There has never been a better time to be raising money in Japan than right now.

Founders ask me about fundraising more than any other topic, so this guide is long overdue. There are links that cover the basics in the Show Notes, and I will be keeping this page updated as new information becomes available and members of the community create new resources.

Calling something “The Ultimate Guide” to anything is a pretty big claim, and I’ll do my best to make sure this page lives up to it.

Please enjoy.

Show Notes

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Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs.

I’m Tim Romero and thanks for joining me.

Today, I am going to answer the question that everyone seems to be asking. Or at least the question that everyone seems to be asking me.

I am going to explain how to raise money as a new startup founder in Japan.

You know, it’s funny how things work out. I originally planned to write this episode a few months ago as a short-take on a focused topic while I fished up my episode about the history of software engineering in Japan, but the topic kind of got away from me.

My first draft and notes for the show came in at over 24,000 words, which by the time I fleshed it all out would have ended up as a four -hour podcast, and even I can’t stand to listen to me for four hours.

So I’ve had to make some cuts, some painful ones. This episode should be under an hour, but it requires that I speak in generalities and make a few over-broad statements. There are a few really important topics that I will just mention briefly before moving on.

So, if while you are listening to this episode, particularly my VC listeners, and you find yourself thinking that I would explain a particular point in more detail and with more nuance, or wishing that I would dive deeper into specific strategies and scenarios …   Yeah. Me too. But we’ll save that for another podcast or maybe a conversation over a beer.

Now, there are a few very important questions you need to ask before you even decide to seek VC money. Things like “How do you plan on using those funds?” and “Are you sure you understand the growth-driven management style you are signing up for here?”

But, from my experience, relatively few founders really want to dive into those topics. No, what founders in Japan really want to know is how to raise money. So that’s what we are going to talk about.

I’m going to give you a clear and actionable plan so that:

  1. You can decide which VCs you should approach
  2. You can set up meetings with partners at reputable Japanese VC firms
  3. You will know how to pitch in the most effective way possible
  4. You will have some strategies to help you actually close the round, and get the money in the bank.

And you’ll be able to do it all in a reasonable amount of time without going absolutely crazy.

Now, I’ll warn you. Each of these steps is significantly harder than the one before, but you’ll be building up your skills as you move through the process.

Also, as part of my research for this episode, I not only had a lot of conversations, but I also created an informal “Why Meet a Founder” survey and sent it to many of my VC friends in Japan. The survey asked what factors influenced their decisions to meet with a founder and hear their pitch. We’ll talk about the survey a bit during this podcast, and the results available to you as a special bonus download in the show notes on the Disrupting Japan site.

Alright, are we ready to go? Let’s get started with Step 1 How to decide which VCs to approach.

Creating your shortlist of VCs to Target

Now, when I talk about creating a list of VCs, I’m not talking about finding the names and contact information for a bunch of VCs in Japan. That’s actually pretty easy, we’ll talk about that later and there are links in the show notes.

I’m talking about creating the shortlist of VCs that you want to approach with your startup. So why a shortlist rather than a long list? After all, many successful founders tell of how they made dozens of pitches before getting funding? Why should I limit my options?

Well first, your options are already limited, and it’s best that you understand that in advance.  No matter how great your idea is, most funds simply won’t be able to invest in your startup for reasons that, as you’ll see, are very easy to understand.

The problem is that there is this really popular startup origin myth about how some disruptive and innovative founders had to pitch to dozens — hundreds — of investors before they found a VC who could recognize their vision and their genius. It’s almost always bullshit.

In a recent interview, Peloton founder John Foley bragged that over 400 investors turned him down. Now, maybe that’s just an exaggeration. Maybe he’s counting all 50 investors who attended some pitch event or demo day. I don’t know, but if he really made 400 investor presentations before finding investment, it was probably because he didn’t take the time to figure out who was to invest in him in the first place.

Pitching is not simply a numbers game, or at least it should’ be.

