Spacee has staked out an interesting position in the sharing economy. Spacee enables companies and individuals to rent out unused meeting room space to people who need to hold a meeting. It’s an interesting take on applying a sharing economy model to business.

I’m generally very skeptical of startups who define themselves as “Uber for X” or “Airbnb for Y”, particularly in the B2B space, but Spaceee has already been in business for several years in Japan, and they are seeing strong traction and increasing revenues. They might really be onto something.

Taku has some fascinating insights on why Japan, and Tokyo in particular, might be far more fertile ground for sharing economy startups than almost any other place in the world.

It’s a great discussion and I think you’ll enjoy it.

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Show Notes for Startups

  • Why the basic business case makes sense
  • How large the meeting space market can grow
  • The challenge of expanding outside of Tokyo
  • Why Spacee turned down venture financing to bootstrap for three years
  • Whats wrong with the current fundraising environment in Japan
  • Which other companies are coming into the meeting room rental space
  • Why Japan is uniquely suited for the sharing economy

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Transcript from Japan

Disrupting Japan, episode 59.

Welcome to Disrupting Japan – straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for joining me.

You know, the world is full of start-ups that define themselves as “the Uber of X” or the “Airbnb for Y.” Frankly, most of those business models don’t really make sense when you dig into them. Spacee, however, might just be onto something. Spacee rents out unused space around Tokyo to salesman, co-workers, or people who just need a quiet place to conduct a little business. As Takuya Umeda explains in the interview, it’s not just meeting rooms that are being rented out.

The sharing economy is relatively new in Japan and Takuya and I talk not only about some of the problems its facing here, but why, in the long-run, Japan might be better suited for sharing economy companies than anywhere else in the world. He also explains why Spacee decided to delay taking outside investment for almost three years while they built their business and how that turned into an advantage later on.

But you know, he tells the story much better than I can, so let’s hear from our sponsor and then get right to the interview.

Tim: So I’m sitting here with Takuya Umeda, co-founder of Spacee. Thanks for sitting down with me.

Taku: Thank you, Tim.

Tim: Spacee is kind of like Airbnb for meeting spaces, but that’s a really overly broad description, so why don’t you tell us a bit of how it works.

Taku: Spacee is really like the Airbnb of business. In Japan, wherever you have a meeting, if you have an outside meeting, the only place you go is like Starbucks or a café.

Tim: Right. Everyone meets in coffee shops.

Taku: If there is a professional conference room, it costs really expensive. It’s probably like 5,000 yen per room, per hour. And at that price you can’t really do much, like brainstorming and start up some business plan. Stuff like that you can’t really do. And a café is not really good at it too. So we found that there is a gap between an expensive conference room and a Starbucks, so we fit into the gap.

Tim: So something a little more formal and private than a coffee shop, but not quite as formal as a hotel meeting room or a service office. So tell me about your customers. Who is it that’s renting out these spaces and why are they doing it?

Taku: You know, there is a lot of salespeople around and they stay locked in some business meeting, and I thought those people need some sort of private room. But we now run this firm for a little over three years and we found out that not only the sales guys are using it, but also like the regular firm, the marketing people, they don’t have enough meeting rooms in their office. So a bunch of business people are actually using our meeting space.

Tim: Interesting. So people are using it for internal meetings?

Taku: Yes.

Tim: Do people usually rent it out for one hour or do they rent out a space for an entire day?

Taku: Unusually they use like a little less than three hours.

Tim: Okay. So morning or an afternoon. And on the supply side, what kind of places are renting space?

Taku: We have three different types of rooms. One is like an office room, professional working space, and co-working space. There is a professional rental space and another one is a business office.

Tim: So just someone with a little extra space in their office?

Taku: Yes, or they have a meeting space but they have a new time. We have tutoring schools, language schools, karaoke places, and like an actual office.

Tim: Karaoke spaces?

Taku: Yes, karaoke spaces.

Tim: Well that’s an interesting one. Who is renting out karaoke spaces? I go on a lot of sales calls and I’ve done a lot of sales meetings at Starbucks, but I can’t imagine doing sales in a karaoke booth.

Taku: Right. Exactly, but sometimes they only need confidential, like they don’t want someone else to hear, or they need to quietly have a table so they can put the documents and stuff like that. So sometimes they don’t need a fancy conference room, they just need privacy. In that case, a karaoke room is fun to them.

