On February 3rd, 2021, I launched the āInvestor Chat and Founder Pitchā event and hosted an insightful chat with Tatsuro Shimada, a cross-border angel investor.
Tatsuro Shimada (Tatsu) is the co-founder of the Tokyo-based mobile Q&A app Connehito Inc., created for female users centered around childcare. During the eight years of his entrepreneurial journey as CTO, Tatsuro and his team have grown the company up to 7 million users. Thus, it is no wonder that in 2016 the company was acquired by the Japanese telecom giant, KDDI.
After the exit, Tatsu has been an active angel investor, traveling across the globe and meeting some of the most ambitious founders. He has invested in more than 20 companies worldwide, ranging from a startup providing efficient ambulance service in Nairobi, Kenya, to a platform offering smart web analytical tools in Helsinki, Finland. You can read more about his investment philosophy in his blog.
The founders who joined us to pitch include:
- Petronella Gustafsson of Progressme.se, the team works actively to strengthen young people who have or have had some form of eating disorder.
- Tim Schulz of GetBej.com, a parenting app and online community.
- Hans Brunk of Cookiejarmoments.com, we are advocating for something new. Something real and personal. We want to steer away from curated feeds and staged photos ā and move towards a more mindful, personal, and genuine way to share our memories with your loved ones.
- CƩsar SuƔrez of Xerify.co, a document management company that, through technological innovation, is dedicated to improving the training, certification, affiliation and distinction processes of any public or private institution, providing the highest standards of security and recognition worldwide.
- Robert Ilijason of Honestbox.se, makes it easier for you to get started with an unmanned store. Whether it's trade in a vending machine, small shop, container in a paddle hall, farm shop - or wherever - we will help you get started.
In - Person Meetup
Despite being a fully digital event with over 80 online attendees, we chose to organize a small, invite-only gathering at The Ground office. We live-streamed the event from the office while also hosting a small in-person meetup. Amid the COVID-19 situation, I believe it is crucial to maintain personal connections by meeting community members in small, controlled gatherings.
Event Re-cap
You can re-watch the event and read the key learnings below:
Tatsuās background
Q: Back in 2012, you and your co-founder Shunsuke Oyu started Cretty. However, after working on that idea for almost two years, your team was thinking of closing down the company. Tell us a bit more about the challenges that you faced in those early days and what led to you, closing that idea down.
First, I created our company maybe nine years ago. So, by that time I was 22 - 23 years old, and I was a university student. I didn't know anything of what entrepreneurship is or how do I fundraise. That was my first challenge.
And the second challenge was growth of product. The number of users was gradually growing, but not rapidly. We invested two years in this product, but we found it's not the kind of startup growth. So that's why we decided to pivot.
Q: In 2014, your team decided to pivot and launched a health-focused Q&A site. Can you tell us what inspired that?
2013 to 2014 was an ample opportunity for startups, because the number of smartphones was increasing. It was a kind of boom. In Japan, feature phone was the major phone. More young people were changing it to smartphones. But websites are optimized for feature phones or PC. There was no big media for smartphones at that time in Japan.
As a startup, we decided to focus on smartphone media. As for the industry, everyone concerns about health care. So that's why we decided to focus on the healthcare because the market should be huge. Then we write a kind of article for healthcare problems, and we created a number of webpages for healthcare for smartphones. This was one of the pivoting processes of becoming Mamari.
Q: You started to write articles. But when the articles in the website reached around 400, your team learned that the trendiest topics were about how to call and use a cab for a hospital when the mother feels the beginnings of labour. Was this the beginning of Mamari? What is different about your offering? How did you set yourself apart from the competitors?
We found out one article about taxi for pregnant momswhich got a huge number of accesses. So, we found there is a certain need. Then we tried to ask these questions: āWhat is the need?ā Then we dug into this problem. We found that everyone shares the same problems when becoming mothers. So, we decided to focus on this niche.
As for the competitors, our first strength was speed. From 2013 to 2014, it was a transition from feature phone to smartphones. Yet the bigger companies can not make fast enough decision to make better service for smartphones. We focused on the smartphone first and iterated and improvement continuously.
Q: After you launched Mamari in 2016, you raised approximately $1.25 million from two major capital venture capital firms and a few angel investors. Has raising VC always been the goal? How did you decide to raise VC? How did you build the relationships with VC? How long did it take from an intro to VC to until you have the deal down?
We attended pitch events and then we tried to connect withseed round investors and potential series A investors. Seed round is kind of entrepreneurial deal. I think the idea is very important, but more important is entrepreneur themselves. Idea can be pivoted, like us, our idea was changed after two years later. VCs and angel investors like to see who is the entrepreneur and what kind of entrepreneur. So, we tried to appeal ourselves to the investors directly.
