Does Japan believe in unicorns? Here’s a look at the country’s $1B club

The term “Unicorn Club” was coined by Aileen Lee, founder of seed stage Cowboy Ventures and former member of noted Silicon Valley investment firm Kleiner Perkins Caufiled & Byers. In 2013 she defined unicorns as software companies that started since 2003 and reached a value of over US$1 billion as determined by public or private investments. At that time she found 39 companies to fit the bill, but if the same parameters are used in Japan, only two (smartphone gaming companies Colopl and Gree), make the cut.

Japanese unicorns take a bit longer to gestate than their American cousins. If you wind the clock back just a bit, to 1997, the number jumps to ten. 1997, which coincides with the premiere of ecommerce juggernaut Rakuten, was the start of a particularly fertile stretch in Japan’s startup ecosystem.

Between 1997 to 2000, eight of the ten unicorns were born. Colopl (2008) and Gree (2004) are the two exceptions. This not to say Japan has a severe lack of billion dollar tech companies. Looking through the Nikkei’s market cap index, there are well over 50 companies with sky-high market caps. However, most of them, like online infrastructure kingpin GMO (founded in 1991 with a current market cap of just over US$1 billion), were founded decades ago. Others like Nintendo (founded in 1889 with a current market cap of US$15 billion) were founded over one hundred years ago.

The quick rundown of Japanese unicorns (using 1997 as the starting point) is as follows:

• Rakuten: Ecommerce company with popular finance and digital content services, founded in 1997, market cap of US$17 billion
• M3: Portal site for medical professionals, founded in 2000, market cap of US$5.2 billion
• Gung Ho: Game developer which has dominated Japan’s lucrative market with Puzzles and Dragons, founded in 1998, market cap of US$4.5 billion
• Mixi: Social network service now best known for smartphone games, founded in 2000, market cap of US$4.4 billion
• Colopl: Smartphone game developer with specialty for location based games, founded in 2008, market cap of US$3.85 billion
• Kakaku: Price comparison ecommerce site, founded in 2000, market cap of US$3.3 billion
• CyberAgent: Operator of popular “Ameba” blogging platform and also has found success in advertising, gaming, and venture capital, founded in 1998, market cap of US$2.5 billion
• DeNA: Smartphone game developer which has seen its business drift over to GungHo and Mixi, founded in 1999, market cap of US$2.07 billion
• Gree: Smartphone game developer which has also seen its business drift over to GungHo and Mixi, founded in 2004, market cap of US$1.6 billion
• Cookpad: Recipe service, founded in 1997, market cap of US$1.1 billion

To summarize, that’s a lot of ecommerce and gaming with a little bit of social networking, cooking, and medical reference.

What is striking about this list is that it is very volatile. DeNA and Gree have been steadily losing market share to GungHo and Mixi’s game development. Within a year or two, it is entirely possible that the former will be off this list. Similarly, just a couple years previously, GungHo and Mixi were nowhere to be found. Mixi’s sudden gaming success has actually brought the company back from the dead.

Patience and volatility

It also bears noting that no pre-IPO startups are included on this list. Valuations after funding rounds are among the most tightly guarded secrets in Japan’s startup society. Admissions of success, like SmartNews acknowledging a US$100 million valuation, are few and far between.

Even Line, seemingly the most likely pre-IPO property to be a unicorn, has released no information to suggest its true value. We will have to wait until next year’s IPO to know for sure.

The simple truth is that Japanese companies tend to develop at a deliberate pace. Even the companies coming out of the 1997-2000 heyday took many years to hit billion dollar valuations. Overnight successes like Snapchat or Tumblr are not seen in Japan outside the mobile game industry. As DeNA and Gree’s travails suggest, mobile gaming might be a great way to become a unicorn but is not the best industry for maintaining that status.

This list bears watching as it develops over the next five years. Only Rakuten, M3, Kakaku, CyberAgent, and Cookpad are independent of the mobile gaming boost. The rest will need to produce hit games or lose their relevance. If that happens, a new generation of tech firms will start to take their place.

It might take a few years though. Last Friday the Japanese startup world was abuzz with news of three confirmed IPOs from young companies. The leader of the pack (at least in Facebook likes) was Crowdworks, a freelancing firm that is just over three years old. The founder, Koichiro Yoshida often says he wants to become the next Masayoshi Son (founder of SoftBank – US$82 billion market cap). His journey to the mountain top will start with a December IPO expected to raise US$10 million.

See: This chart shows 50 countries with homegrown tech titans, but only 13 of those nations are in Asia