The second reason you should have a shortlist of VCs is that while there are a lot more VCs in Japan than there were a decade ago, there really aren’t that many, so it doesn’t take much time to research them and start with the ones where you will have the highest chance of success and can give you the best advice.

OK, before we get into how to find the VCs ad put together your list, you need to understand the different kinds of venture money available in Japan. There are actually a lot of different types of VCs, and I’ll get to some of the finer details a bit later.  But for now, the most important difference you need to understand is the difference between regular venture capital funds (or VCs) and corporate venture capital funds, or CVCs.  Japanese CVCs behave differently than those from the US and Europe, so we’ll cover them in depth. And we’ll also talk about foreign VC funds, specialty VC funds and government-related VC funds which are all special cases as far as startup founders are concerned.

The most fundamental difference between CVC and regular VCs is that regular VCs raise money from a wide range of individuals and institutions, and they are primarily interested in financial returns. Acutely, obsessed with financial returns would probably be more accurate. You see, those financial returns determine how the investment team is compensated, whether they will be able to raise another fund, and even whether they will be able to continue having a career as a venture capitalist. In this sense, traditional VCs are simple creatures. You know exactly what motivates them.

Corporate VCs, CVCs, in Japan are very different and far more complicated in their motivations. CVCs are run by a large enterprise, and the investment funds come primarily, or even exclusively, from that enterprise or its corporate group. In fact, many CVC funds in Japan aren’t actually funds at all. In many cases, the company can pull the money out of the fund at will, and sometimes there isn’t even a dedicated pool of money. The enterprise simply invests from its balance sheet.

While Japanese CVCs do care about financial returns, it’s usually not their primary metric. CVCs usually invest strategically; to gain insight into new technology in their industry, to own a portion of a company they want to do business with, or to build a relationship with a company they might want to acquire later.

Now, to most founders, CVCs with their long-term focus and industry-connections sound like an ideal investor.  And yeah, they can be, but the truth is that as an early-stage founder, and it breaks my heart to say this, but you are probably wasting your time pitching to Japanese CVCs.

It’s not that CVCs don’t make great investors. They do. However, pitching directly to them is usually not the most efficient way to get them to invest.

That sounds like a harsh statement, but if your startup is still early stage, by which I mean this is the first time you are raising venture capital or you do not have an existing customer base in their industry with real sales, simply leave Japanese CVCs off your target list — at least for now. 

The hard thing about pitching Japanese CVCs is that since their careers are not tied to the returns of their fund, they are much less likely to take a risk on an unproven startup than a regular VC. Now if you are already doing business with that CVCs corporate group, you should definitely pitch them. However, even then, your best strategy is to have them recommend you to a regular VC, who can help them set valuation and de-risk the deal for them.

The basic reason for this is that CVCs tend to require a lot more external validation and certainty than regular VCs do. And a regular VC is much more likely to see the potential of an early-stage startup or idea than a CVC is.

Now it might seem like I’m being unfair to CVCs here, and I get that. I mean, I have friends at Japanese CVCs, friends I will undoubtedly be hearing from as soon as his episode is released, some investors at CVCs are every bit as nimble and forward-looking as regular VCs, but most aren’t. And if you are a startup burning through your capital, you need to focus your fundraising efforts where you have the greatest chance of success.

So what if you are an early stage, but still feel that a particular CVC would be a great investor?  Well, from outside the industry, it can be really hard to identify which CVCs are worth pitching to directly, so advice from regular VCs or startups in their portfolio will be your best guide.

If you don’t have access to those people, then my advice is to first get a regular VC interested in investing in your startup, and have them approach the CVC for you or with you. Venture capital in Japan is still a pretty small club, so it’s quite likely that your VC will know someone at the CVC fund and also be able to give you some advice about whether they would be a good fit or not.

And we’ll talk more about this particular strategy a bit later in the show.

OK, while traditional VC funds and CVC funds make up the vast majority of investment funds available in Japan, there are a few other, more specialized, funding options that are worth knowing about.

