20150407 Current trends among startups and how they keep momentum in Japan

1. Current trends among startups and how they keep momentum in Japan Yusuke Asakura Visiting Scholar at Stanford University Former-CEO of mixi, Inc. asakura@stanford.edu 2015/4/7 Entrepreneurship in Asian High-Tech Industries

2. 1 Self introduction How startups keep momentum Startup trends in Japan

4. 3 How startups keep momentum after IPO in Japan

5. Overview of mixi Inc. 4 • Founded in1999 originally as online recruitment information media provider for Web engineers. • Social networking service “mixi” launched in 2004. • Main features were such as diary, community and photo sharing. • Listed on the Tokyo Stock Exchange in 2006 • Became dominant social media platform in Japan

6. Market cap of mixi in the first 5 years after IPO 0 1,000 2,000 3,000 Q2Q1Q2 Q3 Q4Q1 Q4 Q2Q1Q3Q2Q4 Q1Q3Q4Q3Q2Q1Q4Q3 Market cap (USD million; USD 1 = JPY 100) FY2006 FY2007 IPO 5 FY2008 FY2009 FY2010 FY2011 NT acquired by mixi

7. Sales of mixi from FY 2011 to the time I became the CEO Became CEO Sales (USD million; USD 1 = JPY 100) 24 18 21 27 3133 35 38 34 3130 58 0 10 20 30 40 50 60 Q3 Q4Q4Q3Q2 Q2Q1Q4Q1 Q3Q2Q1 FY2011 FY2012 FY2013 Acquired by mixi 6

8. Problems mixi faced with •Competitor •Customer •Company 7

9. Finding out essential value of the company 8 General Value • mixi as Social Networking Service Essential Value • Capability of service development • Cash : USD 120M • “mixi” brand

10. Basic strategy 9 • Improving the bottom line of existing business • Diversification through • New business development • External business acquisition • Recreation of corporate culture

11. Set of actions and the essential issue tackled with 10 ■Developing new business peti jete “User first week” Launch of innovation center Alliance on game platform i-mercury capital Scrum Ventures Deploy Gate nohana Monster Strike muuk ■Cost reduction Termination of part-time contract Closure of call center Closure of US office Closure of Shangai office Internal relocation Assignment of business ■Governance Redefinition of mission Cross-division weekly check-in Effect measurement of each product Regular internal survey Split-up of mixi marketing Management accounting HR rotation program Public offering : $63M ■Acquisition mixi research Kamado YYC Confianza Mystery shopping business Moving the company beyond original business

12. Triggers to regrowth 11 • Blockbuster app • Buyout of profitable services • Assignment of underperforming business

13. Boosting top-line growth through business diversification Became CEO Sales (USD million; USD 1 = JPY 100) 58 24 18 21 27 3133 35 38 34 3130 0 10 20 30 40 50 60 Q3 Q4Q4Q3Q2 Q2Q1Q4Q1 Q3Q2Q1 FY2011 FY2012 FY2013 Acquired by mixi 12

14. Fiscal soundness and mega-hit app triggered regrowth 0 1,000 2,000 3,000 4,000 5,000 Q4 Q1Q2 Q2Q3Q1 Q4 Q1 Q4 Q2Q3 Q2 Q3 Q1 Market cap (USD million; USD 1 = JPY 100) FY2011 FY2012 FY2013 FY2014 Became CEOAcquired by mixi 13

15. 14 • Obligation to grow • Brave new frontier • Forget about current sales and profit margin • There is no synergy • Accept cannibalism • ‘Big Company Disease’ is preventable Some lessons learned from the case

17. GDP of Japan in the last 20 years 16 SOURCE: Cabinet office Government of Japan Real GDP of Japan (JPY Trillion; 1994-2014) 0 100 200 300 400 500 600 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 +1%

18. Japan’s GDP doesn’t show significant growth in the last 20 years 17 SOURCE: SPEEDA, International Monetary Fund (IMF)『World Economic Outlook Database』 Real GDP (USD Trillion; 1994-2014) 0 2 4 6 8 10 12 14 16 18 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 China United States Japan 5 16 0 CAGR (%)

19. Internet and Mobile sectors are key drivers of Japan’s economic growth 18 SOURCE: GLOBIS CAPITAL PARTNERS, Ministry of Internal Affairs and Communications Real GDP Growth (%; Compound Annual Growth Rate; 2005-2011) -4.4 -3.7 -1.6-1.2 -0.4 0.40.60.9 7.6 13.5 -5 0 5 10 15 Retail -1.0 Other IT Electric machinery Transport machinery Mobile communication SteelInternet services Average Trans portation Whole sale Constr uction

20. IPO activity surged in 2014 19 Number of IPOs on TSE Mothers1 Quick Facts 44 32 24 12 6 4 13 22 40 37 2013 201420122008 2009 2010 2011200720062005 1 Market of the high-growth and emerging stocks SOURCE: TSE, Nikkei, GLOBIS CAPITAL PARTNERS, NASDAQ, Bloomberg • Median Market Cap at IPO on TSE Mothers is US 55 million in 2013 • 70% of newly public companies are internet-related business in 2014

