TOKYO • Mr Yusuke Mitsumoto had a hunch: what if you paid people instantly for their used goods over the Internet, with no guarantee they would hand them over?

The 36 year-old e-commerce entrepreneur launched an app in June to test the idea. It worked better than he imagined; after 16 hours, he was stunned to find he was on the hook for 360 million yen (S$4.3 million) and shut the service down.

A day later, truckloads of clothes and electronics gadgets started to arrive at his start-up's tiny office in Tokyo. All told, fewer than one in 10 second-hand goods sellers did not deliver as promised. That was good enough for Mr Mitsumoto, who relaunched the service, called Cash, in August as a new way to gather inventory for an online flea market.

"It was a social experiment," said Mr Mitsumoto, who started selling goods online in 1996. He later launched Stores.jp, Japan's version of Shopify, which he sold and then bought back. Second-hand sales are a big business in Japan and a market worth 1.6 trillion yen, said the Reuse Business Journal.

What Mr Mitsumoto discovered was a way to remove the last bit of friction for sellers to get rid of stuff, unlocking value wasting away in people's closets. He tapped into a market of people who lacked either the time or the patience to take nice pictures, write product descriptions and haggle with buyers.

He also knew it was only a matter of time before bigger rivals followed suit. So when Mr Mitsumoto got a Facebook message on Oct 4 at 1:58am, "Hi! This is Kameyama! Sell Cash to me! No?" he saw a way to stay ahead of the competition.

Mr Keishi Kameyama is one of Japan's richest people and the founder of DMM.com, a media and technology empire with US$1.6 billion (S$2.2 billion) in revenue. He started with pornography but has grown his company into a vast collection of enterprises that spans a currency trading platform, video games, an online English school and solar farms. Mr Mitsumoto agreed to sell Cash to DMM for 7 billion yen and still run the business.

"For people doing Internet businesses in Japan, DMM is a scary presence," Mr Mitsumoto said. "You never know when they may launch their own business and become a tough rival."

Mr Kameyama said his team recognised the potential of the market uncovered by Mr Mitsumoto, but admits the eye-popping valuation for a company of six people that is not even one year old was also partly an "acquihire" - an acquisition based on hiring.

"Doing business on the Internet is not all capital and equipment, you need a certain intuition, a design sense and ability to get a service going," Mr Kameyama, 56. "I can also appreciate a bold play. There aren't that many audacious people in this world."

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