Tim: So in that case, are these people who are, “I need to find a place right now,” and they’ll find something locally? Or is it more people planning meetings in advance?

Taku: It depends, but usually our customers book a room within 10 days.

Tim: So 10 days in advance?

Taku: Less than 10 days.

Tim: Oh, okay. And do some people book it like 15 minutes in advance?

Taku: Yes, sometimes they do that.

Tim: Okay, that makes sense for those karaoke booths or small places but what about the offices? Isn’t there some resistance in these office of having people walking through? Doesn’t it disrupt the flow of everyday business?

Taku: I think that happens too. So those people who care that they don’t , obviously. But think about it this way: a meeting room in an office used by employees to employees, employees to clients—those are the only two ways that normal office meeting space have use. But a known businessman and a known businessman has a meeting, you’re into the meeting room, but what’s the problem, right? If that is okay. And also, the room is like completely separated from your workspace. Those who use our website book the space. They don’t really come near your workspace. So the office way out, is like separated.

Tim: Okay, so the companies who are renting out their own office space, are they companies that tend to have a receptionist who can guide the people too? All right, that makes sense. And of the three types you mentioned, the conference rooms, the individual offices, and the more general spaces, which are the most common?

Taku: I forgot to tell the third one. We have another one, it’s like an Airbnb type. They rent out a small room and then post it on our website.

Tim: So it’s a small room on a home?

Taku: It’s like a one-room studio-type apartment. Like a SoHo mansion, really small Japanese studio type.

Tim: Like 200, 300 square foot or 20, 30 square meters?

Taku: Right.

Tim: And of those three types, which are the most common?

Taku: As amount, like professional rooms, maybe 50% of our rooms are from those of professionals. Then 10% are from those Airbnb type, but the most common user types are the everyday type rooms.

Tim: So most of the bookings are to these dedicated rooms that are just used for this? Is that because they’re so much cheaper than the conference rooms.

Taku: I think there is two reasons. There is one that is location and the other is pricing. Because we basically use unused space, and unused space—we don’t know where it is. Sometimes it’s in a different location, sometimes it’s not. But the one Airbnb type, we put like 2 minutes from Shinjuku Station, or like one minute away from Shibuya Station, so it’s very close to the high-demand area.

Tim: And it’s something that can be booked 15 minutes in advance, as needed.

Taku: Like maybe 2 minutes or 1 minute is the least time that you could book.

Tim: Okay, now you’ve clearly already got a lot of traction already. You’ve got over 700 spaces and over 300,000 bookings so far. My question is, how big do you think this market is?

Taku: It really needs to change the game though, like let’s say, Uber. In the U.S., nobody raises their hand and catches a taxi anymore. You use a smart phone and tap the pin down, then call the taxi. Nobody has a booked room at the moment. Only a Spacee user does.

Tim: Well that’s the interesting thing because with something like Uber, for example, they’re displacing the taxi industry. There is a behavior that the customers already have and they’re just substituting their product with another product. With Airbnb, people understand hotel rooms or bed and breakfasts, and they’re just replacing their service with another. But Spacee seems to be kind of different in that way, in that there’s not an existing market for people renting this kind of space.

Taku: They already had a meeting in their business, in office hours, they have a bunch of meetings everywhere in there. They have meeting rooms in the office, fixed-cost meeting rooms, and if there is a valuable cost meeting room in an office, which is almost the same cost as your fixed-cost meeting room. And sometimes your office space is not enough.

Tim: Sure, I can understand. Believe me, everyone that has worked in an office understands how hard it is to get meeting rooms. But how big do you think the potential market is? You must have done the calculation’s. I’m sure you’ve made the pitch to the VC. How big do you think this market can be?

Taku: I can’t really state how much in dollars it is, but I’m sure 15% of all the work is in meetings, then 15% of your office has to be a meeting space. So I think that could be a big business chance that we have.

Tim: Do you think that Spacee has a chance to expand beyond places like Tokyo, or maybe New York? Especially Tokyo, where offices tend to be small and real estate is expensive. Do you think this product is something that is uniquely suited for Tokyo, or do you think it has appeal in other markets as well?