21. Aggressive economic growth policy triggered cash inflow to VC funds 20 SOURCE: Incubate Fund 501 (19%) 1,158 (45%) 922 (36%) CVC Independent Financial 13 (35%) 6 (16%) 18 (49%) Newly launched VC funds (2013-2014/10) Size of raised funds (USD million) Number of GPs Financial support through government-backed investment funds Organization for Small & Medium Enterprises and Regional Innovation; • has invested 580 million USD in more than 90 funds since 1999 • invest in private VCs upto the half amount of fund size The Innovation Network Corporation of Japan(INCJ); • Capitalized at 3billion USD • Invest in both of startups and VCs USD 2,581 million

22. Independent VCs are playing active roles in Japan’s startup ecosystem 21 SOURCE: Incubate Fund

23. Venture capital business is becoming more profitable in terms of IPO 22 Average ratio of stock price at IPO to the value of stock at the last round before IPO* (Multiple) * Please note the data may not be comprehensive SOURCE: Japan Venture Research 4.584.77 2.30 1.55 2.04 6.26 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2.39 1.29 4.14 2.36

24. Volume of VC investment is surging Volume of VC investment* (USD million; USD 1 = JPY 100) 1,154 729 557 759747768 1,182 1,221 1,452 0 250 500 750 1,000 1,250 1,500 2011201020092008 20142012 201320072006 23 * Please note the data may not be comprehensive SOURCE: Japan Venture Research

25. More cash flow to VC leads to more sizable private finances 24 * Please note the data may not be compehensive SOURCE: Japan Venture Research Sizable private finance cases in 2014* (USD; 2014; USD 1 = JPY 100) Game 83M Commerce 16M Commerce 12M Commerce 25M C2C market 38M Utility 14M Chemical 12M News apps 24M Bio tech 36M Enterprise 14M Wheel chair 12M Cloudstorage 24M Commerce 24M News apps 35M Game 14M Commerce 11M Commerce 18M Bio tech 30M Enterprise 13M Bio tech 10M Fin-tech 16M Bio tech 13M Automotive 10M Bio tech 26M Internet service

26. More Japanese startups are going global 25 Mercari Smart News gumi Metaps Moi Mobile C2C shopping app. Opened US office and launched US version in 2014. Android monetization platform and credit card processing service. Focusing on Asian region. News curation apps for smartphones and tablets. Opened US office and launched US version in 2014. Ranked #1 on App Store Providing TwitCasting, realtime video broadcasting platform. Opened US office in 2013. Social games provider for smartphone and feature phone. Subsidiary companies in 8 countries. Listed on TSE 1st in 2014. SOURCE: TECH IN ASIA

27. Given the current GDP, the volume of acquisition deal in Japan is lower than expectation 26 Number of deals in 90s Number of deals from 2000 to August of 2013 GDP (USD billion; 2013) 12,411Germany US Japan 72,111 2,198 117,666 18,563 19,532 3,730 4,899 16,768 Japan X Japan X Japan X 32.8 5.6 1 6.3 1.1 1 3.4 0.8 1 SOURCE: Industrial Growth Platform, Inc.

28. Acquisition accelerating1 27 Announced Acquirer Target2 Service of target company 1 Picked up only notable cases. Not meant to be comprehensive 2 Target name is based on service name. Not corporate name except Aratana. Aggregate Value (USD million) 10/2014 MERY:Ladies fashion curation service iemo:Home-design curation service 50 9/2014 Japan's largest lifehack media site NA 10/2013 Rewarding app for customers who visit participating stores NA 9/2013 C2C market place for coaches and people who seeks lessons 10 2/2015 18 Fashion-oriented VIP flash sales site 3/2015 116 Consumer-to-consumer ticket marketplace 3/2015 30 Social app E-Commerce solution SOURCE: SPEEDA, Tech Crunch, TECH IN ASIA

29. • Strong demands for startup but not enough supply • Scarcity and immobility of talents • More acquisitions needed My observation about current startup environment in Japan

30. 29 Appendix

31. Population) Japan has the 10th largest population in the world while aging society is going on 30 29 30 28 25 25 27 28 26 22 20 18 18 17 16 16 15 13 12 50 55 60 67 72 76 79 83 86 87 86 84 81 79 77 73 71 68 63 58 54 50 47 44 7 9 11 12 15 18 22 26 29 32 34 36 37 37 37 39 39 38 36 35 899101111 124 2015 127 2013 127 1960 93 2030 4 83 1950 5 89 117 2060 87 1955 5 97 2050 92 2055 112 2035 107 2040 102 20452025 121 20201995 125 1990 123 1985 121 1980 117 1975 112 1970 104 1965 98 6 2010 127 2005 127 2000 127 Under 14 Over 65 15-64 SOURCE: The national census, National Institute of Population and Social Security Research Actual Forecast Population of Japan (million)

