6 investors explain why they are bullish about Japan’s startup scene despite an uncertain economy

Thinking of Japan often evokes notions of bleeding-edge tech mixed with deep tradition and culture. The country’s startups, however, haven’t seen the sort of growth that upstart tech companies in other parts of the world have. There are signs that those tides are turning, though, with startup funding increasing along with the number of active domestic venture capital firms. The Japanese government has also promised enthusiastic support to boost the startup ecosystem in an effort to ramp up annual startup investments tenfold to 10 trillion yen ($71.5 billion) by 2027.

2022 was a record year for the Japanese VC market, in stark contrast to global VC investments trending downward. Even in the first quarter of 2023, Japanese VC investment slightly increased owing to active seed and Series A funding deals; but later-stage funding was tough for startups, per a report by KPMG.

Gen Isayama, co-founder and CEO of World Innovation Lab, said this might be because “most of Japan’s startups are early-stage startups that tend to be isolated from periods of economic uncertainty and downturns — a function of being seven to 10 years from the time of the IPO.”

Startups in Japan received 877.4 billion yen ($6.2 billion) in 2022, up from 850.8 billion yen ($6 billion) in 2021, per a recent report by Initial. The amount of funding raised by Japan-based startups was estimated at $625 million in 2013, the report said. To put this in context, startups in New York alone raised $2.9 billion in 2013.

We spoke to investors who actively invest in Japanese startups to get a better understanding of how the startup scene in Japan has changed from before and after the pandemic and their following plans.

The money managers are optimistic despite uncertain macroeconomics, which could have a limited impact on Japan’s startup ecosystem, and geopolitical risks between the U.S. and China, which could benefit Japan. However, they pointed out that later-stage funding would still be challenging for startups in the country in 2023.

“The decline is happening in all markets [in the world] and at all stages … the impact on Japan is somewhat limited, but it is also true that Japan is a smaller market compared to its GDP and should be growing much more,” said the CEO of Sony Ventures Corporation Gen Tsuchikawa.

“There have been two things that have benefited Japan recently. One is that the rising concerns around China have caused investors to look at neighboring Japan as a more predictable alternative,” said James Riney, founding partner and CEO of Coral Capital. “Another is Warren Buffet’s investment in and endorsement of Japan. Many investors seemed to be listening to the Oracle of Ohama and locking in on Japan’s opportunities.”

Although global macroeconomics doesn’t help at this time, Japan is gearing up to accelerate its startup scene.

“We expect the amount of funding to increase with the government’s support,” said Tsuyoshi Ito, CEO of Beyond Next Ventures. “The Japanese government has designated 2022 as the ‘First Year of Startup Creation’ and announced a five-year plan to foster startups, which includes a record amount of approximately 1 trillion yen in startup support measures.”

“Large Japanese corporations have slowed down quite a bit in recent years. Startups and their innovation can help boost the Japanese economy one more time,” said Anis Uzzaman, founder and chief executive of Pegasus Tech Ventures. “… the current government’s initiative can help the country prepare and get ready for the next challenge and give birth to lots of startups.”

We spoke with:

  • Gen Isayama, co-founder and CEO, World Innovation Lab (WiL)
  • Tsuyoshi Ito, CEO Beyond Next Ventures
  • Katsuya Hashizume, Partner, Beyond Next Ventures
  • Gen Tsuchikawa, CEO, Sony Ventures Corporation
  • James Riney, CEO and founding partner, Coral Capital
  • Anis Uzzaman, founder and chief executive, Pegasus Tech Ventures

(Editor’s note: The following surveys have been edited for length and clarity. These answers are strictly limited to Japan and do not encompass all of Asia.)

Gen Isayama, co-founder and CEO of World Innovation Lab

We’re seeing a significant drop in VC funding in Asia’s first quarter this year. How has your VC investment strategy changed along with the market condition?

Our strategy has not shifted per se. Yes, the market is slowing down, but the top companies will always have something to offer. For example, according to the STARTUP DB ranking, the top 10 Japan deals in Q1’23 raised more money (59.2B yen) than the top 10 deals in Q1’22 (53.1B yen). Even during the VC funding boom, we were strategic and cautious and tried to pursue companies with what we found to be good intrinsic value instead of paying inflated valuations, and we plan on doing that going forward as well.

What caused the lowest funding in Asia since 2021? Do you think the VC funding will continue to decline this year? What are your prospects regarding funding volumes in Asia in 2023 and 2024? And do you expect it will bounce back anytime soon?

We are facing increasing uncertainty around the world. The rise in geopolitical risks, such as the Ukraine invasion and all-time high U.S.-China tensions, as well as increasing interest rates and uncertainty about economic stability, are all leading people and firms across the board to be more cautious about how they deploy their money.

