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Start Anywhere, but Scale In Tokyo

I remember attending a fireside chat a few years ago with someone from a well-known Silicon Valley firm. I don’t remember much of the content, but the one thing I do remember is what he said on the topic of moving to Silicon Valley: “If you want to be a trader, move to New York. If you want to be an actor, move to Los Angeles. If you want to be an entrepreneur, come to Silicon Valley.”

Although his comment was in the context of the United States, the message stuck with me when thinking about Japan. Tokyo is undeniably the Silicon Valley of Japan. In fact, it is also the Wall Street of Japan and the Hollywood of Japan. It is even the Washington D.C. of Japan. In just about any industry, people come to Tokyo when they want to reach the top.

So what does this mean for startups? It doesn’t mean that you can’t startup somewhere else. But it does mean that there are pros and cons to consider.

The pros are that it is sometimes easier to experiment with your product in smaller cities before going after Tokyo. If it is your hometown, you have personal relationships that you can start with to get your first users. Local governments also tend to be much more proactive in helping you get started. This is what we’ve seen with Fukuoka and Kobe, two cities where we have invested. Fukuoka has long been positioning itself as a great place to startup by building a space for startups, creating a startup visa, and in some cases providing regulatory easing. For us, the City of Kobe has been a key partner. In addition to the accelerator we run with them, they’ve also introduced customers, helped run hiring events, and worked to help our startups get publicity. The Mayor of Kobe even appears at our events and endorses our startups publicly. That kind of commitment from a government official would be hard to find in Tokyo.

Another benefit is cost. Tokyo is an expensive place to hire and rent. When you’re just getting started and still trying to figure out product-market fit, keeping costs low is imperative. Being in an environment where you can maintain a low burn-rate while developing your product and getting your initial customers is a helpful edge.

That said, once a founding team figures out that they may be onto something, the next step is to scale. It takes capital and talent to grow a company, and Tokyo is far ahead on these fronts.

Tokyo’s major advantage is that most of the venture capital firms and corporations that invest in startups are based in Tokyo. Proximity yields serendipity. Events or close-knit local networks give startups nearby more opportunities to meet investors. Investors are also hesitant to invest too far from home, where they are less familiar with how to help. Finding you a CFO or new office space is easier on their home turf, where they’ve done it several times before.

The other challenge is talent. No matter how brilliant the founding members, eventually they’ll need to recruit more brilliant people to build their empire. Since Tokyo has a gravitational pull for top talent from all over the country, the hiring pool is bigger and better. That is not to say that great talent doesn’t live in other cities. There are just fewer of them, and they tend to flock to large corporates rather startups. Panasonic in Osaka and Nintendo in Kyoto clearly hire smart people, but few of those people ever leave for startups. Perhaps the real problem is that talent is not evenly distributed. In Tokyo, more and more high-caliber talent have been leaving the corporate world for startup land. This talent liquidity favors anyone trying to scale a company.

As Paul Graham wrote in his 2006 essay, How to be Silicon Valley, you “only need two kinds of people to create a technology hub: rich people and nerds.” Money and talent are the key ingredients for big businesses. Tokyo has those ingredients in abundant supply. You can start anywhere, but when you need to scale, Tokyo is the place to do it.

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Founding Partner & CEO @ Coral Capital

James Riney

Founding Partner & CEO @ Coral Capital

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