First, there are foreign CVC funds. There are more and more foreign CVCs operating in Japan every year, and while they make a small percentage of the investments here, they are an increasingly important force in the market. From a fundraising point of view, most foreign CVCs act more like regular VCs than they do like Japanese CVCs. While in general, they do favor later-stage startups with market validation, foreign CVCs will often lead rounds and can be pitched to just like a normal VCs.

And I want to be clear, when I say a foreign CVC, I mean foreign capital like Intel, Boeing or Salesforce. The person you will be dealing with from these firms may well be Japanese, but they will be investing the way foreign CVCs are expected to invest. That’s why they were hired. In fact, I’ve had friends who moved from Japanese to foreign CVCs and began investing much more aggressively once they were given the opportunity.

Second, there are sector-specific funds. These are funds that were raised to invest in, for example, drones, virtual reality, edTech, or blockchain startups. There are a fair number of these funds in Japan. They tend to be smaller and often invest in early-stage startups. If you fit one of these themes, by all means, add these funds to your target list.

Third, there are a number of venture funds that are associated with universities or other special government initiatives. If you qualify for this, you probably already know about it. If your university has a venture fund, it’s your best place to start. The investors there tend to be super-approachable and will spend a lot of time with you. If you have access to such a fund, your fundraising life just got a whole lot easier. Place it at the top of your list and make an appointment.

Finally, a word on accelerators. Real startup accelerators have kind of fallen out of fashion in Japan. There are still a handful of them, and they might be a good option if you are still in the process of pulling your startup together. However, most of the programs billed as accelerators in Japan are not actually accelerators. 

Most so-called “startup accelerators” in Japan are corporate open innovation platforms. These are a great way to sell to Japanese enterprises, but they have no place on your list of target VCs.

OK. Now for the easy part, getting a list of VCs in Japan. I’ve put links in the show notes to a few directories, and if you know of other good ones, please let me know and I’ll include them as well.  Also. the Japan Venture Capital Association is a good source, watch for funding announcements on The Bridge, and ask other startup founders who is investing.

It’s a seller’s market right now, and most early-stage VC funds are working pretty hard to make sure you know about them.

As you go down this list of VCs, google them, and visit their site. In their about page, most funds are very clear about who they invest in. If they are an overseas-only fund, and you are a Japanese company, cross them off your list. If they are growth-stage fund and you are looking for seed funding, cross them off your list. If they are drone funds and you are a B2B SaaS company; seriously, why waste your time?

If you have a fund that looks like a good fit, take a look at their portfolio page. If they’ve invested in other startups in your industry and about your size, that’s s very good sign. Put them on your shortlist and google those deals. What did the partners say about those investments? Knowing why the firm made those investments, how they view the future of the industry, and what they find attractive about startups can be a huge help when pitching that VC.

I’ll warn you in advance, most of the press releases you’ll find will be bland, boring boilerplate statements, but once in awhile, you’ll find really some useful information that can help you tailor your pitch to that VC. 

“What? Do you expect me to make 50 different pitch decks?”  No. If your shortlist of VCs has 50 funds on it you are doing it wrong. Right now we want to focus on the five to ten where you will have the highest chance of success. We’ll have plenty of time to pitch the others later if we need to.

Setting up meetings with VCs

OK. Now that you know who you want to meet, what’s the best way to actually get a meeting with them?

I had my own theories on this, but in researching this episode, I sent out an informal “Why Meet a Founder” survey to seed investors in Japan asking them what factors would most make them want to hear a pitch from an unknown startup founder.

The results were interesting and caused me to rethink some of the advice I used to give. You can download the results from the show notes on the site.

So, based on all this research. I am going to give you a near fool-proof plan for getting a meeting with a top-tier VC in Japan.

Executing this plan is not particularly hard, but it will require you to invest a fair amount of time, and since innovators and hackers are always trying to hack the system and find shortcuts and hidden insider tips, before I explain how you should set up your meetings with VCs, I feel I should cover two things that your really, really should not do.