Taku: I think if we establish in Tokyo and we find the core value of it, yeah, I think we could go out, global. Office buildings always have empty rooms and some tenants are looking for a room. If they could reach to the empty room and pay for it as a spot, then I think everybody should be happy with that.

Tim: Right now, for example, what percentage of your business is in Tokyo and what percentage is it in other cities in Japan?

Taku: More than like 90% are in Tokyo. So we should try and go out to other big cities like Osaka, Nagoya.

Tim: So you’ve really only tried in Tokyo so far? Do you have plans on moving into other cities?

Taku: As soon as possible, but now we kind of try out our customer model in Shinjuku and twice in Shibuya, and now it’s try to cover inside the whole Yamanote line area.

Tim: Okay. So just the main, most crowded areas of Tokyo?

Taku: Yes. And once we do that, it’s easier to switch over to other cities, I think.

Tim: Okay. Well, let’s back up a bit. When you and your partner were founding this company, one of the biggest challenges for any multisided marketplace is generating the demand on both sides. You need supply of rooms and you need the people who want to rent them. You have to have both of them before it’s interesting to rent to either one. How did you bridge that gap?

Taku: We started it on the supply side first. I think those supplies are mainly foreign, because without them—we knew there was a professional conference room market over there. Those prices are very high, like 4,000 or 5,000 yen per room. We set up our rooms that cost 500 yet to 1,500 yen.

Tim: So about 5 to 15 dollars for overseas. That is pretty inexpensive. How did you reach the people who had the rooms? Did you use social media? Did you direct sales? Did you do advertising? How did you first get that initial growth?

Taku: We did direct sales, like we would just go there and call them. Maybe we got around 100 rooms.

Tim: Just by phoning people, saying “Hey, do you want to list?”

Taku: Yes. And we also did the previous thing you mentioned, like Airbnb type, by ourselves, our private money. We rent one of the rooms so we could setup the price. Because for other people’s stuff, we can’t really control the pricing, so we set the price and we rent a room.

Tim: So you were renting out your own rooms to begin with. And I suppose when you were first starting up, you had to do all the data entry and everything for these customers or were they willing to come on their site and input their data?

Taku: We did them all. Or we tried, as long as it was as easy as possible.

Tim: That makes sense. And then how did you reach the renters?

Taku: Just SEO suite. So we spent a little on listing, but just very little. Mostly SEOs.

Tim: That makes sense. The message to reach the renters is very simple, “You can find a place to meet that’s really inexpensive.”

Taku: And it’s easy too.

Tim: Right. So what do you think the biggest challenge is going forward.

Taku: That’s also the thing—you have to convince the building owners and those who hold the real estate, and also the regular firm. There’s a lot of compliance issues.

Tim: So are you running up against regulatory issues in Japan now?

Taku: No. Regulatory issues—Airbnb has a lot of issues on that but renting out your conference room or meeting room has no regulation. So as long as the building owner says it’s okay, it’s okay.

Tim: So moving forward, you’re kind of expecting more of the same?

Taku: Yeah, yeah.

Tim: That’s a good place to be in. You guys launched back in 2013, but you’ve only recently raised funds, so why waste three years bootstrapping?

Taku: The CEO, who is named Keisuke, he had a company—he used to run a solar panel package information pricing company, or something like that.

Tim: Yeah, we were talking about that before. It was software to estimate the cost of solar panel installations.

Taku: Yes. And that time, the pricing was really odd. Some people buy $30,000 and some people buy $100,000. They buy the same product in the same amount. So if the sales guy is strong, he could just—

Tim: Charge more amounts.

Taku: Yeah. He could make them as compared to this company, that company.

Tim: Okay, so transparent pricing for solar panel installation.

Taku: Yes. And then he sold the division of the firm. That’s like the first in seed finance for Spacee.

Tim: So he could fund it out of his own pocket for three years based on those profits?

Taku: And we also have an angel investor invest in us. Last October, which is a year ago, but still we had two years of bootstrapping.

Tim: Okay, and you recently took investment from 500 Startups. Congratulations on that. Did you wait just because you could or did investors want to see more traction before they would invest?

Taku: It’s really hard to say but some people wanted to invest in us beforehand and we didn’t want to lower our market value, so we kind of waited. That’s one reason. And we tried to raise our value more but it’s good to have 500 Startups as the first fundraising in Japan.

