Fund focus: Globis doubles down on Japan VC thesis

Is Japan on the verge of losing its status as Asia’s least known VC growth story? Shinichi Takamiya (pictured), a managing partner at Globis Capital Partners, suggests as much and perhaps the latest Globis fundraise confirms it. The JPY 72.7bn (USD 544m) vehicle is the largest pure early-stage Japan fund to date, according to AVCJ Research, and it continues a trend of increases with each vintage.

Having raised JPY 11.5bn for Fund IV in 2013, Globis moved through the gears, closing its next two funds on JPY 20bn and JPY 40bn at intervals of three years. The number of portfolio companies per fund hasn’t changed much. Rather, cheque sizes are increasing and start-ups are squeezing in more private rounds before they go public.

This time around, the process wasn’t straightforward. While Fund VI raced to a first and final close of JPY 40bn in 2019, Fund VII spent 18 months in the market, having launched in the final quarter of 2021. Severe corrections in global listed technology stocks hampered demand, notably from overseas LPs.

As such, the Fund VII investor base is 90% institutional and 90% Japan. This is in line with recent vintages. When Globis closed Fund III in 2006, overseas LPs put in 80% of the capital. But international appetite for Japan VC dissipated with the global financial crisis – seven years passed between Funds III and IV – and when allocations resumed the Asian portion was heavily skewed towards China.

Fund IV happened to mark the arrival of flea market app Mercari in the Globis portfolio. It went on to become Japan’s first unicorn, complete a landmark IPO in 2017, and then blaze a trail into the US, where it ranks as the leading app of its kind. Takamiya estimates that nearly 40 more start-ups have achieved unicorn status, including those that crossed the USD 1bn threshold within 12 months of going public.

Japan’s status as a consistent source of unicorns has driven more capital into venture. A record USD 4.3bn was deployed in 2022, AVCJ Research’s records show. As recently as 2013, the annual total was barely USD 600m; it only surpassed USD 1bn for the first time in 2016, hitting USD 1.3bn.

Globis has tracked more entrepreneurs launching start-ups as well as noticeable uptick in founder quality. Takamiya observes Japan now has a reasonable number of serial entrepreneurs, while start-ups are now popular destinations for professionals who might ordinarily have picked banking or consulting.

This has contributed to bigger cheque sizes. Ten years ago, Globis was providing Series A rounds of USD 1m at valuations of USD 7m-USD 8m. Those thresholds have since risen to USD 3m-USD 5m and USD 15m-USD 20m. Moreover, Japan has managed to avoid the worst of the technology sector downturn, with plenty of capital still available for start-ups raising seed and Series A rounds.

From Fund VI onwards, Globis has raised a growth-stage sidecar as part of the overall corpus. Approximately 35% of Fund VII is expected to go into follow-on rounds for existing portfolio companies – and the firm expects to benefit from less frenetic competition in this space following the withdrawal of international hedge funds and late-stage technology investors.

“The growth-stage market has ramped up, mainly because of overseas money, then a bit from the Japanese government and a bit from the likes of us,” said Takamiya. “Then the public market crashed and the tourist money was quick to exit. This has left a huge white space. With less money chasing the opportunity, it’s a good market in terms of valuations.”

The Fund VII mandate is to invest in start-ups “looking to update large industries in Japan that can be expanded globally.” The idea is to take advantage of Japan’s innate strengths, including mobile services (mobile internet debuted in the country 26 years ago), manufacturing (to the extent that it can be paired with modern technologies such as artificial intelligence), and deep-tech.

“A lot of basic technologies are hidden in the labs of large companies and academia, so we are seeing more spinouts. Things like deep-tech are high risk, high return, but if the technology is strong enough, you don’t need to think too much about localisation – it will go across the globe in a day,” said Takamiya.

Globis will support global expansion through a newly opened San Francisco office, while leveraging the on-the-ground resources of its parent, corporate training and higher education provider Globis Corporation, in Shanghai and Singapore. The firm is subleasing in San Francisco from SmartNews, a news app operator and a longstanding portfolio company.

SmartNews, which was valued at USD 2bn on closing its Series F round in 2021, has enjoyed similar international success to Mercari. The company’s news reader app, which comes preinstalled on Apple devices, is the second largest in the US, and a significant minority portion of its revenue now comes from overseas. SmartNews management has agreed to mentor Globis-backed start-ups.

“One part of our thesis is dominating the Japanese market; the other is going global,” said Takamiya. “In the past, companies have dominated Japan and then went overseas as the next step, but they optimised for the Japanese market so much that there was a lot of friction going overseas. We believe you need a one product fits all strategy where a product accommodates a universal need.”

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• Topics
• North Asia
• GPs
• Fundraising
• Venture
• Technology
• Japan
• Globis Capital Partners