First, don’t pester their friends, spouses, girlfriends, boyfriends, relatives, or podcasters to make an introduction for you. You are just going to annoy people by creating awkward social situations. And besides, every VC I spoke to said that the pitch decks they get this way get no special attention. Every startup gets vetted through the same process by the same team.

The fact is, its not hard to get seed-stage VCs to look at your deck. Every seed-stage VC I spoke to told me that their team looks at everything that comes in. So the good news is that cold-emailing your deck to a VC is just as effective as asking a VC’s boyfriend to have her look at your deck. The bad news, of course, is that neither one of these is particularly effective.

So it will be better to stick to what works, and we’ll get to that in a minute.

second, never pay anyone for an introduction to a VC. This is thankfully a lot less common in Japan than it used to be, but there are still far too many so-called “startup advisors” and “startup consultants” who promise to help you raise money for a percentage of the cash or for equity in your company. These people are scammers and liars, and you should ignore them.

Now, that said, there is nothing wrong with paying fixed, reasonable fees for help with your presentation or your business plan or any other aspect of your startup. That’s all good. And it’s true that many VCs do use startup scouts and venture partners to help them find the right startups to invest in, but their compensation comes from the VC side, not from the startups.

At later stages, there are some special cases where these kinds of equity-based contingency fees make sense, but as an early-stage startup, there aren’t. There is plenty of free advice available, and Japan’s startup community is so supportive there is no need for it. And although you might find this surprising, investors are pretty friendly people, and as a whole, they would be quite pissed off at anyone trying to sell access to them.

All right, with all that gloom and negativity out of the way, let’s get down to what really works in getting a meeting with a VC in Japan.

Based on my own experience and the “Why Meet a Founder?” survey, there are two effective strategies in making a positive impression on Japanese VCs. 

Pitch Contests

First, pitch contests. Now, I have mixed feelings about pitch contests, but the fact is that winning awards at pitch contests ranked as the number two most influential factor in the “Why Meet a Founder?” survey, so they are worth talking about, and they are probably worth doing.

Actually there is a lot to like about pitch contents. They can be great practice for public speaking and help you hone your presentation skills, people who want to join startups often attend these events, so they can help you attract employees or co-founders, and the right ones can be a great source for sales leads and business development.

So with all this going for them, what’s not to love about pitch contests? Well, pitch contests in Japan have really changed over the past decade, and it’s important that you, as a founder, understand this.

Ten years ago, pitch contests were still pretty rare in Japan, and they were mostly attended by VCs who were ready to invest and startups who were ready for investment. Today pitch contests have become a standard component of many startup events.  So much so that when any Japanese enterprise or government agency wants to show the world how innovative they are, one of the first things that their vendors propose is for them to hold a startup pitch contest.

Now that event may or may not include anyone with a desire to invest or partner with startups, but in this case, that’s not the point. The point is the photo-ops and press coverage for the sponsoring organization. So you need to do some due diligence on who you expect to be in the audience before you agree to participate a pitch contest, and you need to be clear on what you expect to get out of it. Some pitch events are really worthwhile, and some are a complete waste of your time.

The other thing I would caution you on is to remember that pitch contests are only a means to an end. I’ve watched several startup founders collect a series of pitch contest awards as their startups went out of business, and in one case, I’m pretty sure the amount of time the founder spent pitching was one of the main reasons the startup never generated real revenues.

You’ve got to keep your eye on the ball.

Now, all that said, pitch contests can be really worthwhile, and you don’t even have to come in first. In fact, pitch contests are often won by the startup with the most inspiring story or most radical idea rather than the startup with the greatest likelihood of success.

And that makes sense. There is no number crunching or due diligence at pitch contests. They tend to be popularity contests.

I’ve never met a VC who would invest based on who wins a pitch contest, but doing well can give you that external validation that new startups very badly need. Doing well shows VCs that at least one other group of experienced people in the industry think that your startup and your idea was worthwhile, and that’s often enough to make them want to hear more about you.