The process depends. In my case, the investor in my previous company is Taizo Son, the younger brother of Masayoshi Son, the CEO of Softbank. Taizo Son invested in us after an acceleration programme.
He has an acceleration programme and a fund. If we passed the acceleration programme, we could get round USD $50k. As for the series A, we got around USD 1.2 or 1.3 million dollars. During Series A, it took around one month to finalize the deal because we already had a good connection with potential investors. We know each other very well. Of course, there were paper and administrative tasks. But the most important thing is product growth. The product is growing and it is obvious for the VC to invest.
Q: From all this knowledge and everything you've been through with due diligence process, what are the most important things that you should be at least employing avoiding when fundraising VCs? Now looking back, what kind of things would you like to share with other entrepreneurs?
I believe the most important thing is that we should share our vision and a mission with your potential partner. It is similar to hiring. We got acquired. But for many other startups, the journey will continue with Series B and more. So, it is important to have a good relationship in the long run.
Technically speaking, you should not involve short term funds. For example, VC has a limit and the funds have to return investment money to the LPs. Normally itās 7 to 10 years. If the funds raise money recently, then it's good because the fund has time (to invest). This is important for early stage startups.
Q: When did you start to see the exponential growth? How did you go from 0 to 7 million in such a short time? How was your strategy for acquiring new users?
There is no smart reasons. There are two big things. The first is timing. In Japan, the number of smartphone users skyrocketed immediately in 2013 to 2014. We rode on this wave. So, our product was also growing. And second is focus. We focused on the product, and we didn't monetize for almost two years.
We didn't take any results for monetization since we were small team. There were only around 10 people on the growth phase. 50% of the team was engineers, so five engineers including me. We invested these resources only for product improvement.
Q: After these 2 years since starting the company in 2014, you got acquired by KDDI in 2016, a Japanese telecom company. What made you take the decision to sell your company? How did this decision become clear to the founding team?
Being a small team, what kind of challenges did you face while doing a due diligence process? There are not many people experienced M&A on hands. What is the key take away?
There were other possibilities, for example, to go public or other M&A. But finally, we decided to join KDDI group. We wanted to make our product the infrastructure. KDDI was the best partner for us because they are a telecom company so it's also like a kind of infrastructure;At that time, they wanted to expand their telecom services. The timing was good for each other, and we decided to join.
To be honest, it was tough. We were a startup. As I said, we should focus on our product. So, me and the CEO had to continue working on the product. On top of that, we had to prepare documents for due diligence. We had to make contracts and prepare for the audit. So, it's a kind of double work.
It was tough but it was also fun because that was also a first experience for us. We didn't know any anything about due diligence, but the process was a very unique experience. In my opinion, the most important thing is to share your vision and mission to the potential acquirer.
Q: After you been acquired, you joined KDDI and worked there. What kind of challenges did you face there going from these two different worlds, a small team into a large corporation?
The challenge is the gap between startup and traditional company. It is the merge of two worlds. Each company has each culture. For a traditional company, decision making is generally slow; and for the startup is quickwhich is one of the values of the startup. This creates conflicts. Also, it's difficult to find the decision maker. It takes more time than I expected. F
or example, I want to create a business and we talk about this idea with my parent company. Traditional company has big organization. Each department has its own culture and rules. Sometimes it is difficult to find the right person inside the parent company. Maybe we should talk about the decision maker before or during the M&A process, we should find the right person to push forward our business.
Tatsuās life as an angel investor
Q: After you left KDDI you travelled around the world and visited 40 different countries. Within one year you invested in 20 companies worldwide. What is your angel investing strategy? What kind of tech sectors are you looking for and what is your ticket size?
I don't have any kind of specific preference sector. I'm looking for an ambitious founder, and this is my criteria. My ticket sizes normally are USD 20K to 50K. Of course, there could be exceptions.
Q: How do you scout deals globally? With 20 companies in your portfolio, how do you manage the startups and follow up with the founders?
Thankfully, I went a worldwide tour and I could go to cities and countries directly. I could meet founders directly. The most of them are coming from references. My friend introduces me to someone and then someone introduces me to others.
Actually, I don't have specific ways (to manage the portfolio). If entrepreneurs ask me, I reply anytime and share my experiences. I don't push anything because I'm not a kind of greedy fund manager. I can just enjoy and learn from their startup journey.
And on top of that, I can share technical advice; I got a PhD and my major is in AI and machine learningwhich is added value for founders. I also connected to Japanese market and big companies, as for the fundraising and M&A.
