How Japan became the unexpected help for SEA startups

This article summarizes an episode of On Call with Insignia’s video series featuring Rei Murakami Frenzel, a founding partner at Kadan Capital.

Rei Murakami Frenzel, Founding Partner at Kadan Capital/ Photo credit: Kadan Capital

Southeast Asia’s growing startup scene is facing challenges, with limited paths for founders or their investors to sell their companies. According to Rei Murakami Frenzel, a founding partner at Kadan Capital, this slowdown is creating an opportunity for Japanese investors. They are offering help based on a long-term partnership instead of fast profits.

Selling a startup in Southeast Asia is stuck

The region’s startup scene is hitting a roadblock, with founders and investors facing fewer exit options.

A new reality
Frenzel says, “There’s a gap in the price that VCs or the startups want to sell at versus what the buyers are looking at. And that kind of difference has to come closer now that we’ve realized that the expectation of Southeast Asia is not as high as what we thought in 2022.”

Running out of money
With investment money running out and few chances to sell, many founders are left with less and less money.

Frenzel suggests, “If you’re running out of options, I think you would have to really have a difficult conversation with your investors and consider down rounds. So, yeah, I think that’s something that needs to happen a little bit more.”

Japanese investors want partnerships, not fast profits

Because companies are hard to sell, a funding gap has opened. Some Japanese companies are now filling this gap with a different investment approach.

Partnerships over profits
Frenzel explains, “Japanese corporates, they tend to focus on long-term partnership and synergy rather than just focusing on the capital gain. So that has helped a lot of startups here to have a partnership. I definitely see a lot of interest from Japan.”

A new way to go public
Japan is also becoming a viable option for selling shares on a stock market, offering a clear path that local markets in Southeast Asia do not have.

Frenzel notes, “Because of that issue with the exit landscape here, the Tokyo Stock Exchange has really focused on presenting the exit market, the IPO pathway from Southeast Asia to Japan. There are a lot of discussions happening there.”

Closing deals in Japan requires patience

This new source of money is an opportunity, but founders must first learn to understand how business is done in Japan to succeed.

Move fast and… wait
Startups used to fast online meetings and getting quick answers will need to change how they work. Making a deal in Japan is less about speed and more about building strong personal relationships.

“Closing deals with businesses takes much longer, and it’s not as simple as having online calls,” Frenzel advises. “It’s a lot about building trust, meeting in person. A lot of business is still done in a traditional way.”