In terms of how to make an effective presentation for pitch contests, others have written about this pretty extensively, and I’ll put some links in the show notes. But one piece of advice I do want to give, and this runs contrary to some of the advice you’ll receive, but it’s backed up by a lot of Japanese startup founders, is don’t force yourself to be someone you’re not.

You don’t have to transform yourself into a caricature of a startup founder by trying to channel Elon Musk or Steve Jobs and becoming one of those nattering ninnies who starts every fourth sentence with “Imagine a future where…” If you can clearly explain the problem, your solution, and your customers, you are going to do fine.

So, by all means, join some pitch contests. But don’t get cocky if you win, and don’t get depressed if you lose. You are there to get exposure and make connections not to collect trophies.

In fact, there is a much better, a near full-proof way of getting a meeting with a VC: one that almost every VC surveyed said had a very strong impact on whether or not they decided to set up a meeting with a new founder, and that’s what we are going to talk about now.

Introductions from a Portfolio Company

The single most effective way to get a meeting with an investor in Japan is by getting a recommendation from one of their portfolio companies.

Now, I’m talking about a recommendation, not just an introduction, so don’t start emailing founders and saying “Hey, I noticed that XYZ capital invested in you guys, can you introduce me?” First, it’s kind of rude, and second, those kinds of low-information introductions carry no more weight than all the random pitch decks that come in from other sources.

No, what you are after is a recommendation. You want the portfolio founder to go to the VC and say “Have you heard about these guys? They have a really interesting business, and I think they are raising right now. You should talk to them” That will get any VC’s attention and will very likely get you your meeting.

But to get from here to there, you should approach it in a very particular way.

Now, if you have been following my advice so far, you have already made your list of VCs who you want to pitch to. Go back to their portfolio page on their website and learn a little bit about each one.

What you are looking for here, is a startup that is one or two financing rounds ahead of you and one that has a similar business model, but who is not a competitor. And by not a competitor, I mean their customers and users are different from yours.

If you have a customs clearing SaaS and they have a SaaS used by HR you are similar but non-competitive. You both are in enterprise SaaS, but you have different customers within the enterprise. If you have an AdTech company and they have a newsreader and recommendation platform you are similar but non-competitive.

The goal is to find fellow founders who would understand your startup, but not feel threatened by it.

What you want to is approach these founders and ask for advice about your company. And let me be clear here, you really are looking for advice on how to improve your startup. As you will see in a moment, none of this will work if you view it as just a pretext to get an introduction. If a particular portfolio company is not run by someone who you respect or think you can learn from, then move onto the next one.

I admit I have a bit of an ulterior motive here, but it’s a friendly one. You see, reaching out to other founders like this is something you should be doing even if you are not looking for investment or introductions. One of the things that could really help move Japan’s startup ecosystem forward is more cooperation and collaboration between startup founders.

As a whole, you’ll find that startup founders who are just a few steps ahead of you are a far more valuable source of advice, encouragement, and support than VCs or accelerator mentors.

Now making contact with these founders is pretty easy, really. If you ask nicely, you’ll find most people are happy to answer honest requests for advice from fellow founders. True, we founders all tend to be an insanely busy bunch, but the whole community has an increasingly strong pay-it-forward attitude. If you’re serious and polite, people will take the time to talk with you.

But you have to be serious and you have to be willing to listen. If all you want is that introduction, founders are going to sense that and you won’t get the advice or the introduction. More importantly, however, you are going to miss out on an incredible chance to improve your startup and to make your life as a founder a little bit less stressful and crazy than it is right now.   

This is a chance to get some real feedback about your startup, your strategy, about VCs in Japan, and about what you are about to put yourself through in your first fundraising. If you are doing something interesting and worthwhile, the introductions and recommendations will come pretty quickly.

And those recommendations carry a lot of weight.

