* * * * * * * * TERRIE’S TAKE – BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term
technology and media entrepreneur living in Japan.
(http://www.terrielloyd.com)

General Edition Sunday, Oct 016, 2017, Issue No. 918

– What’s New — Why Japan Won’t Produce Many Unicorn Venture Businesses
– News — Pathetic fine for Dentsu overwork case
– Upcoming Events
– Corrections/Feedback
– Travel Picks — Tokyo Ramen Show, Tokyo Marathon
– News Credits

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+++ WHAT’S NEW

I received some interesting emails from various readers who disagreed
with my contention in TT-916 that Japanese venture capital still suffers
from the same risk aversion and herd instinct that they did 10 years
ago. Writers pointed out to me the momentum that 500 Startups is gaining
here, and how that company is re-energizing the startup scene in Japan.

I agree that there is no doubt 500 Startups is making an impact and I
applaud them for their determination and progress. However, in a way,
the necessity of their presence in order to reinvigorate the Japanese
venture scene is in itself a good indicator of what’s wrong with our
indigenous funds. Much as with other new business sectors, the reality
is that the Japanese players tend to hang back and wait for a proven
company with celebrity status to prove a point, before piling in and
trying to make their two cents worth as well. As a result, while the
Japanese seldom enjoy capital gains on their investments (because they
are too late to the table) they nonetheless hope to gain long-term
domination through perseverance.

500 Startups’ biggest claim to fame here in Japan to date has been
scoring JPY1bn from Cool Japan as part of a JPY4bn fund they raised in
June. This investment was no doubt made because the Cool Japan fund
managers have come under severe criticism for holding on to hundreds of
millions of dollars of funds for more than five years, with very few
investments, and with the ones they have made being mediocre at best.
The fund’s management has obviously had trouble trying to identify
companies that they think will be winners, so when 500 Startups showed
up with a proven methodology – i.e., the accelerator component of their
business model – it was easy for Cool Japan to join the party.

The thing is, 500 Startups does have a SET methodology, so unless you
fit their template and have the personality for the hype and chaos of an
accelerator, they may not be able to help you. What about all those
companies (the vast majority) who find funds from friends and family, or
who fund their product development out of cash flow? What about those
firms that already know how to manage a business, or who have already
created their products? Who helps them? This is just one of a number of
gaping cracks in the Japanese venture business ecosystem.

As I see it, the following are the major things holding back development
of venture companies in Japan, especially companies which might later
compete at a global level and which can achieve valuations to put them
in the unicorn club.

1. Investment risk aversion

This is of course the main problem that I highlighted in Terrie’s Take
916, where I mentioned the poor allocation of human resources by venture
investors, and the inability to skillfully evaluate the investment
opportunities before them. 500 Startups is helping to take the pressure
off these investors by entering the value chain at the bottom and
putting their stamp of approval on a startup. This is a great strategy,
and Japanese love stamps of approval.

——– Kurashinity Housekeeping Service, by Pasona ——

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Packages start with two-hour cleaning sessions twice a month for a 1LDK
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Monthly packages start at a very reasonable JPY10,000. Service
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Tel: 0120-700-809 (English and Japanese)
E-mail: housekeeping@pasona.co.jp
Register at http://goo.gl/WwpzEw
———————————————————–

[…Article continues]

2. Success of lightweight apps

If you look at successful Japanese startups, most of them are apps that
service consumer audiences. Mercari, the mobile flea market that was
Japan’s first unicorn (passing US$1bn in valuation) is a great case in
point. Other successful startups include those that service restaurants,
special interest communities, recycling, personal finance, etc., and
almost all of them are defined by an app and revenue from consumers.
These companies are typically easy to start and easy to invest in (by
local VC funds). The decision point by the investor is pretty simple:
either their app is picking up momentum and/or earning profit and the
major limiting factor is continued acceptance by consumers, or they are
not. But do these app businesses represent the true disruptive potential
that startups offer. Not likely.

