The Ultimate Guide to Raising Money in Japan [Updated]

There has never been a better time to be raising money in Japan than right now. Founders ask me about fundraising more than any other topic, so this guide is long overdue. There are links that cover the basics in the Show Notes, and I will be keeping this page updated as new information becomes available and members of the community create new resources. Calling something "The Ultimate Guide" to anything is a pretty big claim, and I'll do my best to make sure this page lives up to it. Please enjoy. Show Notes Results of the "Why Meet a Founder?" survey Directories of Japanese VC firms Japan Venture Capital Membership Crunchbase's list of Japanese VCs The Bridge: not a directory, but a good source of Japanese funding announcements Kei Furukawa's master list of Japanese VCs Tyson Batino's list of foreign-founder-friendly VCs in Japan. How to pitch like a Pro Dave McClure's original guide to pitching VCs - Very much substance over style The same information in a more readable format Dave's deck redesigned by people who do care about style What you need to put in your pitch deck - an infographic Design advice for pitch decks  - more geared towards pitch contents Advice from Japanese VCs James Riney talks about the VC business model and gives pitching advice Disrupting Japan's live show on fundraising in Japan Hiro Maeda on fundraising in Japan Ikuo Hirasishi provides an overview of Japan's VC landscape More from James Riney back when he was with 500 startups Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan's most successful entrepreneurs. I'm Tim Romero and thanks for joining me. Today, I am going to answer the question that everyone seems to be asking. Or at least the question that everyone seems to be asking me. I am going to explain how to raise money as a new startup founder in Japan. You know, it’s funny how things work out. I originally planned to write this episode a few months ago as a short-take on a focused topic while I fished up my episode about the history of software engineering in Japan, but the topic kind of got away from me. My first draft and notes for the show came in at over 24,000 words, which by the time I fleshed it all out would have ended up as a four -hour podcast, and even I can’t stand to listen to me for four hours. So I’ve had to make some cuts, some painful ones. This episode should be under an hour, but it requires that I speak in generalities and make a few over-broad statements. There are a few really important topics that I will just mention briefly before moving on. So, if while you are listening to this episode, particularly my VC listeners, and you find yourself thinking that I would explain a particular point in more detail and with more nuance, or wishing that I would dive deeper into specific strategies and scenarios …   Yeah. Me too. But we’ll save that for another podcast or maybe a conversation over a beer. Now, there are a few very important questions you need to ask before you even decide to seek VC money. Things like “How do you plan on using those funds?” and “Are you sure you understand the growth-driven management style you are signing up for here?” But, from my experience, relatively few founders really want to dive into those topics. No, what founders in Japan really want to know is how to raise money. So that’s what we are going to talk about. I’m going to give you a clear and actionable plan so that: You can decide which VCs you should approach You can set up meetings with partners at reputable Japanese VC firms You will know how to pitch in the most effective way possible You will have some strategies to help you actually close the round, and get the money in the bank. And you’ll be able to do it all in a reasonable amount of time without going absolutely crazy. Now, I’ll warn you. Each of these steps is significantly harder than the one before, but you’ll be building up your skills as you move through the process. Also, as part of my research for this episode, I not only had a lot of conversations, but I also created an informal “Why Meet a Founder” survey and sent it to many of my VC friends in Japan. The survey asked what factors influenced their decisions to meet with a founder and hear their pitch. We’ll talk about the survey a bit during this podcast, and the results available to you as a special bonus download in the show notes on the Disrupting Japan site. Alright, are we ready to go? Let's get started with Step 1 How to decide which VCs to approach. Creating your shortlist of VCs to Target Now, when I talk about creating a list of VCs, I’m not talking about finding the names and contact information for a bunch of VCs in Japan. That’s actually pretty easy, we’ll talk about that later and there are links in the show notes. I’m talking about creating the shortlist of VCs that you want to approach with your startup. So why a shortlist rather than a long list? After all, many successful founders tell of how they made dozens of pitches before getting funding? Why should I limit my options? Well first, your options are already limited, and it’s best that you understand that in advance.  No matter how great your idea is, most funds simply won’t be able to invest in your startup for reasons that, as you’ll see, are very easy to understand. The problem is that there is this really popular startup origin myth about how some disruptive and innovative founders had to pitch to dozens — hundreds — of investors before they found a VC who could recognize their vision and their genius. It’s almost always bullshit. In a recent interview, Peloton founder John Foley bragged that over 400 investors turned him down. Now, maybe that’s just an exaggeration. Maybe he’s counting all 50 investors who attended some pitch event or demo day. I don’t know, but if he really made 400 investor presentations before finding investment, it was probably because he didn’t take the time to figure out who was to invest in him in the first place. Pitching is not simply a numbers game, or at least it should’ be. The second reason you should have a shortlist of VCs is that while there are a lot more VCs in Japan than there were a decade ago, there really aren’t that many, so it doesn’t take much time to research them and start with the ones where you will have the highest chance of success and can give you the best advice. OK, before we get into how to find the VCs ad put together your list, you need to understand the different kinds of venture money available in Japan. There are actually a lot of different types of VCs, and I’ll get to some of the finer details a bit later.  But for now, the most important difference you need to understand is the difference between regular venture capital funds (or VCs) and corporate venture capital funds, or CVCs.  Japanese CVCs behave differently than those from the US and Europe, so we’ll cover them in depth. And we’ll also talk about foreign VC funds, specialty VC funds and government-related VC funds which are all special cases as far as startup founders are concerned. The most fundamental difference between CVC and regular VCs is that regular VCs raise money from a wide range of individuals and institutions, and they are primarily interested in financial returns. Acutely, obsessed with financial returns would probably be more accurate. You see, those financial returns determine how the investment team is compensated, whether they will be able to raise another fund, and even whether they will be able to continue having a career as a venture capitalist. In this sense, traditional VCs are simple creatures. You know exactly what motivates them. Corporate VCs, CVCs, in Japan are very different and far more complicated in their motivations. CVCs are run by a large enterprise, and the investment funds come primarily, or even exclusively, from that enterprise or its corporate group. In fact, many CVC funds in Japan aren’t actually funds at all. In many cases, the company can pull the money out of the fund at will, and sometimes there isn’t even a dedicated pool of money. The enterprise simply invests from its balance sheet. While Japanese CVCs do care about financial returns, it's usually not their primary metric. CVCs usually invest strategically; to gain insight into new technology in their industry, to own a portion of a company they want to do business with, or to build a relationship with a company they might want to acquire later. Now, to most founders, CVCs with their long-term focus and industry-connections sound like an ideal investor.  And yeah, they can be, but the truth is that as an early-stage founder, and it breaks my heart to say this, but you are probably wasting your time pitching to Japanese CVCs. It’s not that CVCs don’t make great investors. They do. However, pitching directly to them is usually not the most efficient way to get them to invest. That sounds like a harsh statement, but if your startup is still early stage, by which I mean this is the first time you are raising venture capital or you do not have an existing customer base in their industry with real sales, simply leave Japanese CVCs off your target list — at least for now.  The hard thing about pitching Japanese CVCs is that since their careers are not tied to the returns of their fund, they are much less likely to take a risk on an unproven startup than a regular VC. Now if you are already doing business with that CVCs corporate group, you should definitely pitch them. However, even then, your best strategy is to have them recommend you to a regular VC, who can help them set valuation and de-risk the deal for them. The basic reason for this is that CVCs tend to require a lot more external validation and certainty than regular VCs do.