Japanese venture capitalists have a yen for Singaporean start-ups

Venture capitalists ploughed $25m into new firms here in last 2 years

Mr Kuanhua Hsu (above), a principal of Gree Ventures, on why Japanese VCs have moved to Singapore in search of a less competitive start-up investment environment.
Mr Kuanhua Hsu (above), a principal of Gree Ventures, on why Japanese VCs have moved to Singapore in search of a less competitive start-up investment environment.
Start-up: Digital flea market Carousell; Investment: $1 million; VCs: Led by Rakuten Ventures  -- PHOTO: CAROUSELL PHOTOS: GREE VENTURES, LUXOLA, CAROUSELL, BUBBLY
Start-up: Online beauty venture Luxola; Investment: US$10 million; VCs: Led by Transcosmos, includes Gree Ventures -- PHOTO: GREE VENTURES PHOTOS: GREE VENTURES, LUXOLA, CAROUSELL, BUBBLY
Start-up: Voice blogging service Bubbly; Investment: US$5 million; VC: Jafco Asia  -- PHOTO: BUBBLY PHOTOS: GREE VENTURES, LUXOLA, CAROUSELL, BUBBLY

Japanese venture capitalists, seeking a less competitive market with outstanding new ideas, seem to have found their new playground right here in Singapore.

As many as 15 Japanese venture capital firms have invested about US$20 million (S$25 million) to fund several start-ups here over the past two years.

The largest deal was a US$10 million injection in online beauty startup Luxola, led by Transcosmos and including Gree Ventures, both from Japan.

Other Japanese venture deals here include a US$5 million funding of voice blogging service Bubbly by Jafco Asia, a $1 million round in digital flea market Carousell led by Rakuten Ventures, and a US$613,000 investment in tech blog e27 by B Dash Ventures.

The fertile start-up space in this region has also attracted several Japanese VCs to set up offices in Singapore.

IMJ Investments, Incubate Fund, Coen and Rebright Ventures are among the Japanese VCs that have taken this step.

Others, such as Recruit Ventures and Cyberagent Ventures, are based in Tokyo and Shanghai respectively but their investment executives make regular trips to Singapore.

These are no small players. Each of these VCs manages funds of from US$10 million to about US$100 million.

They provide seed funding for new start-ups as well as capital for growth and expansion.

Each investment varies from US$250,000 to US$5 million.

The VCs from the Land of the Rising Sun have moved to Singapore in search of a less competitive start-up investment environment.

Mr Kuanhua Hsu, a principal of Gree Ventures, said: "There are many VCs in Japan funding young innovative start-ups.

"It is hard to find good deals."

Because of this, valuations of Japanese start-ups also tend to be high, which makes it more expensive for VCs to invest, he told The Straits Times.

Abenomics, Japanese Prime Minister Shinzo Abe's economic reform plans for the country, has also encouraged Japanese corporations to seek growth overseas, he added. And Singapore is an attractive place for Japanese VCs because it is the hub for South-east Asia.

Rakuten Ventures managing partner Saemin Ahn said Singapore offers "good visibility into South-east Asia, letting them keep in touch with what's happening in the region".

South-east Asia is an attractive region with a growing market.

It has a total population of about 600 million, many of them young and Internet savvy, he said.

The region has a glut of good talent capable of founding innovative start-ups, he added.

"The qualitative jump in the last two years has been mind-blowing. Now, we have amazing companies in areas like high-level security management, e-commerce and mobile-based services."

Rakuten started actively investing in Singapore and the region in the last 16 months.

Its three investments here are Carousell, image recognition start-up ViSenze and carrier billing platform Coda Payments.

Most of the investments by Japanese VCs here are in Internet, e-commerce and mobile start-ups.

Few invest in games start-ups as it is difficult to get a killer title, they said.

Some Japanese VCs such as IMJ Investments and Incubate Fund use a method called the time-machine model to identify innovative start-ups to invest in.

Mr Koichi Saito, director of IMJ Investments, explained: "We have research on what type of start-ups have succeeded in the mature Internet markets in Japan and the United States.

"For example, news portals like Yahoo were popular 10 to 15 years ago in the US.

"So media start-ups in the region might be interesting for us to look at."

Apart from this method, Incubate Fund looks at founding new businesses too.

It looks for innovative ideas and matches them with entrepreneurs, said its co-founder and general partner Masahiko Honma.

"Business ideas we can tweak. Entrepreneurs are more important.

"We put them together and invest about US$200,000 to US$3 million for an equity stake in each of them," he said.

The community of Japanese VCs is good because it can collaborate on deals to share the investment risk.

Coda Payments, for example, was invested in by three Japanese VCs, namely CyberAgent Ventures, GMO Ventures and Rakuten.

When do they expect to see returns from their investments?

Said Mr Saito: "We have to exercise patience capital.

"Start-ups will boom in the next three to five years.

"In five years' time, I believe we can see some start-ups being listed or some big acquisitions."


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