6 investors explain why they are bullish about Japan’s startup scene despite an uncertain economy by Kate Park originally published on TechCrunch

As Deeptech and AI explodes, European Deeptech VC IQ Capital closes new $200M fund

European Deeptech startups get another shot in the arm this week in the shape of IQ Capital’s new $200m venture fund. The new fund takes its assets under management to more than $1bn. 

The London and Cambridge, UK-based deep tech VC has closed its fourth Venture Fund at that amount, while also launching its second $200m Growth Fund to provide later-stage funding, primarily in its venture portfolio. The means the VC will be able to deploy capital across more funding stages.

Since its foundation in Cambridge in 2007, IQ Capital has invested in over 100 deep tech startups such as Thought Machine (banking), Nyobolt (battery charging) and Speechmatics (speech recognition). It’s also had exits to Oracle, Google, Apple and Facebook, along with a number of IPOs.

Investors in Fund IV include global institutions, funds-of-funds, family offices, and British Patient Capital, the largest LP investing in UK venture capital. 

Kerry Baldwin, co-founder, Managing Partner said deep tech investment was “at the forefront of investor’s minds, topping $17bn in 2022.”

I asked her if it had been hard to raise the fund in this market: “Obviously it’s been quite hard to raise in this in market environment, putting it bluntly. But we’re doing something different.”

“We’ve raised our flagship fund for deeptech and that’s where we invest every day, in really, really deep tech. These deep tech academics actually like us to come all the way through, like we’ve done with Thought Machine, like we’ve done with Speechmatics. But yeah, it’s been an interesting funding environment.”

Given the big debate going on around Generative AI, I asked her if Europe is going to be able to compete with the major Big Tech platforms on that front.

“We’ve got exceptional talent in Europe. Generative AI has got a long way to go, but it’s not going to solve real world problems just yet,” she said.

There’s been criticisms of how University spinouts are hampered by their Alma Maters. What’s her view?

She told me: “That’s where Cambridge University has been different and obviously our roots from Cambridge and in London, and across Europe. I think it’s going to be interesting to see the results of the UK Government review that’s coming out in early September on this.”

As Deeptech and AI explodes, European Deeptech VC IQ Capital closes new $200M fund by Mike Butcher originally published on TechCrunch

Deal Dive: Doing venture math on the non-alcoholic spirits industry

Hangovers suck. Especially so for those who felt pressured to drink the alcohol that inevitably caused the hangover to begin with.

Drinking is slowly starting to fall out of fad, especially among younger generations. According to 2022 Gallup polling, 60% of adult Americans drink alcohol. This is down from 65% in 2019, and while 5% doesn’t seem like a huge change, it’s a pretty drastic shift when it comes to consumer spending dollars.

Founders are taking full advantage of the shift as numerous startups have popped up just in the last few years looking to offer low- and non-alcoholic options. Aplós is the latest one to secure funding.

The Miami-based startup announced a $5.5 million Series A round this week led by McCarthy Capital, a Midwestern private equity firm. Co-founder and CEO David Fudge told TechCrunch+ that he wanted to launch the company because he’s always considered himself a “reluctant drinker” but didn’t think there was a product that would fill what he was looking for: something that gave the same relaxation benefits and vibes of alcohol but without the next-day regret.

“The vision is to reimagine the adult beverage category for the new era, to create the first super premium non-alcoholic spirit brand,” Fudge said. “We want the sophistication, complexity, versatility and functionality of a high-end spirit. That’s something that we didn’t see in the market and what we were really interested in ourselves.”

As a consumer, I love that there are entrepreneurs trying to both innovate in this category and bring in new options. Non-alcoholic spirit brands like Aplós feel like a win-win because it not only is giving people more of an incentive to choose perhaps a healthier, lower-calorie option over alcohol, but it gives bars and restaurants a better way of providing comparable non-alcoholic cocktails to their customers and can price them the same. Capitalism!

But while I think the growth of this sector has societal benefits, how it plays out for investors isn’t clear.

Deal Dive: Doing venture math on the non-alcoholic spirits industry by Rebecca Szkutak originally published on TechCrunch

Private lenders won’t fill the venture debt gap left by SVB

The collapse of Silicon Valley Bank left a small but noticeable hole in the venture debt market that private lenders don’t find attractive enough to fill.

When SVB went under in March, the startup ecosystem was primarily concerned about what would happen to startup and venture capital firm bank accounts. The second worry was what would happen to the venture debt market and the existing loans SVB had issued.

