There are still plenty of venture capital firms making moves
As well as market entry consulting services, J@pan Inc magazine’s parent company, Japan Inc. Holdings (JIH), also provides advisory services for foreign and Japanese firms looking for investors and venture-mezzanine funds. Even now, JIH is active in the market and so is in good shape to be able to comment on the current trends in the venture capital and lower-end private equity markets. The prognosis is that while VC money for most sectors is still hard or getting harder to find, two interesting new types of investor have started emerging over the last six months.
The first is the distressed asset investor. This is typically a fund or a company which has kept its powder dry over the last 12 months, and which is now moving in on sectors of interest in order to either aggregate companies into a bigger one (the funds), or to pick up competitors and take over their distribution channels (strategic investment by regular companies). Nowhere is this more obvious than in the technology sector, where software and services firms with strong client bases and know-how but weak cash flow are getting snapped up. By “distressed” we mean that the assets are priced at less than book value.
Companies which have been leveraged by technology are also targets, and within our own small sector of foreign firms, for example, several major recruiting firms have gone bust and the assets have become the keen object of bidding by other players in the market. The technology part of these companies is of course their databases of candidates, which in the case of one company, was rumored to contain 300,000 names and more than 30,000 complete resumes. Normally to compile a database like this would take about 600 man-months, or about 120 million yen to contact, receive and enter so many resumes. Our understanding, however, is that the final selling price for the company will be less than 50 million yen—so it’s a bargain for someone.
The second is the re-emergence of the cleantech and medical sectors. Just two years ago no one wanted anything to do with sludge and medical care—the latter in particular was considered “oh so 1990s.” But what a difference a presidential election makes. Now that Barack Obama, president of the United States, has made it clear that his government’s fiscal stimuli will be strategic and related to the betterment of the environment (whether you agree that vehicles cause global warming or not) and America’s citizens by giving them better healthcare.
As a result, companies which are active in either space are hot again, and Japanese Vcs in particular are raising a significant number of new funds to take advantage of what they see as a coming global revolution being sparked by Obama’s vision. Vcs want their charges to export so as to grow properly, and thus the U.S. Influence in strategic thinking means that even the nation’s biggest cell phone company is looking to put together a massive fund which has cleantech and medical at the top of its list. The fund will be one of the largest raised in some time and simply requires interested players to have a mobile solution (naturally).
Japan Inc. Holdings does do its own investment as well: focusing on cross-border opportunities which involve marrying foreign IP with Japanese hardware and systems. One such company that JIH is both invested in and has been able to help recently is a New Zealand firm named Precept Health. This software company is based in the Massey University incubator in Albany, Auckland, and has found a ready market for its intensive care unit (ICU) software throughout Asia, starting with Malaysia.
Precept Health successfully raised a round of funding in May 2009 from Japan and has had expressions of interest from a number of Japanese and foreign firms about investment. The reason they are garnering this interest is that while they supply the software, they work with numerous manufacturers of hardware that one would normally find in an ICU ward, and thus there are a number of Japanese players that see an opportunity to partner with them. In the case of the company’s first major contract in Malaysia, one of the hardware partners is Fujitsu.
Small company, big partners and big ambitions—this has the makings of a classic venture success story, and its choice of sector and partnerships is not lost on Japanese investors. Even in a recession.JI