3. Exclusionary behavior

In fact, the app companies are able to grow unimpeded largely because of
the green fields afforded through their peripheral-to-normal-life
nature. They don’t challenge the status quo, they don’t transform the
way the existing system works in Japan, and so they are basically a form
of entertainment. Nothing wrong with that, but it’s not transformative.
And it’s not that these companies couldn’t dig deeper and start
disrupting existing industries, because they often have the technical
chops to do so. Instead, their challenge is that large Japanese firms
are generally unwilling to allow startups to come in and mess with
(connect to) their systems and work processes. While in western
countries larger firms are always looking for the competitive edge
through new ideas, new technology, and new alliances, Japanese companies
feel threatened by these points. For them, the competitive edge is their
tradition and what is locked in behind their corporate walls. I believe
this exclusionary attitude is why the API economy hasn’t hit Japan yet.
If the Abe government really wanted force big corporates to get them to
divest their financial war chests, they ought to set targets that include
investment and collaboration with the nation’s startups as well – as a
means of restoring competitiveness internationally.

4. Predatory corporations

This is not to say that there are not startups that focus on meatier
areas such as business processes, medicine, robotics, etc., and which
actually do help transform society. But what you’ll find is that very
few (maybe none) of these companies get anywhere unless they throw in
their lots with a large corporate player, so that they can gain access
to the industry supply chain. Unfortunately the downside to bringing on
a strategic investor that knows the sector well enough to understand
what they’re investing in, is that you’re joined at the hip with them
and unlike to go on to become an industry standard. Nothing wrong with
becoming part of the Toyota family, just that it’s unlikely to get you
into the Itochu family, the Mitsubishi family and ultimately into the
unicorn club.

5. Penalties of failure

I’ve written before about the fear and very real penalties of business
failure for founders of Japanese companies. Indeed, for one of my
friends, suicide was a more preferred outcome to business failure and we
still mourn him 10 years later. Until the Abe government makes good on
its intention to change business failure penalties, particularly the
severe impact of bankruptcy seizures on one’s legally-acquired family
assets, smart young Japanese will naturally shy away from starting their
own business. The irony is that young Japanese actually love the idea of
engaging in a life work and creating a community (of buyers and sellers)
around it. I believe they would start companies in much greater numbers
if the downside could be contained. Bankruptcy needs to be easier to do,
and the company financial outcome needs to be separated from the
founder’s own family situation – so long as the family assets were not
gained to the detriment of the business.

6. Zealous over-regulation by government

The Japanese government lets out tenders for its work through the
financial year. Since government spending is about one trillion dollars
annually, they are probably the biggest single customer for private
companies in Japan. And yet, their own rules are biased against
startups. Suppliers to central government are scored A, B, C, and D
according to their financial strength and years in business, and any
startup that is still in the investment stage and therefore not making
profits yet is automatically scored either a D or sometimes a C. Either
way, they are locked out of bids for government work and instead are
forced to pay hefty margins to larger well-established firms to work as
a subcontractor. If this kind of discrimination occurs at such a public
level, you can imagine how embedded it is at deeper levels. If the
government really wants to start unleashing the forces of innovation, it
needs to do some housecleaning itself first.

And don’t get me started about the many unnecessary and tradition-rooted
nonsensical regulations that the bureaucrats put in front of anyone
wanting to do something different. Just this weekend, I heard from a
Japanese sake brewer who started the Doburoku brewing movement up in
Iwate-ken, about how in the 1980’s he had to fight the bureaucrats over
the regulatory control of his new product and production processes.
Because it was a new but alcoholic product, they were unwilling to apply
existing regulations and instead tried to shut him down. It took him
many years to have logic and reason prevail. The fairy tale ending to his
story is that there is now a thriving Doburoku brewing community in Tono
city and the beverage is highly regarded even by the regulators because,
after all, they can tax it!

