The end of May marks another "corona month", and we took to Zoom to hold an event with some of our colleagues! It was important for us to discuss the current situation, following (and during) the COVID19 pandemic, and show that Japan is (and always has been) a great market for startup companies to approach.
Following is a brief summary of the event; you can watch it here!
Panelists
Guy Lachmann, Senior Partner @ Pearl Cohen
Shirley Binder, Head of IL branch @ Samurai Incubate Inc.
Akimoto Nobuyuki, Co-founder and Managing Director @ AT Partners
Yinnon Dolev, CEO @ Sompo Digital Lab TLV
Arun Poojari, General Manager APAC @ SparkBeyond
Eitan Naor, Managing partner @ IN Venture
Foreign contries are participating in IL tech investments – US is obviously dominant, but Japan is at the very end of the list, with 3% of investments in 2018. Acquisitions of IL companies made by Japan are even lower – only 2% of acquisitions made in 2018. Having said that, we know the Japanese capital exists – so how do we increate their involvement?
2019 seemed to have figured this out. Currently, over 120 Japanese companies are active in Israel, with either a local branch, representative or other. Japanese investments in Israeli startups have reached over 850K USD in 2019, and the amount of transactions doubled. Furthermore, 70% of investments in 2019 were made by Japanese companies investing for the first time in Israel. Approximately 170 Israeli companies are operating in Japan, and in 2019 we saw even more new companies and entities entering Japan (or vice versa).
COVID19 Impact
As of writing this blog post, the Coronavirus situation is under control. The emergency state was extended to may 31st, and the number of deaths due to COVID19 is enprecedently low (given a 13 million population). A 990 billion USD stimulus package was announced, however it seems that Japan’s economy is slowly sliding into recession. How will it be able to overcome this? Will the crisis change Japan’s work culture? Will new opportunities grow out of this new reality?
According to our panelists, so far there isn’t a dramatic change in investment activity; Samurai as one example was operating remotely but kept full power on. The fund is targeting startups and technologies that will be relevant no matter what – during and after the pandemic. The pandemic hasn’t affected any of the investment criteria, but has made Samurai work even faster and push forward due to the growing need of the ecosystem.
On the other hand, according to AT Partners there’s a need to distinguish between VC’s that have already raised funds (like Samurai and IN Venture), as opposed to funds that have not. While a VC that has already raised funds is able to continue “business as usual”, a VC/CVC without immediate available funds might now be in the same situation. Looking at Japan, there are some key points to consider:
The GDP of Japan has dropped in over 3% in Q1 of 2020, and according to predictions, will continue to drop for up to 20% more. Such prediction means it will take at least 1 or 2 years to recover the economy and investment activities.
The amount of investments made within Japan is growing by the year, and is mostly from corporates. According to a survey made recently by Deloitte, 90% of participating corporates will slow down or decrease the amounts of investment planned for 2020 – as must as 30% of those will make an even bigger decrease, of up to 50%.
In parallel to investments, the hunger or interest in innovation activities might also decrease, as different entities will try to minimize cost and risk.
Having said the above, this might also be an opportunity: this is the best time to find out who’s serious at working with startups and who will stick to their open innovation agenda; “fake players” just might drop out of the game, and leave it up to the good players – which will make it easier for startups to understand who to work with.
Changing Environment – Is Telework the new “normal”?
Even though most everyone moves to work from home if possible, according to SOMPO’s digital lab it seems that the appetite for innovation is pretty much the same. SOMPO are still focused on creating investment and partnership opportunities, and the areas of search have expended. Seeing the reality that was created with the beginning of the COVID19 pandemic, Digital Health and Telehealth, as well as distributed work environments and teleworking have increased in popularity. In addition, Digitalization processes are accelerated and the work-life balance is improving.
IN Ventures also report no dramatic change following the pandemic; Having already looking for top notch startup companies, they are even more “picky” now. Some changes are seen in startup valuations that are going down, and being able to reason with startups more easily. With Sumitomo working in different locations worldwide they have seen the world going into “post trauma” right now, however believe that this is a short time effect that will diminish very soon.
While staying carefully optimistic, here are some tips for startup companies to think about:
Be mindful of cash flow: understand the importance of cash management
Evaluate your market fit and work on your go-to-market strategy, as this is crucial during these trialing times.
Try thinking of your current valuation matches a world where the economy state is not at its best, and see if changes any funding rounds or other.
2020 – looking to the future
We tried to understand what the rest of 2020, and the future, will look like. Here are some conclusions/predictions:
The ecosystem will discover the “serious” Open Innovation players, and there are still enough companies interested in that.
Investments might slow down, but will soon recover; it’s a matter of balance.
It’s all about the human spirit: the huge uncertainty will be removed and people everywhere will work to recover. Following a short-mid term impact, we will turn out stronger and smarter.
Opportunities grow from crisis – the ecosystem will grow stronger and more resilient.
Samurai Incubate Inc. was established in 2008, just short after the 2008 crisis. We grow from challenges and are always looking for the next one!
Want to join the family? Apply for an investment here: https://www.samurai-incubate-israel.asia/investments