On top of Japanese network, I also got global networks thanks to my journey. That is why it is easy to share my portfoliosā activity to my network. As a result, the Finnish startup Attractive.ai got funding from another Japanese angel investor.
Q: We know that in your portfolio companies, a very large percentage are based in Africa. What made you become so interested in the emerging market, especially in Africa? Can you share with us some interesting startups that you have invested in?
I invested in 8 African startups because the African market is not mature. There are lots of challenges in there. That's why startups can be infrastructure of Africa. I believe in that kind of future and this is the reason why I invested in 8 startups in Africa. Let me elaborate it with an example:
One my portfolio company is Flare. Flare is kind of an emergency number for African continent. Maybe in Nordic countries, Japan or America, there is an emergency number. So, if you have a car accident, you call the ambulance and maybe 15 minutes the ambulance will come. In developed country, it is normal.
But in Africa, for example in Nairobi, if you have a car accident, the driver has to call each hospital. Some of the hospitals refuse the request because they donāt have ambulances. As a result, it takes 3 hours or 4 hours and the person might die. I cannot believe it. In Japan there is a good infrastructure for emergencies. There for 54 countries in Africa and 52 countries don't have 911, the emergency number.
Flare is creating emergency number for Africa. Now they are operating in Nairobi and they have a flare number. They operate as an insurance model. So, if employers have contract with Flare, the employees can call Flare anytime. Bolt is one of the customers of Flare. This company is right to be infrastructure of Africa. Their business is now expanding to Ghana. I believe their journey will succeed.
These kind of startups are in Africa. Instead of the governments and big companies, startups can be the infrastructure of Africa. Thatās the main reason to invest.
Q: What interesting startups did you invest in South America?
As for latam investment, I invested in 2 startups. One is from Mexico and one is from Colombia. The Colombian startup is called Coru.
Coru allows everyone to hire actors, street artists, celebrities and all types to create all types of personalized video message in Latam. In the US, thereās a similar business model. The name is Cameo. So, everybody has suffered from current situation because of COVID-19, including celebrities.
But they can entertain customers from home and have a new revenue stream with Coru. On top of the business model, I like the founder of Coru. He has a global view and he worked at Israeli VC. He is a talented and promising person. I believe on him and his team. So, I invested before they released their products because I believe in the founders.
Q: You have also invested in one company in Helsinki, Attractive.ai. What made you invest in the Nordic countries?
Well, just because of the founder. Chris is a serial entrepreneur and he found Holby, a FinTech company. Holby was acquired by a big Spanish traditional bank 2 -3 years ago. He's energetic and I liked his character; he's also a global person. He wanted to make service and expand globally. So, I believe in him and I think thereās a big potential to be a global company.
Q: What is your advice for the founders here? Should they focus on the Nordic market first and then go global? Or should they start thinking global from the beginning?
I think it depends on the product. But you should think global at the beginning of your journey. The local market can be a test market. But once you optimize too much for your local market, the product cannot be global, for example, the language and culture background, then the product is difficult to expand.
I think itās an important thing to think global initially ā how can we be global? Technically, I recommend to make a website in English. Some startups make the websites with local languages, but global investors cannot read in the local language. So (the startups) should make websites in English.
Q: Why are you investing? What is your motivation, your incentive?
I want to be also a global entrepreneur, and now I'm starting a startup again. So, I can learn from my portfolio companies. This is my most important motivation for angel investment. To be honest, of course I want to get return, but this is a second goal. My first goal is to learn something from their entrepreneurial journey.
Q: When you were acquired, were you completely absorbed? Were you still your own company and this bigger company just had the majority and you stayed CTO? How was it structured?
Well, the structure was quite simple. Our parents company got 100% stock from us. Then I kept the position as a CTO, and then I did post-merger integration for three years. After that, I quitted my job and then I went worldwide tour. And now I'm thinking do startup again.
Q: Have you done any exit from your portfolio companies?
I got one exit last year. One of my portfolio company got exit. It was super early. It was acquired by a bigger company.
Q: What kind of return do you expect for angel investment?
I am not sure. The results are now shown yet. I only got one exit. Now over 25 companies in my portfolio and I am not sure. I don't expect huge returns. So, if you'd like to get return shortly, then maybe you should invest only in developed countries, or in China or India.
I have a long-term vision. I believe in African future; I believe in Latin American future; I believe on technology stuff from Nordic areas. So, I don't need a short-term return; I want to get a long-term return. Of course, as an investor, I want to get return from money perspective. But on top of that, the most important thing isexperience. I want to get experience with entrepreneurs. That's why I don't expect any momentary return (in the short run).