Tim: So did you raise a priced round or was it convertible notes?

Taku: We didn’t do convertible notes. We just did the regular equity.

Tim: Oh, okay. Let’s talk a bit about the fundraising environment in Japan. It seems to me things have really changed over the last 5 years, but you’ve been on the ground and talking to VCs—what is your impression? How are things now, raising funds?

Taku: It’s easy and difficult at the same time. It’s not easy but at a start-up, you have to have decent traction. The need to get funded, that’s our core. Sometimes, like a seed round, it doesn’t look so hard, like a million-dollar valuation raised $10,000—that doesn’t sound hard for me.

Tim: Yeah, these days there are an awful lot of seed stage accelerators and seed stage funds in Japan. So, yeah, if you want to raise $50,000 at a million-dollar valuation, that’s pretty easy. When does it get harder?

Taku: I think it’s getting harder—you need products in traction for the next round, so the valuation turns out to be 3-5 million. You have to really prove your product, is pretty much through this to be. VCs are really like the guys from Silicon Valley. When it gets to a little bit before the series A, we get to the regular Japanese venture capitalists.

Tim: So when you say they’re kind of like Silicon Valley, what do you mean?

Taku: If the idea is good, and your team is good, then the investor takes a lot of risk.

Tim: So the seed round—they’re investing in a good team with a good idea and no traction, no problem?

Taku: Kind of, yes. Sometimes. I think entrepreneurs are less numbers in Japan, meaning no good team and no good business ideas compared to other cities.

Tim: On the execution side, it certainly is. It’s much easier to think of a great idea than it is to go out and sell it to a bunch of people. So that’s on the execution side. There’s certainly a big difference between getting seed and getting series A, but once you have that traction and can show that growing user base, do you think it’s relatively easy to raise a series A in Japan now?

Taku: If you have good traction, I think yes. If you know VCs in Japan and you know certain people, they can connect us to other VCs and stuff. So having a network in Tokyo is not very hard.

Tim: Yeah, the VC community in Tokyo is pretty small. They do tend to invest together.

Taku: Yeah, that’s what I meant.

Tim: Okay, let me ask you one of the questions that I get asked all the time, which is, what advice do you have for start-up founders that are trying to raise money in Japan right now?

Taku: Before we raise funds, a lot of people told us the valuation should be lower.

Tim: Yeah, I think all the VCs will say that. It’s like on their answering machines.

Taku: Yeah, I think all the VCs say that. As an entrepreneur, they worry so much about down funding.

Tim: Having a down round?

Taku: Down rounds. That would be like the worst thing you could ever fund.

Tim: Well, it’s not the worst thing. It’s not good but it’s by far not the worst thing that could happen. But it’s not good

Taku: Yeah, it’s not good. If you professionally know what you’re doing, put the price on your stock, then that price is probably the right price. But I think most of the people are not really understanding.

Tim: I think it’s great advice to not give in to the downward pressure and downward valuation pressure from VCs. But how did you go about deciding on how much Spacee should be worth before you started fundraising?

Taku: We have to look for other start-ups who got funded, then check out their market values, their market size and stuff.

Tim: Okay. So you went in and said, “Look, we are part of the sharing economy. Look at the valuations of all these other companies in the sharing economy. Fund us.”

Taku: I think that even the regular stock exchange does that too.

Tim: Sure. That’s great advice because quite honestly, the way most investors do fundraising is they’ll go out to a bunch of VCs and they’ll say, “What do you think this is worth?”

Taku: And some will buy higher, and some lower.

Tim: As you mention, though, you’re not necessarily going to go with the highest valuation.

Taku: No. It’s cool but—

Tim: 500 Startups, for example, probably didn’t offer you the highest valuation.

Taku: No. We thought their power and their advice should be worth—

Tim: So you wanted an investor that could really help you run the company, maybe help you with your next round. Excellent. Makes sense. What other companies are in the space? The more specific niche—not the Airbnb’s and Ubers, but are there other companies in Japan that are now doing meeting room rental?

Taku: Yes. The famous one is space market. Nokizaki, they were the first one, the first sharing economy firm in Japan. Now they do pop-up stores in parking. Actually, Nokizaki gave us their spaces on our website in the near future. We haven’t published that yet, so I don’t know if I should say that.