32. Internet penetration) More than 90% of people over 13-59 use internet 31 100.4 96.596.194.694.190.9 88.187.585.3 79.577.3 0 10 20 30 40 50 60 70 80 90 100 110 2003 20052006 2008200920102011201220132004 2007 Number of internet user in Japan (million) SOURCE: Ministry of Internal Affairs and Communications 22.3 48.9 68.9 76.6 91.4 96.697.498.597.9 73.3 0 20 40 60 80 100 30- 39 20- 29 40- 49 13- 19 50- 59 60- 64 70- 79 65- 69 80- Average 82.8 6-12 Internet penetration rate by generation in Japan (%; 2013)

33. Smartphone) iPhone has become the most successful smartphone in Japan 32 Penetration rate of device in household (%) SOURCE: Ministry of Internal Affairs and Communications, IDC Japan, MMD 0 25 50 75 100 2008 2009 2010 2011 2012 2013 PC Tablet Smartphone Mobile Domestic shipments of smartphone by vendor (%; 100%=5.2 million; 2014/7-2014/9) Samsung 11% 4% Other 9%Sony 6% Kyocera 64% Apple 6% Sharp Smartphone device survey (%; N=18,182; 2014) Xperia iPhone 15% 13% AQUOS 44% 12%DIGNO ARROWS 7% GALAXY 5%2% Other 2% MEDIAS

34. Mobile contents) Japan’s mobile contents market shows strong growth 33 0 5,000 10,000 15,000 20,000 25,000 2011 19,061 2010 16,550 2009 15,206 2008 13,524 2007 9,681 6,465 10,085 7,345 11,716 8,510 14,997 4,835 8,689 5,525 2012 5,641 3,150 4,074 7,329 3,666 4,272 23,507 11,601 2006 9,307 2005 7,224 +18% Market size of mobile contents and commerce (million USD; 1USD = JPY100) 1 Calculated based on global digital goods market size and U.S. market share among global mobile contents market SOURCE: Ministry of Internal Affairs and Communications, GLOBIS CAPITAL PARTNERS, Mobile Contents Forum, Deutsche Bank, ResearchMoz, ITU - ICT Statistics Mobile Contents Mobile Commerce US mobile contents market is estimated to be 6.8 billion USD1

35. E-Commerce) B2C E-Commerce shows steady growth led by key players and smartphone penetration 34 111,660 95,130 84,590 77,880 66,960 60,890 0 20,000 40,000 60,000 80,000 100,000 120,000 2008 +13% 201220112010 20132009 Market size of B2C E-Commerce in Japan (million USD; 1USD = JPY100) SOURCE: Ministry of Internal Affairs and Communications 1.79 2.08 2.46 2.83 3.67 Share of E-Commerce in Japan’s consumer Market (%) 3.11 Key E-Commerce companies

36. SNS 1/2) Line is the most commonly used service in Japan. Japanese users prefer to communicate anonymously 35 59.6 52.0 39.3 21.7 16.4 13.5 10.3 13.7 11.4 20.8 5.96.8 3.4 4.8 2.7 3.7 4.1 Facebook Twitter Line 4.4Twit Casting Viber 5.2 5.0 Tumblr Pinterest Kakao talk Instagram 5.3 mixi 5.2 Google+ Used previsouy Using now Survey on SNS/communication service (2014; N=562) Survey on anonymous use of Twitter by country (2014) 75% 31% 19% 56% 60% 42% 55% 48% 36% 40% 32% 45% 13% 14% 539 France 278 UK 9% US 13% 498 6%Japan 8% 402 Anonimity Korea 100% Real name 494Singapore Both 569 SOURCE: MMD, Ministry of Internal Affairs and Communications

37. SNS 2/2) People in their 20s is the most active users 36 Mobage mixi Twitter Facebook LINE GREE 14.4 8.6 22.3 39.6 70.5 14.4 Survey on web service use by generation (%; 2013) SOURCE: Ministry of Internal Affairs and Communications 16.6 57.0 80.3 34.1 22.9 47.1 65.4 19.2 16.4 16.4 42.0 13.3 11.8 13.9 9.8 12.5 20.3 42.6 2.7 3.9 7.0 3.5 15.2 22.3 1.0 0.7 1.7 3.0 5.0 4.3 10-19 20-29 30-39 40-49 50-59 60-

38. Example of Venture Capital Firms in Japan Investment volume* (USD million; 2014) 37 * Please note the data may not be comprehensive SOURCE: Japan Venture Research 8 8 8 9 9 10 11 11 13 14 14 15 19 22 24 32 40 56 69 113 JAFCO WiL Doll Capital Management Atomico Fidelity Growth Partners Japan Nissay Capital Nippon Venture Capital SMBC Venture Capital Globis Capital Partners Global Brain The University of Tokyo Edge Capital Innovation Network Corporation of Japan B Dash Ventures Gree Ventures Mitsubishi UFJ Capital YJ Capital Recruit Incubation Partners Itochu Technology Ventures Hiroshima Innovation Network Mizuho Capital Venture Capital Firms Type of VC Financi al Indepe ndent CVC Foreign Governmental Organization                   Governmental Organization