How Founders Fund Views the Japanese Market: A Roundtable with Global Brain

Recently, Sean Liu and Koren Gilbai from Founders Fund, a US venture capital firm, visited Global Brain (GB), a Japanese independent venture capital firm, in Tokyo to join a roundtable. Founders Fund is a leading global VC firm with a portfolio that includes Facebook, Airbnb, SpaceX, Stripe, Palantir, Figma, etc. PayPal founder Peter Thiel is a partner at the firm.

The roundtable was also joined by four of GB’s portfolio startups, namely estie (website only in Japanese), Jij, CADDi (website only in Japanese), and Kyoto Fusioneering, and they had a productive and engaging discussion.

GB’s Ken Kajii started off the meeting with a presentation of the Japanese startup market, leveraging data to highlight that the Japanese market has been growing by 30 to 40% annually since 2012 and Japan boasts the world’s second-largest enterprise IT market.

The Japanese market is underestimated

Based on the Japanese market’s current situation, Ken Kajii and the four startups asked questions to Founders Fund. Here are some of the exchanges that took place.

──What is the purpose of visiting Japan?

Sean: This is the first time to visit Japan as a fund, and we came here to meet smart people, founders, businesses, and level set on what we want to do. I also have a hypothesis that Japan is underestimated in terms of startup investment. Founders Fund reflects the philosophy of Peter Thiel’s book, Zero to One, and we consider that competition is for losers. We think that the Japanese market has limited competition, which is why we feel there is potential.

In addition to startups, we also met Japanese large corporations in sectors like electronics and chemical industry. We are also going to visit Taiwan, where we are planning to exchange opinions with large electronics companies, etc.

──What are your honest thoughts on Japanese startup founders and the market?

Sean: Through the discussions we had with various founders like this, I found that Japan has a talent density that is higher than I expected. While Japan has limited VC activity, it has the fourth largest economy in the world and lots of great technologies, which should have significant value hidden there.

We are here to see what is starting to untangle and change in the Japanese startup ecosystem, to put it another way, whether Japan is at the turning point of entering the rapid growth phase like China in the 2010s. However, it is not yet clear in which phase it is in, 2004 or 2008. So, we need to find the right timing to invest in Japan.

Also, Japanese startups’ valuations will largely differ depending on whether they are Japan-focused or expanding globally to compete with companies in Silicon Valley or China. We do not know yet if the valuations will be readjusted by remaining in Japan or if they reach the true level by going global, because the competition is completely different between the Japanese market and the global market.

──What is Founders Fund’s investment mandate?

Sean: Our investment approach is very concentrated. We have invested USD four billion in about eight companies through our growth fund, and on the venture side, we have invested up to USD one billion in a single company.

Why concentrated? Because we think that the technology power law is very very real. There is always a discussion of whether portfolio investment is better or concentrated investment is better.

Our investment in Facebook is a good example of why we prefer concentrated investment. When we compare the cumulative market capitalization of all the Y Combinator’s companies and the current market capitalization of a single company, Facebook, that was founded at the same time with Y Combinator, Facebook outperforms. That is why the decision of spending time on 10,000 companies or one company is crucial, and we want to find the best founder that leads such a single company.

──What is Founders Fund’s investment criteria?

Sean: To identify the best founders, we have a culture of openly discussing and deeply exploring one key question: “Why is this person special?” We also value the mindset of asking ourselves, “If I could only make one investment in my life as an investor, would I invest in this entrepreneur?”

Many of the most successful deals such as SpaceX were the most debated deals to which half of the fund members opposed. We hire members with different perspectives to have robust discussion and make decisions.

There is also a lot of game theory behind our questions, which is vital to our strategy. We manage our funds by always keeping in mind why other funds are not taking this measure.

──Is the visit to Japan this time to expand your regional coverage?

Sean: We do not have the idea of having more coverage in target countries and sectors. So, in that sense, we did not come to Japan to expand our coverage, instead, we came here to find the best founder and startup from a global perspective. The size of our venture investment would be Japan’s Series C, so we need a little more conviction. In the Japanese market, we are thinking of partnering and cooperating with a top local VC like GB instead of competing with existing players.

Regionally, our investment is heavily focused on the US as a result, because the US market is much larger and more efficient from a capital efficiency perspective. In fact, if you list the top 20 public companies by market capitalization, over 90% of them are US companies. As for investments outside the US, we have invested in Nubank, a FinTech company in Latin America. Founders Fund knew Nubank’s founder, and the startup had the potential to expand its business globally from Latin America. That is why we invested in Nubank.

Discussion with four startups

The four startups and Sean also engaged in a lively discussion on their businesses. Here are some of the highlights of that discussion.

#01: estie

estie is a proptech company specializing in commercial real estate, independently collecting information on rent, occupancy rates, and tenants that are difficult to find online and creating a database. estie provides business operators such as real estate developers, institutional investors, and financial institutions with data on multiple real estate assets and an analysis platform. estie’s Kitaru Ueda gave an example of the startup’s service for office buildings, boasting that it covers roughly 80,000 major buildings across Japan and has a strong market share among major real estate developers for its data offering.

Sean expressed his interest in estie’s unique positioning that focuses on data and was proactively asking questions on the data collection method and, particularly, the target areas’ data coverage rate.

#02: Jij

Jij offers a solution that combines quantum technology and mathematical optimization. Jij focuses on optimizing planning problems that are handled manually, such as logistics, telecommunications, and power plant load forecasting. Sean asked questions mainly on use cases of Jij’s technology. Jij’s Kohji Nishimura explained a case study on SoftBank’s optimization of wireless base station settings.

Sean’s questions also covered how Jij will maintain its competitive edge as a top global tech company in an international competitive arena, given its business structure. Furthermore, he asked how Jij will prevent the digital annealing technology from becoming a transitional technology before the advent of full-scale quantum computing technology. This led to an in-depth exchange of ideas.

#03: CADDi

CADDi is a SaaS company targeting the manufacturing industry, with the mission to unleash the potential of manufacturing. CADDi’s Akifumi Kobashi explained that the company started from a SaaS business solving issues on procurement and supply chain building and has currently expanded its business to cover the entire manufacturing process including design verification.

Sean discussed the potential market size for SaaS and manufacturing AI in the sector and assessed that the product is interesting by mentioning that CADDi is a Japanese company but it is also going global.

#04: Kyoto Fusionnering

Kyoto Fusioneering is a company that integrates components and systems required for fusion power plants. Kyoto Fusioneering’s Kiyoshi Seko described that they focus on the development of surrounding technologies such as blankets, fuel cycles, and heating devices instead of the core technology that generates fusion reactions. He explained Kyoto Fusioneering’s competitive advantages by emphasizing that these technologies can be applied to any fusion type and demand from various companies can be expected.

Sean mainly asked about how intellectual property is owned and about Kyoto Fusioneering’s pick and shovel business model, which expanded into active discussion on its specific business operations.

To serve as a bridge for the startup ecosystem

The roundtable with Founders Fund was a great opportunity to gain many insights on the US VC’s perspective on the Japanese market. We believe that facilitating a direct interaction between a top-tier VC such as Founders Fund and Japanese startups holds great significance for enhancing the startups’ global presence.

GB will continue to regularly make opportunities for overseas VCs and GB’s portfolio companies, aiming to serve as a bridge for Japanese and overseas startup ecosystems and foster innovation on a global scale to achieve the mission of “bringing unimaginable innovation into society.”

Note: The names of roles and affiliations as well as the numbers may have changed after the interview.
(Interviewed and written by the Universe Editorial Team)