Founded by Jack Ma in China in 1999 to becoming the largest IPO in U.S. history, Alibaba represents one of the most compelling tales of a Asia based start-up that has had a significant impact on the U.S. market.
However, U.S. based tech startups continue to be the dominant source of disruptive technology for global markets. Perhaps surprising to many, early adopters of newer technologies typically have not been U.S. or Europe based companies, but rather larger Asian multinational companies, specifically ones that are located in Japan, Korea, and China.
Such cross-border synergies have enabled U.S.-based start-ups to hit scale they would not have otherwise been able to achieve had they followed solely a domestic sales strategy. Of course, navigating through the Asian markets typically represents a choppy and uneven exercise given significant cultural, business, and regulatory barriers.
Palo Alto based Translink Capital employs a very unique strategy investing in and assisting U.S. based start-up that view the Asian markets as a potential core building block for expansion.
Below is a transcription of my conversation with Toshi Otani, founding partner of Translink Capital, on how he and the Translink team view opportunities that U.S. companies have within the Asian market (or in some cases, when to steer clear).
What was the gap you were looking to fill when you and the team launched Translink Capital?
We formally launched Translink Capital in 2007. Our founding team was very close as we had known each other for a decade-plus. Most of our team had worked within corporate venture arms of Samsung, Mitsubishi, and UMC, where we were focused on making strategic investments here in the valley. There are clear benefits of corporate venture capital with regard to the unique in-house insights that can be provided along with the high-level connections. Of course, there are some cons to taking strategic capital as many strategic investments come with some strings attached. We saw an opportunity to expand upon the benefits and shed most, if not all of the red tape of the corporate venture model.
We also saw the Asian markets as game changing for many companies here in the valley. That was really the genesis of Translink, which is a hybrid between a strategic investor and a VC firm with a focus of providing portfolio companies guidance and access to the robust Asian markets.
Tell us a bit more about how you help companies that are viewing the Asian markets as a core growth strategy.
First, we created an ecosystem of the 20 of the biggest corporations in Asia, and we have strategic LP’s all over Japan, Korea, Taiwan, and China. Second, we have a unique process where we will do business development for a company with no strings attached well before the investment. We literally jump on a plane with the CEO, put together a road show of Asia, and introduce them to our strategic partners in the region – this is before we issue a termsheet!
I recently sat through six meetings with a company in Tokyo and assisted them through the entire process. This is beneficial for us because we get to see the companies in front of a customer to help fine tune product-market fit and gauge their ability to execute with high value opportunities. Our strategic partners then provide valuable feedback to the companies and we ensure that nothing is lost in translation. All of our portfolio companies have gone through this process and 95% of them have developed business through the initial process we ran. Additionally, 60% of our companies have resulted in our strategic partners investing in our companies.
What are the key considerations companies should be thinking about as they looking at expansion into the Asian markets? What are the biggest hurdles and barriers of entry from a cultural and language standpoint?
Our mission, when it represents the appropriate strategy, is to help companies strategically expand their businesses into Asia. This sometimes involves telling companies that expansion into Asia isn’t the right path at the current moment. For example, a company can be too early or may unknowingly pit up against a significant and trusted local competitor. Before entering foreign markets, entrepreneurs must understand the subtleties of each market. There is also a sequence that you should follow based on the product, sector, and stage of your development. While Japan, Korea, Taiwan, and China are geographically close, the countries have long complicated histories and are far apart both economically and culturally. Let’s take Korea and Japan for example. While Korea is a smaller market, it has been a very strong early adopter. As long as you can provide sufficient support, you actually do not need a person on the ground. Japan is a much larger market but has strict quality standards and absolutely requires a local presence. This is why for certain infrastructure related products/services, we recommend going to Korea first and then take it to Japan with a reference customer in tow and a later improved version of the product.
Can you give us an example where you executed a strategy and changed growth curve of a U.S. company going to Asia?
Chartboost immediately comes to mind because no one understood their model at the time. We introduced them to four major mobile gaming companies in Asia and they got it right away. Three of them asked us, “where do we sign?” This was a very strong endorsement for the company. Back then, their revenue was nominal but they quickly started ramping up because we had very interested and motivated strategic partners. As these strategics started promoting the Chartboost platform, the company began to develop credibility and inflow from developers in the region. Chartboost raised a Series B led by Sequoia and has achieved massive revenue scale. Eye-Fi is another company that has benefited from our strategic partners in Asia. The company’s technology to upload photos wirelessly and automatically from digital cameras – a natural fit for Japan. With the 10 largest camera manufacturers and an affinity for gadgets, Japan now accounts for a significant portion of Eye-Fi’s business.
What are your thoughts on large Asian companies making investments in U.S. companies?
Most of the leading technology companies in mobile, social, and cloud are located here in Silicon Valley. So there’s a renewed interest from large Asian companies to invest and partner with U.S. companies. Alibaba has invested $300M in three of our portfolio companies (Tango, Quixey, & Peel) over the past three-quarters alone. Traditionally, Asian companies have not been great at buying U.S. companies but this is starting to change with the acquisition of SmartThings (Samsung) and Indeed (Recruit). These large companies are very interested in aggressively expanding their products and services in the U.S. as their domestic markets have become saturated. They are also hiring super smart people out of the U.S. Samsung hired very successful Silicon Valley entrepreneur Young Sohn as Chief Strategy Officer, which is very telling of their strategy.
What are some of your predictions over the next 5 years as it relates to the Asian markets and tech?
First, there will be more consumer technology trends from Asia. Let’s take messaging for example. While Facebook is attempting to cash in on WhatsApp, most of the popular messaging apps in Asia such as Line, Kakaotalk and WeChat have evolved their service and monetizing their customer bases for a long time now. We are starting to see many interesting applications coming out of Asia that do not exist here, but make sense
Second, cross border teams will be more common as entrepreneurs become more global which is both a challenge and an opportunity for investors
Lastly, inter-Asia business opportunities will continue to grow. You are already seeing people working together across these different geographies.