Japan is under discussed as an expansion target for American startups, but in the past few years it has become a top market for companies like Slack, Salesforce, Twitter and, more recently, Clubhouse. Today SIP Global Partners is announcing a new fund to invest in early-stage U.S. startups that have the potential to expand into Japan, other Asian markets, and countries in the Gulf Cooperation Council, too. The fund has raised a $75 million first close of its $150 million target, and already invested in five companies.
SIP's new fund will look at late seed to Series B-stage companies that have a product, or one about to come to market, that is ready to expand internationally. The team will work closely with portfolio companies, helping them launch operations in Japan and other Asian markets.
Managing partner Justin Turkat told TechCrunch that Japan is a promising market for foreign startups partly because an undercapitalized venture capital ecosystem means there is a smaller pool of entrepreneurs, with many of the country's top tech talent opting to join conglomerates or the government instead.
While Japan's startup market has a lot of potential, he added, it is still nascent. On the other hand, Japan is now the largest source of outward foreign direct investment in the world, and with about 125 million consumers and large corporations in need of scalable solutions, it's a ripe market for new tech.
"If you look at what's happened in the last couple of years, I think Japan is open for business with U.S. startups with an urgency that I’ve never seen before, and we think there is a lot of tailwinds around it. You look at investments and partnerships with U.S. startups, it's at record levels over the last five years and deal counts are increasing every year," Turkat said.
The fund is being launched by four investors, based in the U.S. and Japan. Turkat and founder and managing partner Shigeki Saitoh, former director of the Japan Venture Capital Association, are in Tokyo, while general partner Jeffrey Smith and founder and managing partner Matthew Salloway are in Boston and New York, respectively.
"The reason we started this really has to do with the team. We've all dedicated our careers to cross border, as both operators and investors, across the U.S. and Asia," Turkat said. "All the four partners on average have about 20-plus years of experience doing this."
Over the years, they've observed global expansion happening earlier in a startup's life, he added. "I think it used to be an axiom that if you're a U.S. startup and you're venture-backed, you're not thinking of expanding overseas until your Series D round," but companies are now eyeing foreign markets as early as their seed rounds.
SIP's new fund is looking for startups in three areas: creativity (augmented and extended reality, synthetic media and web-based platforms), productivity (artificial intelligence and machine learning, edge computing, the Internet of Things and semiconductors) and safety (digital health and information security).
Turkat said it is focusing on companies that provide core infrastructure or the economic layer for emerging technology.
For example, "on the infrastructure layer, we're looking at 5G being rolled out globally simultaneously, then the edge computing, semiconductors, security and AI and machine learning, all around this infrastructure layer," he said. Companies in the fund's current portfolio that fit into this category include OpenRAN startup Parallel Wireless and Croquet, an ultra-low latency collaboration platform.
"Then you have the economic layer with all of these advancements, the platforms and applications sitting on top of it," Turkat added. These include the fund's three other investments so far: Fable, a browser-based motion design platform, Tilt Five, an AR gaming platform, and Kinetic, an industrial IoT startup focused on workplace safety.
As a strategic investor, SIP works closely with startups as they expand into new countries. This includes hiring talent and finding initial business partners, including for distribution channels or potential joint ventures. After Japan, SIP also helps startups enter other Asian markets, especially in ASEAN, including Thailand, Vietnam and Indonesia.