While SVB didn’t manage a massive loan portfolio by any means, it was in the minority of banks that provided credit to really early-stage companies based on their sponsors as opposed to their underlying business metrics and fundamentals. Most banks aren’t willing to do that.

While it remains unclear whether First Citizens Bank, the current owner of SVB, will lend to startups the same way SVB did, private venture debt lenders have made it clear to TechCrunch+ that they aren’t interested in filling that gap if First Citizens doesn’t.

Private lenders won’t fill the venture debt gap left by SVB by Rebecca Szkutak originally published on TechCrunch

The web3 winter isn’t going to thaw anytime soon

There’s something phoenix-like about the crypto world. No matter how high the highs, or how low the ensuing lows, blockchain enthusiasts, founders and investors remain confident that their favored sector will rise again. You have to give it to them: it always has bounded back.

We saw this happen in the wake of the initial coin offering (ICO) boom, for example, when NFTs and DeFi took off, helping propel the web3 startup and token world to new heights.

Today, we’re checking on the vital signs of web3 as the sector struggles up the crater left by major tokens, blockchains and startup projects falling back to Earth after 2021. If there’s another rollercoaster ride coming in Crypto Land, we want to be ready for it.

The Exchange explores startups, markets and money.

Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.

Sadly, there isn’t going to be a resurgence anytime soon. From an initial read of data from the past month, we can infer that the current crypto winter is far from thawing — it could even be getting colder. Let’s dig in.

Boom to bust?

Data from Crunchbase paints a jarring picture of investment in web3, crypto and blockchain startups.

Companies in the sector collectively attracted $1.2 billion in VC funding in April and May of this year, according to the firm’s web3 tracker. There’s still one month left in this quarter, but it’s pointless to expect any miracles: At the current rate, Q2’s tally would reach $1.8 billion, less than the $2 billion raised by web3 startups in Q1 2023.

That $2 billion wasn’t anything to write home about either. Though Q1 2023 was slightly better for web3 companies than 2020’s quarterly numbers, it was about five times less than Q1 2022 ($10.8 billion).

The web3 winter isn’t going to thaw anytime soon by Anna Heim originally published on TechCrunch

Pitch Deck Teardown: Oii.ai’s $1.9M Seed deck

The award for the best/worst startup name I’ve seen in a while goes to Oii.ai. This company’s name is weird enough that Google Chrome insists on doing a search for the term “oii.ai’ when you type the URL into the address bar. In any case, a confusing name doesn’t mean it’s a bad business.

The company claims it raised a $1.85 million seed round with this deck. We didn’t cover this round, and the company is tight-lipped about who its investors are, but the deck was interesting enough that I’m choosing to break my usual rule of needing press coverage to do a pitch deck teardown.

We’re looking for more unique pitch decks to tear down, so if you want to submit your own, here’s how you can do that

Slides in this deck

Oii.ai has an 18-slide deck plus a couple of appendix slides. Some of the slides have been lightly redacted, but the company says it is including every slide so we can get a full picture of the deck that helped it close the round.

Here are the slides:

  1. Cover slide
  2. Vision slide
  3. Interstitial slide
  4. Overview slide (“Welcome to Oii”)
  5. Solution slide? with a side of business model slide
  6. Problem slide?
  7. Market trend slide
  8. Traction slide
  9. Team slide
  10.   TAM slide 1 (Pharma sector)
  11.   TAM slide 2 (Retail sector)
  12.   Market overview + competitive landscape slide
  13.   Competitive advantage slide
  14.   Sales pipeline slide
  15.   Product roadmap slide
  16.   The Ask + Opportunity slide
  17.   Use of Funds slide
  18.   Closing slide + contact detail slide
  19.   Appendix slide 1: Competition (Llamasoft)
  20.   Appendix slide 2: Competition (Llamasoft)
  21.   Appendix slide 3: Acquisition opportunities

Three things to love

I have to admit that I’ve rarely found it as hard to categorize slides as I did with this deck. The information isn’t organized the way I would expect. It does work sometimes, but it often does not.

Excellent ‘what we want to change’ narrative

This slide paints a concise and clear picture of the change Oii wants to see in the world. It’s a simple and effective way to show why the company needs to exist.

[Slide 6] An unusual take on the value proposition slide. Image Credits: Oii.ai

This slide is unusual because it falls somewhere in the middle of the problem, solution and value proposition narrative. In this case, it works because it helps draw a clear line between what the company is seeing in the world right now and the future it envisions.

I like the creative approach and can see this type of slide being more commonly used in the future.

A good take on early-stage traction

The company doesn’t have much in the way of traction, but it does avoid falling into the trap of leaning into vanity metrics:

[Slide 8] Here’s some traction for ya. Image Credits: Oii AI

It took me a couple of moments to realize that PoC probably meant proof of concept rather than people of color; I do enjoy brevity on slides, but I also think that you can afford to spell out abbreviations.