Tim: This is a scoop for Disrupting Japan. So Space Market and Nokizaki—how is Spacee different from them?

Taku: Nokizaki is just people that are into parking and pop-up stores, so it’s okay. And Space Market is mainly for events, or they just raise funds and said they’re going to do the same model as Airbnb. So we try to dig into the business side and the meeting rooms.

Tim: Yeah, it’s a different niche. I would say it’s a different market because your supply side doesn’t necessarily overlap and your customer market doesn’t overlap either. Let’s talk about Japan in general. How is the sharing economy viewed in Japan? Both Uber and Airbnb have had their problems here. But the sharing market in general—what do people think of it here?

Taku: I don’t think people really know about it. Maybe people who know about it is an investor for Airbnb or something like that. I don’t think any more customer or consumers—

Tim: But you guys are very much on the forefront of this. You’re making calls and explaining this to office holders and explaining this to renters. What is the explanation from most offices when you say, “Do you want to rent out one of your meeting rooms occasionally?” Is it something they’d get or is does that seem like a really strange concept.

Taku: They feel interested most of the time. Say like building owners, if the guy is young, they really get curious. They really want to do it. But the old guys in companies, it’s very hard to get through.

Tim: You’re talking about compliance issues, but there aren’t really any laws or regulations. Is it more just an attitude?

Taku: I think it’s more like they are psychological type of things and nobody has really done it yet.

Tim: Okay, so the resistance is just a general resistance to trying something new. It’s not a particular resistance to having other people come in to use their property or use their facilities.

Taku: That is one issue, but our users are mainly business people and they don’t want the meeting room or the party room, college kids just jump in and do crazy stuff in it. They don’t want that to happen but a business person like you, you use it as a meeting room. If that’s the case, that’s fine.

Tim: So the basic concept of sharing is relatively well accepted once it’s explained.

Taku: Kind of.

Tim: Well, what kind of problems have you had then?

Taku: Sometimes the building itself is hard to rent out to other people. They are not the building owner, sometimes they are the tenants, so they have to talk to the building property management company, or building owners, and stuff like that. That, I would say, is a bit hard.

Tim: Okay. That’s one of the big problems Airbnb is having in Japan now—well, all over the world really.

Taku: Yeah, we had the same problem too.

Tim: Were most of the management companies agreeable once it was explained? Or did some of them just say, “No, that’s subleasing and we won’t let you do that.”

Taku: It really depends on the culture of them. Real estate business in Japan is pretty much very Japanese-style.

Tim: You’ll have to explain what that means to our audience. What is very Japanese about the real estate? I agree, but—

Taku: It’s super conservative. They don’t try to do new stuff. Sometimes I feel like they don’t even want to make money out of it.

Tim: I know that feeling, yes.

Taku: Sometimes I really understand why they don’t want to rent out, because of their quality of buildings. In that case, I really understand that. You don’t need to do that. But sometimes, like an old building sits there and nobody is visiting. Then why wouldn’t you rent out, right?

Tim: Excellent. Well listen, before we wrap up, let me ask you my magic wand question. That is, if I gave you a magic wand and I said you could change one thing about Japan, anything at all to make it better for start-ups—you could change people’s attitude towards risk or the law, or the education system, anything at all—what would you change?

Taku: Environment is good and people have enough education. We need more reputation.

Tim: What do you mean by reputation?

Taku: We need to do something and as a kid, if you try to become a baseball player, even if you are a kid, to become some notable situation, or like work for a big company.

Tim: So more examples, more role models.

Taku: Yes. So in order to do that, we need maybe more VC money or whatever money to invest into the start-up community.

Tim: Do you think that’s happening now?

Taku: I think gradually.

Tim: We’ve got a few. There’s always people like Son-san and Mikitani-san, who are just—but they’re almost too big and too huge to be a role model. I think we’re starting to see a lot of successful, younger, smarter entrepreneurs.

Taku: Yes. Yes. In Japan, if you scale out your business, they do a commercial on TV. Our mass is still huge.

Tim: Yeah, that’s true. It is easy for us to forget sometimes but the start-up community in Japan is still relatively small.

Taku: And I think it’s segregated from—

Tim: The real world?