So, for the above reasons, plus probably some more that I haven’t
thought of yet, my opinion is that long-lasting, deeply skilled, and
transformative start-ups will not be a feature of Japan for many years
to come, unless the founder first leaves for the USA, achieves celebrity
status and fame there, then comes back as part of a foreign-based push
to change an industry. The process somewhat parallels the experience of
Japan’s most famous entrepreneur, Masayoshi Son, so it’s not
far-fetched. Further, with the current venture environment, it’s hard to
image unicorns like Airbnb and Uber even being permitted to operate by
the regulators, let alone get funding from local VCs. Both firms for
their first few years would have earned nothing but negative marks: not
making money, semi-illegal business model, and unproven ideas.

…The information janitors/

***————————****————————-***

———— Japan Travel Group Tour Services ————-

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independently foreign-owned inbound DMCs. Our specialty is looking after
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If you are responsible for managing an inbound company incentive tour or
management training, we can help create unique experiences from a blend
of memorable destinations, dining, activities, guides, and transport
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If you have a group needing assistance, we invite them to contact us at:
tours@japantravel.com.
Or visit our pages at: http://japantravel.co.jp/en/about/travel-agency/
———————————————————–

+++ NEWS

– Wait, why is the Tuna quota increasing by 30%?
– Asahi to exit Tsingtao China investment
– Fake loans to shady companies
– Pathetic fine for Dentsu overwork case
– Rumor of Sprint deal with T-Mobile

=> Wait, why is the Tuna quota increasing by 30%?

Even as the Japanese have been holding talks with neighboring nations
about restricting regular tuna catches, the nation has decided alongside
6 other countries to increase Southern Bluefin tuna catches by 30% for
the period 2018-2020. Just last year, southern bluefin tuna was
considered critically endangered as a species, with just 3%-6% of the
original population left. According to the Commission for the
Conservation of Southern Bluefin Tuna, which Australia is a member of,
the catch quotas can be expanded next year because of a recovery in fish
numbers. ***Ed: Hmmm, really? Sounds more like political expediency to
us.** (Source: TT commentary from the-japan-news.com, Oct 14, 2017)

http://bit.ly/2ymSKFa

=> Asahi to exit Tsingtao China investment

Asahi Beer appears to be planning to sell all or part of its minority
ownership in China’s second largest brewing company, Tsingtao. Asahi,
which bought the stake back in 2009, initially announced the move back
in March and Tsingtao shares promptly fell. But since then they have
climbed back to represent an overall gain of 36% over the intervening 8
months. ***Ed: Apparently the share price is climbing even as Tsingtao
struggles to maintain market share, mostly because investors believe
that Tsingtao must have a replacement investor lined up. That should
provide a nice profit bump for Asahi…** (Source: TT commentary from
bloomberg.com, Oct 12, 2017)

https://bloom.bg/2hIbQhl

=>Fake loans to shady companies

Just in case you thought that fake loans to shady companies was the
bailiwick of Japanese banks in the 1990’s and the Tokyo Metropolitan
government in the 2000’s, now comes the news that about 2-3% of the
loans made by the government-funded Shoko Chukin Bank between 2014 and
this year, were based on falsified documents so as to allow companies to
receive special low-interest loans originally intended for
crisis-impacted SME companies – crises like the Tohoku quake of 2011 and
the Lehman Shock of 2008. The bank is now subject to investigation of
around 220,000 “crisis” loans, totaling approximately JPY28bn. ***
(Source: (Source: TT commentary from mainichi.jp, Oct 13, 2017)

http://bit.ly/2gkP6Hn

=> Pathetic fine for Dentsu overwork case

As an example of the lack of real-world commonsense by the Japanese
courts, the family of Matsuri Takahashi, who died of overwork at Dentsu,
have been awarded the grand total of just JPY500,000 in damages. While
the ruling against Dentsu was a historic one and could signal the
turning of the tide in regards to corporate culpability for employee
overwork deaths, at the same time the pathetically small fine is being
viewed by many as a mere slap on the wrist by the Tokyo Summary Court.
***Ed: And so as a result, companies continue to abuse their employees
and the number of overwork deaths for fiscal year 2017 (ending March
this year) was UP, at 191, two more than the 189 deaths in 2016.
(Source: asia.nikkei.com, Oct 12, 2017)

