Some trends behind Rakuten’s new $100M global venture fund

Only months after its $900M acquisition of Israeli-founded, Cyprus-based Viber, Rakuten made headlines again in Israel when Rakuten Ventures, its corporate venture capital arm, announced a new $100M global venture fund that features Israel as a geographic target, along with Asia Pacific (APAC) and the U.S.

Corporate venture capital (CVC) is still a relatively new phenomenon in Japan, but a growing number of large Japanese corporations are relaxing their traditional reluctance to let go of their hard-earned cash, and making the jump to put that cash to work. Among technology-oriented companies, Rakuten is hardly alone in having CVC units. SoftBank, a telecommunications conglomerate, has been particularly aggressive and successful in leveraging its venture capital operations to grow, pushing its market valuation close to $100B. SoftBank’s most successful venture investment has been the Chinese e-commerce phenomenon Alibaba Group. SoftBank was an early investor starting from 2000, even before the then-startup had reached profitability. Softbank now owns about 37% of Alibaba and is one of the major stakeholders along with Yahoo. SoftBank’s rivals have not ignored its success, and many, such as NTT Docomo and KDDI among others, have been ramping up their CVC operations. In fact, Rakuten itself is among Softbank’s rivals – Yahoo Japan, Rakuten’s major competitor in Japan’s e-commerce market, is a joint venture between Yahoo and Softbank.

Japanese CVC activities have largely focused on domestic and APAC startups, but there has been some activity in backing US-based startups as well. SoftBank Capital, a CVC unit of SoftBank based in NY, has had some notable exits icluding OMGPOP to Zynga, BuddyMedia to SalesForce, and HuffPo to Aol. In May 2013, SoftBank Capital launched a new $50M fund targeted to NY-based startups, and in February 2013, it launched another $20M fund jointly with Yahoo Japan to focus on helping U.S. startups enter the Japanese market. Another example is media conglomerate Recruit, which has its CVC arm Recruit Strategic Partners based in Palo Alto that includes U.S.-based startups in its portfolio. While the newly announced fund by Rakuten Ventures represents its first entry into the US, Rakuten has already participated in deals stateside, for example its acquisition of Buy.com and its investment in Pinterest. As more VC players enter the field in Japan, there is reason to believe that more new funds, especially those backed by parent companies with global presence or ambitions, will broaden its scope to look further afield beyond APAC. Future Japanese global venture funds will hopefully follow Rakuten’s lead and look to Israel as well as the U.S. In fact, Takeda Ventures, the CVC arm of Takeda Pharmaceuticals, has already invested in Israel. Although they do not (yet) have Israeli portfolio companies, Takeda Ventures, together with Johnson and Johnson Development Corporation and Orbimed Israel, established a new biotechnology incubator called FutuRx through Israel’s Office of the Chief Scientist earlier this year.

Internationally, the role of CVC has been transitioning from being vehicles for nurturing potential strategic partners into semi autonomous units given free rein to focus on maximizing returns. There is a growing sentiment that the best way for parent companies to benefit from their CVC operations may be to not be overly concerned with future strategic relationships, let the fund managers independently control the deal flow, and make available their large-enterprise clout and institutional knowledge to help the portfolio companies grow. (For a humorous example of this approach being explained, see this recent Boomberg interview with Google Ventures’ Rich Miner.)

This trend is evident in the organization of Rakuten Ventures. The CVC unit is managed by Saemin Ahn who is based in Singapore, far from Rakuten’s home office in Tokyo. Further, Ahn is hardly a company insider. He joined Rakuten to start Rakuten Ventures just over a year ago after 5 years at Google, where he was most recently the strategic partnership development manager for Asia Pacific. In a recent interview, Ahn noted that Rakuten has its own strategic investments office that is more connected to Rakuten’s core e-commerce operations, and that Rakuten Ventures operates as a separate unit. He also stated, “we don’t expect all of these partners to work with us as Rakuten all the time. If it makes sense, great,” and that, “as an investor, we’re looking at investing in the companies we believe in to become great companies for the future. I think once we focus on that, our goal points will fall in line naturally.”

Another trend in Japan is an increased openness towards doing business with Israel. The days of Japan going lockstep with the Arab trade boycott are of course long gone, and even the residual tendency within Japan to keep high level contacts low-key and under the radar appears to be giving way to a more open and enthusiastic approach in doing business with Israel. As I detailed in my previous post, there has been a flurry of visits between high level political and private sector leaders in both Japan and Israel in the past year. Just yesterday, on July 7th, Japanese trade minister Toshimitsu Motegi arrived in Israel together with a business delegation to meet with his counterpart Naftali Bennett as well as Prime Minister Netanyahu. As a part of the visit, the two sides signed a R&D cooperation agreement that will provide funds for establishing research centers and running R&D projects taken on together by Israeli and Japanese companies.

Rakuten is certainly not hiding its enthusiasm for Israel. The Japanese press release announcing the fund’s launch gives Israel top billing, listing it first among the three regions the fund will cover. In the same interview linked above, Rakuten Ventures head Ahn was openly enthusiastic about the Israel startup ecosystem, stating, “We are very excited about Israel. Viber is actually an Israeli company and my office is inside Viber. For me, I love the deal flow in Tel Aviv. The density is really amazing, the founders are great, the overall technical ability of these guys and how they look at the market is very global facing.” Similarly positive sentiments have come from Akira Morikawa, CEO of another popular messaging app LINE, who  recently posted  about Israeli innovation and his intentions to visit Israel later this year. In addition, as the local startup ecosystem develops and gains momentum in Japan, attention will naturally gravitate towards the “Startup Nation” as a source of insight into global startup success.  Samurai Incubate, one of Japan’s leading startup incubators, is already at work setting up its first overseas office in Tel Aviv, and there is good reason to expect that Japan’s engagement with Israel will continue to grow in the coming years.