UB Ventures’ SaaS Annual Report

UB Ventures SaaS Annual Report has now been published in English.

Overview of the Japanese SaaS Market

• Maturity: SaaS is now an established industry in Japan with top listed companies exceeding JPY 30 billion in ARR.
• Valuation: Profitability is a key valuation factor. Companies achieving the Rule of 40% (ARR growth + profit margin > 40%) enjoy higher valuations.
• IPO: Difficult environment with only two IPOs in 2023, both from non-VC backed companies.
• Startup Funding: Overall investment decreased, but median funding per startup increased, especially for serial entrepreneurs.
• ARR Acquisition Efficiency: Profitable companies demonstrate greater efficiency in acquiring new ARR.

Growth Drivers

• Multi-product Offering: Companies are expanding through multiple products in specific domains (e.g., Money Forward, freee).
• Enterprise Sales: More labor-intensive solutions like BPaaS are targeting larger enterprises with higher unit prices.
• M&A: Record number of M&A deals (16 in 2023) driven by multi-product strategies and acquisitions of AI technology.

Vertical SaaS

• Potential: Vertical SaaS shows strong growth potential, particularly in addressing labor shortages and regional economies.
• Challenges: Overcoming regional barriers requires building credibility, fostering local partnerships, and understanding specific regional needs.
• Top Players: Companies like CADDi (manufacturing) and KAKEHASHI (wholesale/retail) lead in valuations and funding.

Innovation in a Depopulating Society

• Urgent Challenge: Japan’s rapidly declining workforce necessitates solutions to increase labor productivity and expand the workforce.
• Key Themes: Tech-driven productivity improvements, reskilling & age tech, foreign worker support, women’s empowerment & well-being tech, HR & payroll infrastructure for wage improvement, sustainable energy & food self-sufficiency
• Startup Opportunities: Numerous startups are emerging to address these challenges across various industries.

UB Ventures’ Focus

• Investing in solutions for a depopulating society: Focusing on startups that improve productivity and/or create new labor sources.
• Supporting entrepreneurs: Providing hands-on support for startups to achieve global success.

Overall

The report highlights a mature yet dynamic SaaS landscape in Japan facing the unique challenge of a declining population. The focus is shifting towards profitability and efficiency while vertical SaaS and innovative solutions tackling societal issues are emerging as major growth opportunities.

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