http://s.nikkei.com/2yLKdPf

=> Rumor of Sprint deal with T-Mobile

The Nikkei has just reported a rumor that Softbank’s US telco operation,
Sprint, will merge with T-Mobile also of the USA, in a deal that will be
reported later this month. T-Mobile and Sprint are the No. 3 and 4
carriers in the USA overall. T-Mobile is controlled by Deutsche Telecom.
***Ed: No word yet which of the two companies will emerge the dominant
force, but it does seem that Mr. Son wants to ditch Sprint as soon as
possible, and therefore we can imagine that the deal will tip in
T-Mobile’s favor. One of his not-so-great deals perhaps?** (Source: TT
commentary from stltoday.com, Oct 13, 2017)

http://bit.ly/2gk2StF

NOTE: Broken links
Some online news sources remove their articles after just a few days of
posting them, thus breaking our links — we apologize for the inconvenience.

***————————****————————-***

———– SENIOR EDITOR Position at Metropolis ———-

Japan Partnership Inc., the publisher of Japan’s best-known English
magazine, Metropolis, is seeking a talented, experienced senior editor
to assist in the realignment of company’s print media business to a
stronger online direction. The position calls for someone with strong
dual backgrounds in print and web/mobile, and who is able to think
strategically while also maintaining production of content and budget
control. The overall goal of the position is to extend Metropolis’
influence and services among the international community in Japan.

For more details on the position, go to: http://bit.ly/2u5oQ91
———————————————————–

+++ UPCOMING EVENTS

———- ICA Event – Thursday 1st November ————–

Speaker: Brent Reichow – CEO & Co-founder, Blueshift Data Protection
Title: “Rise of Ransomware is Stopping Businesses. How can your
organization Stay Resilient?”
Details: Complete event details at http://www.icajapan.jp/

Date: Thursday 1st November, 2017
Time: 6:30pm Doors open
Cost: 1,000 yen (members), 2,000 yen (non-members) Open to all. No sign
ups at the door!!!!!!!
RSVP: By 6pm on Monday 27th October 2017
Venue: TMT Bldg.,4-2-22 Shibuya, Shibuya-ku,Tokyo,150-0002
———————————————————–

+++ CORRECTIONS/FEEDBACK

None this week.

***————————****————————-***

+++ TRAVEL DESTINATIONS PICKS

=> Tokyo Ramen Show
Forty ramen shops from around Japan descend on Tokyo

Ramen blowout! Between the dates of October 26 ~ November 5 this year
(2017), you will be able to try out a panapoly of tastes at the world’s
biggest ramen fair, the Tokyo Ramen Show, to be held between 10:00 and
21:00 at the Komazawa Olympic Park. The 11-day show will feature 40
ramen vendors from around Japan, who will be serving up their own
regional specialties. Pricing will start at JPY850 per bowl.

http://bit.ly/2yqP1bY

=> Running Tokyo
42 km running tour of Tokyo – aka the Tokyo Marathon

Well, OK, this story isn’t so much about running around Tokyo seeing the
sights, so much as learning how to deal with the cold and pressure (and
buzz) of being in a street-based group activity the size of the Tokyo
Marathon. How big? Well 308,810 people applied for the 2015 Tokyo
marathon (full marathon), and “only” 30,000 were allowed to start. For
this story, the writer ran with a Malaysian group, starting off with
some commemorative photo-taking, bag drop at an assigned truck, then
onwards to assigned corral (Corral H). Starting time was 09:10am, in, as
she says, “A blaze of confetti and a marching band in front of the Tokyo
Government Metropolitan Building”. Fun stuff.

http://bit.ly/2kOyKs1

***————————****————————-***

***********************************************************
END

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+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

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