IMJ out to tap startup ecosystem surge in South-East Asia

• Japanese-founded VC firm expanding into new countries in SEA
• Especially keen on the fintech space in the Philippines

THE startup ecosystem in South-East Asia has certainly moved on to the next level in the two years IMJ Investment Partners (IMJ) has been in the region, in terms of both valuations and activity.
 
“When I first visited Jakarta, Tokopedia’s valuation was at US$10 million – now it’s at US$300 million,” IMJ chief executive officer Yuji Horiguchi (pic above) tells Digital News Asia (DNA).
 
“This shows that South-East Asian startups have been growing at a really fast pace,” he says in an interview at his office, with IMJ’s South-East Asia regional manager Ryusuke Hirota assisting with the translation.
 
IMJ, headquartered in Singapore, journeyed to the region because there were more opportunities to invest, compared with its home base.
 
“Japan is a red ocean – there are many businesses, but startups are not there at all,” says Horiguchi.
 
“I went to Singapore, Indonesia, Thailand and the Philippines,” he adds. “There were a lot of startups but few Japanese investors, so I moved my company here to Singapore.”
 
It was tough at first though, since IMJ didn’t have the same networking reach it had enjoyed in Japan. This meant having to attend as many startup events as possible, and reaching out to major venture capitalists (VCs) and accelerators, to lay down the groundwork.
 
This has paid off: Now, it is the startups and VCs that typically approach IMJ with investment opportunities.
 
IMJ currently has a team of nine, with six of its people focused exclusively on South-East Asia. It has three funds, each with a different focus: One is dedicated to investing in Japanese startups, while the other two are dedicated to investing in South-East Asian startups.
 
Horiguchi however declines to disclose the size of these funds.
 
SEA focus and strategy

IMJ’s startup focus has been on ‘platform players,’ with its portfolio companies spanning industries like financial technology, education technology, and e-commerce.
 
“We are investing in the platform business and not just the game producers,” says Horiguchi.
 
Platform businesses connect scattered service providers to users via a single online platform. These platforms add value by providing functions such as review, payment and logistics, among others.
 
There are four main criteria IMJ uses when evaluating a startup for investment, according to Horiguchi:

• THE size of the addressable market: Evaluating the market size the startup can address and secure by itself is important in sustainability;

• A PROVEN business model that has been replicated in other developed markets like Europe, Japan or the United States;

• THE founders’ capabilities and their ability to manage and run the company;

• HOW persuasiveness the business plan can be to other investors.

Technology is not a focus because Horiguchi feels that developed countries like Japan and the United States would have already developed the technology. The main draw of South-East Asia is the addressable market size.
 
IMJ prefers to focus on early stage and pre-Series A to Series A rounds.
 
“We focus on [these stages] where we can evaluate the products and the growth potential,” says Horiguchi.
 
While many VCs may clamour to be the lead investor, IMJ prefers to co-invest rather than lead rounds.
 
“To be honest, we don’t feel the benefit of being a lead investor,” he says.
 
“It’s a very rare case for us to take the lead, but when we have, it was very early stage or early seed round, which we don’t usually invest in,” he adds.
 
A fifth criterion that can spark IMJ’s investment interest in a startup is if it has an eye on the Japanese market, so that IMJ can bring the value of its network in Japan to the startup.
 
In terms of how it works with its portfolio companies, IMJ prefers not to dive in deep with the founders.
 
“Our main stance is not to push startups to get our advice. We understand that startups can grow if the team is good,” says Horiguchi.
 
“Our stance is to monitor the status of the management and the business, and if there is any need, we always welcome startups to get back to us,” he adds.
 
Its portfolio

The formula seems to be working well for IMJ, with four of the 10 companies in its portfolio being crowned winners at various startup conferences around the region.

TaamKru (pic above), a Thai edutech company, was deemed the most promising startup at Echelon Asia Summit 2014; while PawnHero, a Philippine fintech startup, won the judges’ choice award at Echelon Asia Summit 2015.
 
Mclinica, a Philippine medtech startup, won the Hack Osaka Award 2015; and Ayannah, a Philippine fintech startup, won the main award at Rising Expo 2015.
 
“Our portfolio companies are doing very well … so that helps our fund-raising,” says Horiguchi.
 
Unlike the barebones scenario two years ago when IMJ first came into the region, South-East Asia has seen international investors like Sequoia Capital and 500 Startups coming in, while Japanese investors are also starting to take notice of South-East Asia.
 
“When I visited South-East Asia two years ago, everyone criticised me, saying that it was too early for Japanese VCs to come in and invest,” Horiguchi recalls.
 
“But now we see a lot of other investors raising money for South-East Asian investments,” he adds.
 
Another trend that marks the growing maturity of the startup ecosystem in the region is one that sees international founders who have exited companies in Europe or the United States coming here as serial entrepreneurs, according to Horiguchi.
 
Most Japanese VCs have confined their activity to Indonesia and Singapore, but IMJ is keen on the Philippines, and according to Horiguchi, was one of the first Japanese VCs to explore the market there.
 
It now has five portfolio companies in the Philippines alone. “Fintech (financial services technology) is a very interesting space in the Philippines, and we are looking at it very closely,” he shares.
 
Lessons learnt
 
IMJ has had its share of failed investments too, although all of them were in Japan.
 
“I think the reason we failed was because we invested in very early stage and seed stage startups run by fresh graduates,” says Horiguchi (pic).
 
“I liked the ideas and invested in them, but I [now believe] it is more important for founders to have experience in running a business and running a startup, and to also have experience in exits.
 
“That’s one lesson: The founders need experience in business management and exits,” he says.
 
IMJ has also learnt much from being in South-East Asia over the past two years, including how to tailor its exit strategy.
 
“When we first started investing in South-East Asia, our exit strategy was mainly IPOs (initial public offerings) or M&As (mergers and acquisitions),” says Horiguchi.
 
But the trend here sees many Series B and Series C players, and being a pre-Series A and Series A investor, IMJ has more exit flexibility, he adds.
 
While IMJ would still continue to hold a stake in promising portfolio companies, it has already exited four companies with its early stage investment advantage.
 
“Their performance was five times bigger than when we first invested, and the average time was one to one-and-a-half years,” says Horiguchi.
 
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