Now, technically, only the top-level revenue number is the one with the actual traction; the other figures are all benefits and value propositions. The traction that flows from these numbers is efficacy, so the story here is, “In our proof-of-concept phase, we generated X amount of revenue and were successful in proving that our product works.”

In most cases, graphs that show revenue growth over time are better than snapshots when it comes to traction. Having said that, I appreciate how hard it is to show traction as an early-stage startup, and this slide actually does better than most, so we’ll chalk this one up as a win.

Overall, good visual storytelling

I like that this deck has clearly had some design attention and that it relies on imagery to tell its story. Good images go a long way in helping a deck come to life, and from that perspective, Oii AI’s deck is pretty compelling. Colorful images and fun design choices all work in its favor.

Although, if I were to pick a nit…

[Slide 3] The future looks retro. Image credit: Oii AI

If you are building the cutting edge of AI to disrupt an industry, maybe don’t use a stock image of a GPS device that nobody has used since Apple introduced built-in GPS with the iPhone 3G in 2008.

In this case, I believe the device pictured is one of the Garmin Nuvi 700-series, which was launched the same year as Apple started putting GPS into iPhones, and was essentially the beginning of the end for the entire category. Visually aligning your company with a product category that met its very public and extremely painful demise 15 years ago may not send the right message.

In the rest of this teardown, we’ll take a look at three things Oii AI could have improved or done differently, along with its full pitch deck!

Pitch Deck Teardown: Oii.ai’s $1.9M Seed deck by Haje Jan Kamps originally published on TechCrunch

NestAway, once valued at over $225 million, sells for $11 million

PropTech firm Aurum is acquiring NestAway, a once high-flying Indian startup operating in the same space, for up to $10.9 million, in a deal that marks a near complete erosion in value for the startup’s investors.

Eight-year-old NestAway raised $115 million over the years and was valued at $227 million in a funding round in 2019. The startup counts Sequoia Capital India, Tiger Global, Goldman Sachs, Yuri Milner and Chiratae Ventures among its investors.

Aurum, which earlier acquired a unit of NestAway for about $6.8 million, said it will invest $3.6 million to stabilize NestAway’s business. “This capital infusion in NestAway is a testament to Aurum PropTech’s conviction in India’s $20-billion Rental Housing market,” Aurum said in a stock exchange filing.

NestAway’s revenue shrank to $3 million in 2022, down from $9.5 million two years earlier.

The erosion in NestAway’s value can at least be partially attributed to Covid. The home rental platform NestAway features 18,000 properties on its platform, down from 50,000 before the pandemic.

“When we started NestAway, our vision was to revolutionize the way people live in cities by providing them with convenient, affordable and hassle-free housing solutions,” said Jitendra Jagadev, founder of NestAway in a statement. “Over the years, we have grown and expanded, serving thousands of customers, becoming a trusted brand in the PropTech industry.”

NestAway, once valued at over $225 million, sells for $11 million by Manish Singh originally published on TechCrunch

Fidelity has cut Reddit valuation by 41% since 2021 investment

Fidelity, the lead investor in Reddit’s most recent 2021 funding round, has slashed the estimated worth of its equity stake in the popular social media platform by 41% since the investment, the latest high-profile write-down amid a weakening worldwide economy on public markets.

Fidelity Blue Chip Growth Fund’s stake in Reddit was valued at $16.6 million as of April 28, according to the fund’s monthly disclosure released over the weekend. That’s down 41.1% over the $28.2 million the firm spent to acquire the Reddit shares in the Series F funding, according to disclosures the firm has made in its annual and semi-annual reports.

Reddit was valued at $10 billion when the social media giant attracted funds in August 2021. Fidelity — which has marked down its stakes in many startups including Stripe and Reddit in recent quarters — also slashed the value of its Twitter stake, it disclosed in the filing, valuing Elon Musk’s firm at about $15 billion.

Reddit declined to comment.

This devaluation, part of a broader trend that has hit a variety of growth stage startups across the globe in the past year, raises uncertainties about whether Reddit will maintain its initial intent to reportedly go public at a valuation around $15 billion.

Reddit, which has raised over $1 billion to date, counts Sequoia Capital and Andreessen Horowitz among its backers.

The current wave of valuation cutbacks sheds new light on the impact of deteriorating worldwide economic conditions on fledgling startups. Despite the diminished funding activities for startups globally over the past year, valuations of numerous larger startups have stayed constant.

Fidelity has cut Reddit valuation by 41% since 2021 investment by Manish Singh originally published on TechCrunch