The Truth About Working With Asian Investors
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An entrepreneur recently approached me and asked me to “tell him the truth” about working with Asian investors. In the several years that I have served as an investor and VP for a Japanese corporate innovation center, I cannot count the number of times I have answered this question. In this article, I will share with you the current status of Asian investors in the startup sector, the key investors you should know, and add a word of caution about confusing geographic culture and corporate culture.
The truth is that the distinction between a venture capitalist (VC) and strategic investors from the East as compared to their Western counterparts is not as pronounced as one may think. There is a popular narrative about cultural differences and how it impacts investing. Take the Credit Suisse report How Culture Impacts Investment Behavior, which found that culture does have noticeable impact on individuals’ investing decisions. However, these differences relate to the individual and not to the institutional investor. In fact, the study shows that investment differences across cultures become less prominent as the amount of investable assets increases.
Large-scale investors have the same principles in mind when it comes to an investment philosophy. Commonly, you will hear investors say they look at the team, market size, product-market fit and traction, among other things. Each firm has its own thesis and priorities, but at the end of the day, all of the components matter.
While there may not be a marked distinction between Eastern and Western investing philosophies, there is a change in participation of Asian investors within the startup ecosystem.
Rise of Asian investors in the startup sector.
Recently, numerous Asian companies have been investing in Silicon Valley startups. As a 2016 Washington Post article noted, “Over the past two years, Internet giants such as Alibaba, Baidu and Tencent — sometimes referred to as the Amazon, Google and Facebook of China -- as well as dozens of private investors, family offices, local municipalities and state-owned enterprises have raced to capture a stake in the region’s cutting-edge technologies.”
CB Insights, a venture capital database, reports that over 25 percent of all U.S. unicorns like Snap, Uber and others have an investor from Taiwan, Hong Kong, or China -- which only covers a portion of Asian countries. The money that has come from China and other Asian countries has typically been invested as part of late-stage funding for companies that are already established to a certain degree, such as Snap, Uber, SoFi, Airbnb and Lyft.
Japanese involvement in the investment ecosystem.
Although most press focuses on the Chinese entry into the Silicon Valley ecosystem, Japan’s involvement in the startup investment ecosystem is increasing. Japan is the world’s second largest financial market with a volume of approximately $16 trillion personal financial assets, according to a 2016 report by Science and Technology Office of Tokyo. It is also the third largest economy in the world, ranks sixth in the global competitiveness report and is placed fifth out of 140 in the category “innovation”.
Japan’s commitment to technology and venture capital is growing year over year. In addition to the increasing amount of capital and establishment of new venture funds, major announcements have drawn attention to this island nation. In late 2016, Softbank announced the launch of a $100 billion technology fund and a goal of becoming the biggest investor in the technology industry over the next decade, according to Bloomberg. The Japanese ecommerce company Rakuten has also made global headlines with notable investments in the financial sector.
Other Japanese companies have also targeted the startup sector to stay competitive. At Konica Minolta, I manage the Silicon Valley Business Innovation Center (BIC) to access emerging technologies, talent and intellectual capital. As a corporate strategic investor, the BIC looks for technologies that align with our core expertise in product and service areas such as robotics, the workplaces of the future, healthcare, and digital marketing.
As one of the richest and developed countries in the world, Japanese investors offer access to new capital, global go-to-market channels, tech-forward customers, and high–end design and manufacturing capabilities.
Don't confuse geographic stereotypes with unique corporate culture.
Working with Asian investors and partners can be extremely advantageous for startups, especially those looking to expand overseas. It is important to remember that while these investors are becoming a powerful global financing force, there are still some considerations for startups. While Eastern and Western investors may have similar investment theses, there could arise different perceptions on managing the ongoing business relationships.
These differences could be related to the speed of decision making or related to the level of detail and planning required. While these stereotypes may hold some truth, I caution startups in accepting them at face value. Do not assume that a company’s actions are determined purely based on the regional values and not those that arise within the company itself.
For example, there was recently a breakdown of the relationship between Quixey and its primary investor, the Chinese ecommerce behemoth Alibaba, as reported by The Washington Post. The article does not acknowledge that this disagreement could be a result of Alibaba’s values as a corporation, independent of geography or national cultural. If this investee-investor breakdown were truly representative of a systemic cultural problem, we would have likely heard of more conflict than a few one-off cases. With 140 startup-funding deals that involved Chinese investors in 2015, there is no shortage of these potential cases.
As Asian investors become an increasingly more important investor group globally, startups should not shy away from working with these companies. Strategically identify those companies and investors whose value proposition aligns with your needs. At the end of the day, startups should do diligence on the specific potential investor or company, and not rely on culture stereotypes to determine partnerships.