[Podcast] Why SaaS is growing so much faster in Japan — Interview with Shinji Asada at One Capital (Part 4)

SaaS startup valuations and growth rates have dropped sharply in most of the world, but not in Japan.

SaaS startups are growing fast in Japan, and that trend is set to accelerate even more over the next five years.

Today Shinji Asada of One Capital explains Japan’s still-untapped SaaS potential, his unique SMB and product-focused investment thesis, and the big changes that are happening in Japan’s startup ecosystem.

It’s a great conversation, and I think you’ll enjoy it.

Tim: So, with things changing so fast here in Japan, is there anything recently in the last 12 months or so that you’ve changed your mind about?

Shinji: Yeah, I mean, Fund one, I had a team and I have a bigger team right now with Fund two, but especially for Fund one, it was all about me. What I mean by that is I had the most experience as an investor, so deal sourcing, diligence, investing hands-on help. Like I really had to do a lot. And I thought that’s what founders should do. Like you have a product CEO, he does selling, he does marketing, he does hiring. But in the past 12 months, fortunately I’ve been able to hire amazing talent and I’m at a stage where I am trying to scale the process of being a better VC of offloading the work that I thought I should do all around. But at the same time, I am the biggest contributor in terms of deal sourcing because I’ve been in the market and I’m the visible figure in One Capital. So, I need to be the deal magnet. When there’s a deal that we need to win, I have to be very aggressive in winning that deal. So that is the role that I am still keeping from Fund one to Fund two. But diligence, work, hands-on support board management, I’m getting our team members a lot more involved in the outcome is actually great because it’s 10X what I’m able to do individually.

Tim: But you’re going to continue to do inside sales.

Shinji: Totally, got more time to do that.

Tim: Excellent. Well listen, Shinji, before we wrap up, I’m going to pull out the crystal ball and ask you what does Japan’s ecosystem look like in 10 years and what does One Capital look like in 10 years when you’re raising Fund five?

Shinji: 10 years is pretty quick, Tim. I think it will look like entrepreneurship is too obvious. I think we’re in a stage where you’ve been explaining and also emphasizing that it’s changed because it wasn’t the thing to do five or 10 years ago. It is starting to become the thing now, but like 10 years from now, I think entrepreneurship is everyday thing. Everybody’s going to try it now. I’m not hoping that it’s definitely going to be like that. The government is involved. There’s more talent pouring in. There’s even US amazing entrepreneurs coming to Japan and starting place like we saw with Sakana AI.

Tim: Yeah, I agree. I think that trend is already hitting. I mean, I’ve done startup workshops at high schools and it’s awesome, there’s so much enthusiasm. I don’t have to go in and explain like this is what a startup is. I mean, they know it’s great. I think that change is already underway.

Shinji: Yeah. Thanks to your helping out these high schoolers. They’re going to be entrepreneurs when they’re around 20 or 25, right?

Tim: Yeah. I mean, everyone playing my own small little part in it. Do you think we’ve hit that tipping point? So, like you say, the government’s pushing on it, the universities, high schoolers, are inviting people like me to go and talk to high school kids. It really does seem like all of society behind this, at least in spirit. So, do you think we’re going to see this huge ramp up in entrepreneurial activity, or do you think we’re going to see kind of this steady even growth that we’ve been seeing over the past 10 years or so where we get this steady like 20% annual growth?

Shinji: I can assure you that steady growth is there. That’s how Japan as a nation has always grown. Steadily and steadily. That’s the culture. But there’s probably going to be spikes here and there with amazing founders doing big IPOs and that will be the tipping point. We’re almost there because there’s a lot of venture backed companies raising 100- 200 million right now. And those are going to blossom to grading revenues bigger than a 100, maybe 200 or 300. And debuting in the public markets in Japan or elsewhere in a very big way. We need more of that. And those will be symbolic, which will solidify this tipping point. And the rest is history. We need the Mark Zuckerbergs, we need these amazing founders that, that is iconic in the US similar to Japan. We need that. And there are lots of potential companies here in Japan with lots of venture back capital.

Tim: Awesome. Well, Shinji, thank you so much for sitting down with me. I really appreciate it.

Shinji: Likewise.

And we are back.

You know, I’ve always favored enterprise SaaS over its smaller SMB sibling, but Shinji makes a good point. It’s easier to sell to SMBs and in Japan and there are many industries that remain highly fragmented with a lot of aggressive, profitable SMB players competing.

And as Shinji points out, with SaaS penetration in Japan still so low, multiples on SaaS startups still pretty reasonable and money is continuing to flow into the sector.

Well, you know, there’s a lot to love here and we expect to see a lot of growth and innovation from Japanese SaaS startups.

Even more encouraging though is the trend we discussed of Japanese VCs increasingly adding real value to the ecosystem. Shinji is doing this by helping his investors develop digital transformation strategy and helping them to become more comfortable working with startups. And he’s helping his startups by really digging in and finding out what it takes to scale, one inside sales call at a time.

Right now, the Japanese venture capital industry is in the middle of an important transition. More and more firms and definitely some of the best ones are moving away from the old invest and monitor model and finding ways of adding value to their portfolio startups. And also, I suppose, making sure that their portfolio founders feel valued.

And that’s a huge part of building a meaningful startup ecosystem in Japan.

If you want to talk more about SAS in Japan, Shinji, and I would love to hear from you. So, come by disrupting japan.com/show222 and let’s talk about it. And hey, if you enjoy disrupting Japan, share a link online or just tell people about it. Disrupting Japan is free forever and letting people know about the podcast is the absolute best way you can support the show.

But most of all, thanks for listening and thank you for letting people interested in Japanese startups and VCs know about the show.

I’m Tim Romero and thanks for listening to Disrupting Japan.

Click here for the Japanese version of the article