This makes sense when you think about it. The VCs respected those founders’ judgment enough to invest, let’s say, a million dollars into their startups, so those VCs certainly value that founder’s advice enough to spend 30 minutes meeting with a new startup they recommend.

In fact, the only time when this won’t work is when the VC is limited by their charter and can’t invest in your startup. For example, if you want to pitch your SaaS startup to a drone fund or you’re trying to raise seed capital from a growth-stage fund. But since you did your research when putting together your shortlist of VCs, that will never happen to you, will it?

Smart VCs understand that their portfolio companies are much more than just financial assets. And in the “Why Meet a Founder” survey, VCs overwhelmingly rated recommendations from portfolio founders as the most persuasive reason to meet an unknown startup founder. 

OK, now that you’ve got your meeting, let’s talk a bit about how to pitch your startup to a Japanese venture capital firm.

Pitching to an investor

So, we are getting to the exciting part now, and once again, you’ll find links in the show notes to some good general advice about pitching to VCs, so you and I can skip the basic stuff and get onto the really important things and cover some points that those pitching guides always seem to leave out.

In fact, if you’ve already read some of those guides or material like them, the most important advice I can give you here is don’t overthink things.

Now, this can be hard advice to follow because the Internet is amazingly good at overthinking things.

Let’s take a look at your pitch deck, for example. You definitely need to explain the problem you are solving, how you are solving it, who your customers are, introduce your team, and talk about what you are going to do with the investment.

Other than that, well, a good-looking pitch deck is important, but it’s honestly not that important. I mean a truly ugly pitch deck might hurt your chances, but tweaking and polishing your deck very quickly hits the point of diminishing returns.

Look, if you are targeting the right VCs, you are going to be pitching to pros. This makes some founders nervous, but really, it should have the opposite effect.

You see, these VCs see dozens, sometimes hundreds of pitches a month, and most of them are pretty good at spotting defects in a business plan despite a brilliantly designed deck, and conversely, they are pretty good at seeing the potential of a startup even if the deck is mediocre.

If you follow the basic formats I’ve linked to and cover the ground explained there, you’ll be fine. Hell, if you do that, you’ll be better than 80% of the pitches these guys see.

A pitch deck is just a tool. Startup culture, however, seems obsessed with the pitch deck. There are expensive online courses and consulting on how to build the perfect deck. I’ve seen articles that claim certain key phrases must be included and even that specific color schemes are the key to success.

It’s ridiculous. You are not selling your pitch deck, you are selling shares in your company. A nice-looking deck that covers the basics is great, but the time you spend polishing or re-working the color scheme would probably be better spent on getting new customers.

OK, the second piece of advice, and this is more common among the foreigners pitching in Japan, is that you can bullshit, but you can’t lie.

So, what’s the difference between bullshitting and lying? Well, that’s a fair question.

Bullshitting is things like explaining how your to-do app is going to change the world, or how based on initial user feedback you should be able to overtake the market leader in three years. Yeah, to an informed listener it’s obviously bullshit, but I mean you could believe it.

That kind of bullshit shows a certain amount of optimism and passion that VCs love. It’s part of the charm of being a startup founder. As long as you are not actually basing your business plan around that bullshit, it’s all good.

Lying, however, is very different.

If you tell a VC that you have received a term sheet from another VC when you have not, or that you have ABC corp is your customer when you’re actually still in negotiations, or that your CTO graduated from MIT when he didn’t. That’s lying, and that kind of thing can blow up a deal — not only with the VC you are lying to but with every other VC in Japan.

Venture capital is growing fast in Japan, but it’s still a pretty small community. People talk, share ideas, and they do check out what startups tell them. In my work with TEPCO’s CVC team, I’ve been amazed at how many startups tell easily verifiable lies in their pitch. I mean. Just don’t.

OK, with those don’ts out of the way, perhaps the most important advice I can give is more about your general mindset than specific tactics.

