Japan’s Cloud takes on the world (or does it?)
Cloud investors globally have faced a roller-coaster ride over the last 30 months. Valuations followed the overall market lower with the onset of the pandemic in March 2020, and from there went onto a super-charged run that resulted in peaks sometime around October/November 2021, before crumbling again, often dropping back to a March 2020 level, or even below.
Given a less mature cloud software industry in Japan, implying earlier stage companies with more theoretical upside, and a more limited public market in which money flowed into just a few names, the ride from trough-to-peak and back again was even more amplified in Japan. While stalwarts like Salesforce went approximately 2x trough-to-peak, freee, a cloud-based accounting software vendor, experienced a run of 4x from March 2020 to an earlier-than-usual February 2021 all-time-high. Fasten your seatbelts!
So it does not come as a surprise that those betting on the Japan SaaS industry were also on a giddy high all through 2021. One Capital, founded by ex-Salesforce Venture Partner Shinji Asada in April 2020, had almost perfect timing with its launch. With the valuations having come back to earth, presumably so has Asada-san.
So much for the background. The rest of the story should sound fairly familiar and goes something like this: (I) Software in Japan is a huge market, (II) even as a foreign player, with patience you can make lots of money here (e.g., Oracle, Microsoft, SAP), (III) domestic players will try to replicate foreign offerings and give them a “Japanese” face, (IV) these domestic players can reach high valuations, but since they do hardly engage in international business, the Japan market presents a ceiling, while for international SaaS companies, Japan is just a fraction of their global revenue. That has significant implications for valuations.
We will provide data for this argument in three parts:
- The recently released Forbes “Cloud 100”
- The top private SaaS companies in Japan according to One Capital
- The top public SaaS companies in Japan according to UB Ventures
Forbes global “Cloud 100”
When we talk about the best global SaaS companies, we first need to state the obvious: the industry is very, very far from being equally distributed, geographically. It is in fact entirely dominated by the Bay Area with 47 companies among the 100, and a little broader, by the US with 86. What does that leave for the rest of the world?
Not much, actually. Qualitatively, Australia leads the charge with Canva listed as #3. There is no other international company listed in the Top Ten. Canada (#66), China (#71), Finland (#78), India (#49), and the Netherlands (#57) feature one company each, typically in the second half of the rankings. The UK and Germany managed to launch four SaaS 100 contenders each, with rankings in a similar range (#15/24/64/68 for the UK, #11/38/53/69) for Germany. That’s it.
When it comes to employee count, valuation and funding, the metrics have been ticking up year-over-year. The median Cloud 100 company has 1,000 employees, a USD 5bn valuation, and has received USD 535 in funding. Naturally, with the rankings dominated by a few multi-decacorns at the top, the mean values would be higher, with 1,313 employees, a USD 8bn valuation, and USD 610m in funding.
Further, there are just seven sub-USD 2bn valuation companies on this list: Intercom (with USD 1.27bn at #35), Yotpo (with USD 1.4bn at #52), Shippo (with USD 1bn at #85), Kong (with USD 1.4bn at #86), Alloy (with USD 1.35 at #89), Claroty (with USD 1bn at #92), and Front (with USD 1.7bn at #100).
Source: Forbes “Cloud 100”
One Capital Japan top private cloud companies
One Capital’s Q2 report lists the following as the highest valued private SaaS companies in Japan (FX conversion done at 140 JPY/USD):
- SmartHR — USD 1.23bn
- hey — USD 653m
- ANDPAD — USD 557m
- bitkey — USD 509m
- dataX — USD 453m
- atama+ — USD 369m
- Caddi — USD 340m
- Upsider — USD 249m
- Allm — USD 229m
- CBcloud — USD 221m
For a specific one-on-one comparison, let us take SmartHR, founded in 2013. The company has 625 employees. Germany’s Personio, ranked #69 in Forbes Cloud 100, was founded 2.5 years later, has a valuation about seven times that of SmartHR, and 1,500 employees.
UB Ventures’ Japan top public cloud companies
It is generally accepted that Japanese startups IPO earlier, with the IPO often seen as a Series B equivalent. So maybe we will find the largest SaaS companies in Japan not in the private, but in the public markets?
Using UB Ventures’ annual 2021 report, augmented with updated market capitalizations, we find the following:
- Rakus — USD 2bn
- Money Forward — USD 1.29bn
- freee — USD 1.16bn
- Sansan — USD 1.14bn
So yes, with the exception of SmartHR, all the Japan SaaS unicorns can be found on the public markets. Some of them might even have made it into the Cloud 100 if they were still private.
You also find gems like bengo4.com (“bengoshi”, the Japanese word for lawyer), essentially a Japanese replicant of DocuSign, valued at around USD 560m, while the original is close to 20x. So again, it is not that one cannot build successful SaaS businesses in Japan, quite to the contrary, but there is a valuation ceiling that comes with being a single-market company.
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