Japanese venture capital firm Global Brain, which closed its $180-million sixth fund last year, has invested a portion of it for over a year and expects to deploy the rest of the funds in less than five years, the period the fund has assigned for deployment.
The fund, the largest one raised by Global Brain since it was started in 2001, seeks to invest in sectors including Internet of Things (IoT), hardware, enterprise, robotics, education and commerce solutions and focuses on investments in Japan, Silicon Valley, South Korea, Southeast Asia, and Israel.
In fact, the vehicle is set to invest about half of the capital in Global Brain’s home country, Japan. The VC firm is also looking to expand its presence in Southeast Asia, with a concerted focus on Indonesia, the region’s largest consumer market, Singapore-based Venture Partner Takashi Sano told DEALSTREETASIA in a recent interaction.
“The tenure (of the fund) is ten years — five years deployment and five years harvesting. We have already deployed some portion in one year and the first quarter this year. So, it is another close to three-four years to go. We plan to deploy much faster than five years,” he said.
Global Brain’s recent investment was in Tokyo-based Bizcast, which owns YouTube influencer marketing platform BitStar, in a $2.7 million funding round.
“We prefer to come in Series A from our new fund from a $1-3 million ticket size and we keep following or leading other rounds. Our new fund is technically ready to ride a ticket up to $10 million for a company if they keep growing,” said Sano.
In terms of the latest fund, you invest globally — Japan, Korea, Southeast Asia. Is there a ratio in terms of allocation?
There is not a specific ratio but half will be deployed in Japan.
How do you see the deal flow in the region as there have been complaints that in terms of quality deal flow, this region may be lagging?
As compared to the US, China or India, it is not so much about the deal flow but the ecosystem. Startup ecosystem in Southeast Asia (SEA) is still at an early stage and a lot needs to be done. Of course, the capital is coming in but maturity is not at a later stage. That also shows in the economy itself. I am asked questions on this region as compared to US or others which have a very long history of innovation. Singapore or the rest of SEA have just passed 5 or 6 years so it is too early to compare. But, in the five-six years in the region, we see the speed is different and that is where we see opportunity.
In terms of maturity of the ecosystem, do you only see the maturity of startups or you also mean the VCs?
It would be all in the ecosystem. The entrepreneur, investors, corporates and public markets are all related. It is common to find second-generation, third-generation entrepreneurs in the US but here, it is mostly first-timers. It is changing now. For investors, while they have an experience in finance, we still need to grow ourselves and learn from outside.
A majority of US exits are now coming from IPOs if it is led by internet giants whereas there are hardly any cases in this region. Many companies and conglomerates have started looking at the region to acquire a partner which is a great sign but it requires more. Again public market, Nasdaq is one, Tokyo Stock Exchange is also a very favourable market for startups. In this aspect, Indonesia started development board which is a great sign. Two were listed last year in Indonesia but still a long way to go.
You mentioned the M&A acquisition on the corporate side and the public markets where there are hardly any immediate solutions. For exchanges like Japan and Australia, how big is the opportunity to target companies in SEA?
First, I know about Tokyo Stock Exchange as we are closely working with them and they really want to have SEA companies to be listed there. It has not happened yet but we are trying to create the first case, a pioneer to do it. In Tokyo, there is a very favourable market and investors are willing to take a risk to support startups. High liquidity, turnover and all. One cannot go naturally because most of the investors are from Japan but they are looking at SEA as a market including corporates. As far as you can do proper communication, the Tokyo Stock Exchange listing is an option for startups to go to the next level of growth. That is what we are trying to come and tell people about this area.
We have not seen external listings move to Tokyo?
There are two reasons– one they do not know as their knowledge and awareness is limited and the second part is communication. Japanese investors are in majority, so one needs to communicate with them. Listing cost is also cheap as compared to SGX but how one would like to spend the additional communication cost is what matters. That is also where we come into play as many Japanese corporates want to come into partnerships and work together for this market.
