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$73 billion payoff for SoftBank’s ventures fuels push into Japan startups

by Mariko Yasu

Bloomberg

Japan’s biggest companies have a case of SoftBank envy, and that’s good for entrepreneurs like 23-year-old Takumi Shimizu.

Billionaire Masayoshi Son, 56, has boosted SoftBank Corp.’s market value to $99 billion since founding the business in 1981, partly from outsized returns on investments in companies such as Alibaba Group Holding Ltd., the Chinese e-commerce operator that has been valued at $153 billion.

With stakes in about 1,300 technology businesses, his Tokyo-based wireless carrier is now more valuable than older rivals NTT Docomo Inc. and KDDI Corp., which boast more subscribers.

With Son’s success, companies including Docomo, KDDI, Sony Corp. and Nissan Motor Co. have allocated money to venture capital investments.

That’s providing new financing options for Shimizu’s networking startup, in a country the World Bank ranks behind Nepal and Tanzania in ease of starting a business.

“Son’s success has provoked Docomo and KDDI,” said Satoru Kikuchi, an analyst for SMBC Nikko Securities Inc. “They are probably finding it hard to keep up with his moves.”

SoftBank invested an initial $20 million in Alibaba.com in 2000 and now owns about 37 percent of Alibaba Group, which said Sunday it is preparing for an initial public offering in the United States.

Alibaba has been valued at $153 billion, according to the average of analyst estimates compiled by Bloomberg. That would make SoftBank’s holding worth more than $56 billion, or 2,800 times its initial investment.

Hiroe Kotera, a spokeswoman for SoftBank, declined to comment on the company’s total venture investments.

Outpaced by Son’s strategic investments and facing saturation in Japan’s wireless market, Docomo, part of the former government telecommunications monopoly NTT, and KDDI also are looking to startups to help rekindle innovation and growth.

Docomo’s venture arm boosted the size of its investment funds in January by 40 percent to ¥35 billion. The company set up a ¥10 billion fund last year and acquired from its parent company an investment unit that operated a ¥15 billion venture fund.

KDDI, started as an operator for overseas calls in 1953, is considering a new fund after spending about 60 percent of its ¥5 billion venture fund on 19 startups, including a game publisher, an online English-learning service in Japan and a smartphone-based taxi booking service in Britain, said Makoto Takahashi, a senior vice president for business development.

Sony, Nissan and ANA Holdings Inc. are investors in WiL LLC, a $300 million venture capital fund that finances local startups.

The government-backed Innovation Network Corp. of Japan, founded in 2009, has invested about ¥700 billion in 57 projects as it focuses on energy, electronics, information technology and biotechnology, it said Feb. 12.

The push comes as Prime Minister Shinzo Abe looks to tap the $2.2 trillion in cash held by Japanese companies to fund new businesses and help revive innovation in the world’s third-largest economy.

With most domestic venture capital firms run by risk-averse banks, startup investment totaled ¥102.6 billion in the 12 months through March 2013, the Tokyo-based Venture Enterprise Center said. That’s about 3 percent of U.S. investment, which was $29.4 billion in 2013, according to the National Venture Capital Association.

The World Bank ranks Japan 120th of 189 countries in terms of the ease in starting businesses. The U.S. ranks 20th.

“It’s typical of large companies that have been successful to be unable to think beyond the business model that got them there,” said Nobuyuki Akimoto, chief operating officer of NTT Docomo Ventures Inc. “We need new ideas.”

A previous big push by Japan to boost startups by promoting deregulation in the late 1990s led to a venture capital boom around 2000, which fizzled after the U.S. information technology bubble burst, Daiwa Institute of Research said in a March 2013 report.

Part of the renewed focus on entrepreneurship has been triggered by Son’s success.

Four of SoftBank’s biggest investments alone are worth about $73 billion combined, according to data compiled by Bloomberg.

In addition to Alibaba, SoftBank also was an early investor in GungHo Online Entertainment Inc., a game publisher based in Tokyo where Son’s younger brother, Taizo Son, is chairman.

SoftBank has a stake of 33.6 percent, according to its 2013 annual report.

GungHo surged more than eightfold in Tokyo trading last year and now has a market value of $6.9 billion.

SoftBank holds about 43 percent of voting rights in Yahoo Japan Corp., which has a market value of $33 billion, and a stake of almost 37 percent in Renren Inc., a Chinese social-networking website operator valued at $1.4 billion, according to data compiled by Bloomberg.

Last year, SoftBank paid $22 billion for control of Sprint Corp., the third-largest U.S. wireless carrier.

Docomo and KDDI are following Son’s lead in trying to transform themselves from telecommunications companies into information-technology businesses, said Nikko’s Kikuchi.

KDDI vets about a dozen ideas for possible investment every week and offers entrepreneurs a forum to draw investor attention, meet industry executives and receive assistance in polishing business plans.

In December, the spiky-haired Shimizu, who has a management degree from Tokyo’s Meiji University, was among 10 chinos- and sneaker-clad candidates making a slide show pitch at KDDI’s offices on the 34th floor of a Tokyo skyscraper.

KDDI has held back from investing so far.

Shimizu later received ¥5 million from Movida Japan Inc., a Tokyo-based venture capital firm led by Taizo Son. Shimizu said he will pursue more investments.

“There are people who want to start something, but they are unable to make the first step,” Shimizu said in an interview. “Incubation programs and pitch events can offer them a place to start. Sometimes people just need a push.”

Docomo is seeking to invest in voice-recognition technology, health care, robotics and wearable computing. The fund has invested in 10 companies, with an average investment of about ¥100 million since April, Akimoto said.

The carrier’s Docomo Innovation Village helps six teams refine their business plans for four months. That includes a ¥2 million investment in two-year convertible bonds, free access to Tokyo offices, cloud-based development tools and sales promotion.