The good news is, there is more money around and at the early stage, it’s a good time for all startups. The bad news is, at the late stage, money is chasing fewer startups.
“Companies can come in early with traction these days. That’s when investors pile in. But at the late stage, competition is global, fund raising is global – funding knows no boundaries these days – and investors are looking for companies with global perspectives or platforms that can build across borders,” said Phil Wickham, managing director of Sozo Ventures.
Which is why the Silicon Valley-based executive advised, “If you are moving slowly against the market or competition, ask yourself, is this a good way to spend your time?”
Investors speaking at WiT Japan & North Asia in Tokyo last week had a common refrain – that startups have to think global from day one, especially in Japan where entrepreneurs tend to want to fix a specific local problem and are very good at it, but do not think beyond Japan from the outset.
“If you are looking at a few billion dollars in market cap, then it’s okay to stay in Japan but if you are looking at more than $10b, then globalisation is a must.”
Mizuho Hiraguri, corporate development at Recruit Holdings, said VCs were also consolidating in Japan and she cited a recent report which listed 1,500 startups and 800 investors in Japan.
“It’s good timing for startups to look beyond Japan. China and South-east Asia are interesting markets. Younger startups tend to have a more global view.”
Margaret Feng, of Ctrip’s Oasis Lab, which is looking for opportunities beyond Ctrip and China said Chinese startups were beginning to go global too, with markets like India, Indonesia and Africa in their sights. “As such, lots of funds are looking at those markets.”
Hiraguri acknowledged that companies like Recruit see corporate investments as a good way to ensure the company stays on top of trends. “Startups can challenge us and go beyond us anytime. We have an older fashioned way of operating and generally these young guns are ready to kill us. It is very hard for companies to maintain leadership in the long run, which is why corporate innovation is important for us.”
Agreeing, Feng said. “Ctrip is a 20-year-old company. Before it was a winner takes all market. But in the last five years, we have seen new players like Meituan which started with high frequency restaurants and movie tickets and then as customers got used to them, they added stuff. Same with Alipay, once people get used to it, they start adding stuff.
“Boundaries are blurring. We have consumer brands entering travel – and that’s triggered a round of local investors trying to support local brands going into travel and global.”
Shinichi Takamiya, managing partner, Globis Capital Partners said startups tended to look at tech play while the global incumbents were more platform play. “The key is how to break into the offline world, that’s where the opportunity is.”
He posed the question to Hiraguri asking what Recruit assessed when looking at startup investments. Her reply, “How to provide online ties such as payments and CRM, how do we retain clients, relevance of unique IP for travel and scalability.”
Addressing new tech, Sebastien Gibergues, vice president, online travel Asia Pacific, Amadeus said the “virtual assistant hasn’t yet reached that iPhone moment”.
Feng said she was keeping a close eye on behavior changes around payments as well as Facebook’s Libra cryptocurrency and how that will play out. Last month, Facebook announced plans to launch a digital currency, possibly next year.
The panel said this could be a game changer given that Facebook “is bigger than a country” and clearly, governments are wary given the recent data privacy scandals.
This week, the US Senate Banking Committee quizzed Facebook executive David Marcus over the tech giant’s intention behind Libra. The company had showed “through scandal after scandal that it doesn’t deserve our trust”, said senator Sherrod Brown.
Wickham said, “Venture deals exist at the intersection of business – for example, what can you do with AI and blockchain – that’s where VCs are hunting.
“When you bring tech to companies to enable a scale like you have never seen before – for example, Uber and AI – you can make a real difference.”
He added, “Innovation happens with the business model. I always ask startups these four questions, how do you delight customers, how do you get paid, what’s your cost and how do you scale – do customer acquisition costs decrease over time?”
He cited Zoom where the innovation is in the business model – now worth $22 billion. “We don’t look at the tech as such and we don’t look for companies with fake growth – that is, high revenue growth but high cost of customer acquisition.”
Takamiya said while people were talking about the “next big thing like AI and blockchain”, basic tech had yet to be married to market needs yet. “In travel a lot of friction points remain to be solved and each will have their iPhone moment.”
As for where they would bet their funds, the answers ranged from supply chain, hospitality and lifestyle, unique and differentiated experiences and platform that optimized matching demand and supply.
