine Japanese startup, gave us a presentation about 500 startups, its international presence in almost a dozen countries, its strength of almost 50 mostly based in Silicon Valley people. 500 startups invested in almost a 1000 startups, and five of them had over a $100M exit.
Of startups and startup ecosystems Dave’s presentation felt like something he did a thousand times, well rehearsed and fluent, which doesn’t make it any less true — if anything, even more. He pointed out how its much easier, in this fast and furious day and age, for startups to, well… start. Less or no capital is needed, so many more customers are within reach if we just consider the amount of people that are online and particularly those that have mobile access to the internet and, finally, the supporting infrastructure is much more available than, let’s say, 10–15 years ago.
He even went that far to make a simple comparison between the preY2K startups and the post 2008 ones: the former are big fat dinosaur startups and the latter are lean, quick, little cockroach startups — you can start one literally anywhere in the world — you just need internet access.
Building a startup is hard and has its course but when it comes to elaborate business plans and revenue projections, it’s all bullshit. 500 startups want to know whether you can you build a product, sell a product and make people happy — and that’s all usually kaizen, a concept that the Japanese should be more than familiar since they came up with it.
It is all enabled, multiplied and catalyized by the fact that you have incubators everywhere, you have angel investors and micro VCs, and you have platforms that showcase and connect (AngelList making the big shift). However, we know for a fact venture investing is in most cases a money loosing business and that a big majority of all startups will fail. All this makes this type of investing a numbers’ game — the bigger the portfolio the higher the chances of finding outliers and, hence, of return. This is where 500 startups wants to introduce a concept of Silicon Valley 2.0 or, as McLure explained it, Moneyball for startups (see the movie if you haven’t).
To give it a bit of a mythical spin unicorns are those startups that exit at over 250M USD, usually and if 1 to 2 percents of your big portfolio but 500 startups wants to focus on Centaurs — those entrepreneurs that exit at over 100M USD.
Silicon Valley vs. Japan
In Silicon Valley 80 to 90% of startup fail and yet they keep popping up on a daily basis. Why? It’s simple — there is an unmistakable atmosphere of optimism and conviction of imminent success at every step. And how do you maintain this atmosphere? The answer is more or less evident depending on your angle, but… money. McClure is convinced that the fact that there are always enough people writing enough checks keeps the machine well oiled.
McClure’a description on what a good sample startup ecosystem looks like.So how does Japan fit in this startup and venture capital investment game. Not bad but not great either. Let’s look at some basic numbers — in 2013 the Japanese economy was almost 3.5 times smaller than the US economy measured by GDP (I know it’s vague but it’s an indicator). Well the VC investment market in 2012 was $26.7bn, and the Japanese one — $1.2bn. US beating Japan by a staggering 22 times. McClure cetainly has a point about the importance of the omnipresence of investment cash in the US and Silicon Valley, but does that mean that the Japanese VCs’ risk-adverse, careful, bank-loan approach will cost them dearly in supporting a vibrant startup ecosystem?
Relative comparison of US and Japan economies and VC markets
2.0 or 1.0
At the stage when some of the Japanese industry giants are loosing ground no matter what they do, placing cornerstones for a stable sustainable startup ecosystem that will boost innovation for decades to come will be crucial. Dave McClure and 500 startups should and will take a crack at Silicon Valley 2.0 by using enormous amounts of data, KPIs and quantifiable experience but Japan has to get out of the analogue investment mode. It will take many players to get on the same page — the investors and the government in the first place, probably followed by businesses and schools. Japan in its history has had remarkable stories of growth and rebuilding but the competition now is fiercer than ever and as McClure pointed out — all you need nowadays is internet access. It is not too late for Japan to entertain the thought of more and more mythical creatures mentioned above, it never is, but the alarm clock has been snoozed too many times in the Land of the Raising Sun.