You mentioned Japanese corporates and you have a lot of Japanese LPs in your fund. How do your portfolio companies benefit from these LPs ?
For us, if the market is in Japan, it is relatively easier to help them. Also because of the LP and other network in Japan, the solution is more like corporate or partnership with enterprise which is looking for a solution to improve their client’s business. The other way is in this region. Some businesses are quite advanced in Japan. So, there is experience that can be deployed in this region and they could grow faster.
Big picture, how do you see the SEA region as it is often called a 600-million population region?
We do not look at the region as a 600 million people region but more city wise. Only exception could be Indonesia which we are focusing heavily on from this new fund. Indonesia is the one which can be scaled. The Indonesian problem and issue to be solved is different city by city or layer by layer.
In Indonesia are there any specific sectors that you are looking at?
We are basically sector agnostic. In terms of economic developement and startup ecosystem, we still look at e-commerce enabler, finance, healthcare and real estate/construction. Not limited to them but those are major sectors.
We do not directly do e-commerce. We could do it but e-commerce is a giant play. We prepare e-commerce enablers which help e-commerce players.
In the new fund, you have shied away from China. What is the reason?
We have been doing a lot of global activity and if bring China to the table, it will be too much. We still do not have that cutting edge competitiveness for that market and we do not know that much about China yet. We have been monitoring anyway but in terms of deal flow or network, we are not very strong yet. We do not do China.
In the past, most VCs had LPs from the west and that has been changing as there is a significant rise in Chinese investments. Also, we have not seen a lot of capital from Japan. Do you see Japanese capital making a headway and coming into these regions of India and SEA?
If you compare to China, Japan is very small. In absolute terms, maybe it is in the middle of a next growth stage. Japanese capital has been flying around may be in the past five years in infrastructure and other innovation activities.
Japanese investors are looking at how and where to deploy more efficiently. They have been looking at the region for sure and we have been inquired a lot about how to get into the region. Still, among the several options to take, this (SEA) is not the first one. Say, if you deploy $10 million somewhere, you go into a new region with the same business but it can be on the table to decide. It is time to decide how the Japanese corporates are going to spend the money they make in the domestic market.
On the latest fund, you do Series A and B and many people say that Series B is a pain-point in this region. Do you also think so or does it depend on the quality of the deals?
It is quality of the deals for sure. Financing history is also one of the things. Series B has not reached that stage. It is not about the fund or capital flow itself. If one raises a significant amount in Series A, it is crucial how one efficiently uses the money raised. Once Series B comes, you need to set certain valuations so post series B is still okay. That means the gap between Series B investors and valuation. We prefer to come in Series A from our new fund from a $1-3 million ticket size and we keep following or leading other rounds. Our new fund is technically ready to ride a ticket up to $10 million for a company if they keep growing. So that is the idea that we come in early and we can top-up or lead again if there is an opportunity.
Have valuations in the region seen a correction?
Generally, yes. I started seeing a correction in the fourth quarter of last year and hope it continues this year.
What is the correction range that you have seen?
Not a specific number. For instance before early last year, we spoke with entreprenuerial startups and heard funny valuations. After hearing that, we lost the appetite (to invest). We see a level of variance now that we can keep talking.
What is the structure of the latest fund in terms of tenure?
It is ten years — five years deployment and five years harvesting. We have already deployed some portion for one year and first quarter, with close to three-four years to go. We plan to deploy much faster than five years.
Does that also mean that the subsequent funds will be much bigger?
As the funds become bigger, there are more difficulties coming in.
How has your track record in terms of exits been?
We have historically deployed in 120-130 companies and we have nine IPOs and 30 exits. We have a lot of exits in the pipeline.
Having said that, we are very positive about this region. And even if in series B there is gap, we would like to fill it with a certain ticket size. As for Indonesia, we have one media portfolio company there, we need to do more.