Yeah, regular society I guess. We still see, or they advertise, in a TV commercial and they get a huge production.

Tim: Yeah, that does seem to be the real tipping point for Japanese start-ups, is once they raise about 9 or 10 million dollars, immediately start with TV advertising. I think it is one of the biggest challenges that start-up founders face in Japan is that the rules for life are actually very clear in Japan. Everything you need to do, from the time you’re in kindergarten to the time you’re retired, to even after that, are all very well-known and clear. But to become a founder, you have to throw away half of those and figure the other half out for yourself. I think it’s hard for a lot of people.

Taku: I think so. And it’s hard to come back to the regular half of your life. That, I think, is one of the hardest.

Tim: Do you think you’ll be doing start-ups forever? Do you ever see yourself going back to a real job?

Taku: I don’t know. I think this start-up is good for me. Start-up job is hard, obviously—

Tim: It’s more enjoyable.

Taku: Yeah, more enjoyable obviously, too.

Tim: Well listen, before we wrap up, is there anything you want to talk about that we haven’t talked about yet?

Taku: The sharing economy would be much bigger in the next 10 to 15 years. In our regular people-wise, I think the sharing economy has more impact on our daily lives, I think.

Tim: So you think it’s going to go really mainstream in Japan?

Taku: I think in Japan, it more fits compared to other countries, I guess.

Tim: Really? Why is that?

Taku: Because I think the population density and the moral—like people are using well as a space or as a—

Tim: There is a high degree of trust in Japan. Crimes are very low, fraud is very low.

Taku: Yes. That is another reason. Yeah, the density and those too. And if it had a money and regulation moderator and Japanese had a more hard behavior.

Tim: So you think we’ll hit some kind of a tipping point where suddenly it’s acceptable and it’s everywhere?

Taku: Think about LA and San Francisco. It’s the same state but it takes hours to get there. But Tokyo has the biggest population as a city—not just Tokyo city, but the Tokyo area is bigger than most cities.

Tim: It does makes sense. The high level of trust in Japan, the density of the population makes it easier to share and harder to own things. More inconvenient to own things. It’s interesting, but I think you’re right. Japan might be more suited for sharing a common need than anywhere else.

Taku: Yeah and I think if we break through that part, it would really get big.

Tim: Excellent. Well listen, Taku, thanks so much for sitting down with me.

Taku: Thank you, Tim. Nice to talk to you.

Tim: Likewise.

(Outro)

Some of Japan’s largest corporations are starting open innovation programs and are actively reaching out to global start-ups. They are new at this and that’s where CREWW, with two W’s, comes in. CREWW runs open innovation programs for companies like Toyota, and Panasonic, and dozens more. And these programs are one of the best ways to jump-start your business in Japan. Many are open to global start-ups and they are completely free. Now I know and I work with the CREWW team and they’re probably doing more than anyone to bridge the gap between corporate Japan and global start-ups. So drop by CREWW.me/for-startups and get started.

And we’re back. After three years of bootstrapping and building traction, Spacee now has a solid roster of investors that includes 500 Startups and several other important firms here. They’re clearly on their way. The real question in my mind, however, remains the ultimate size of the market. In the case of Uber and Airbnb, users are simply substituting one purchasing behavior for another. Instead of hailing a cab, you call an Uber. Instead of book a hotel online, you book a room through Airbnb. These services are plug-and-play replacements that offer significant benefits to what they are replacing. Spacee, however, has a bigger challenge: they need to convince people to adopt new behaviors, that of renting meeting rooms for casual meetings. Still, Taku had a very interesting insight about Japan, and Tokyo in particular, that the density of population and the price of office space provides a strong incentive for people to adopt this new behavior. Not just for meeting room rental, but for other sharing economy services as well. The next few years are going to be very interesting here in Tokyo.

If you’ve got a sharing economy story, Taku and I would love to hear from you. So come by DisruptingJapan.com/show059 and let’s talk about it. When you drop by, you’ll find all the links and sites that Taku and I talked about and much, much more in the resources section of the post. And if you like what we’re doing here at Disrupting Japan, share it with your friends. If you hate it, then share it with your enemies. And most of all, thanks for listening and thank you for letting people interested in Japanese start-ups know about the show. I’m Tim Romero and thanks for listening to Disrupting Japan.