A lot of founders view pitching a VC as somehow asking the VC to do them a favor by investing, and since you might be literally asking the VC for a million dollars, yeah I get why it can feel that way.

But in reality, it’s not like that at all. The fact is, those venture capitalists you’re pitching to, they desperately want to invest in you.

Let me explain.

VCs raise money from other investors with the promise of investing that money in startups and generating a significant return. The important thing to realize here is that VCs need to invest that money, and they need to do so relatively quickly.  Just sitting on that cash and waiting for the perfect startup to come along is not an option — OK maybe it’s an option for some of Japan’s CVCs, but it is not an option for regular VCs.

If they don’t invest that money in quality startups pretty quickly, their LPs will get upset and their reputation will suffer. Finding enough of these startups and convincing them to take their money is what keeps VCs up at night.

And this, my founder friend, is where you come in.

That VC you are pitching to tomorrow, he desperately wants to invest in you. Before every meeting, he is hoping that this one, this next company is going to be that 1000x hyper-growth startup that they’ll be bragging about at cocktail parties five years from now. Of course, they know that statistically, you probably aren’t that startup, but man, they are really hoping that you are. And if they’ve agreed to hear your pitch in person, then they already think that just maybe you could be.

My point is, this is not an adversarial relationship. You and the VC you are pitching to are actually on the same side at this point. There is no reason to get stressed out, and every reason why you should view your pitch to the VC as just a conversation between two normal human beings.

Now, the particular VC you are pitching might not play it that way. It really depends on their personality. Some people are friendly and easy-going, some are cold and aloof, and some are aggressive, but behind all that, they are all facing the same problem, and they are all hoping that you are the solution to that problem.

The VCs need you every bit as much as you need them, and they want your pitch to work out just as much as you do, so don’t sweat it. Go in there explain, who you are, what problem you’re solving, and how you are going to grow, and you’ll do great.

Closing the Round

OK. So you’ve made your pitch. Hopefully, it went well. So what comes next?

Well, that depends on what they thought of your startup, the size of your round and the way that particular VC is run.

Basically, if things go very well, you’ll leave with a concrete next step. That might be scheduling a followup meeting or presentation with the rest of the investment committee. It might be a list of questions the investor needs answered for due diligence. For small seed rounds, you might even get a handshake commitment to invest, but that’s pretty rare in Japan.

The most common conclusion to your pitch is having the VC tell you that you have an interesting Idea and that they will get back to you after thinking it over and discussing it internally.

Which kind of sucks because it doesn’t really tell you anything.

You also might get a direct “no”. Direct no’s are great in a way, particularly if they come with a concrete and specific explanation of why.  A well reasoned “no” can help you refine your pitch, and more important, knowing that a VC is not interested can save you a lot of time.

And if the reason they can’t invest has nothing to do with your startup itself, ask if they know another VC that would be a better fit and if they would be willing to make an introduction.

But, as I mentioned, the most common result is a friendly, “Thanks. We’ll be in touch soon”, and in general, they will. Even the slow Japanese VCs will get back to you in a week or two, and feel free to followup during that period. 

Of course, you are not going to be just sitting on your ass during this time, you will be pitching and following up with all the other VCs on your list.

Some will respond with positive interest, and right now begins what is often the most time consuming and difficult part of the fundraising process. — actually closing the round. And, remember the round is only closed when all of the money is in your bank account.

How long does closing a round take?  It can take a month or it can take six months. It depends on way too many different things. But your job during this time is to get the money in the bank. We’ll talk about some common distractions and delays in a minute, but remember you need to get the ball in the goal.

At this point, there are three kinds of responses you will get from a VC. 

First, you might get a “no”, and that’s fine. Listen to their feedback, ask if they know a different fund you might be a better fit for, and then ask for an into. Thank you, and move on.

Second, you may get a term sheet. A term sheet is a non-binding document that outlines the most important aspects of the investment. The valuation, the amount of money the fund plans on investing, voting rights, protections such as liquidation preferences. Things like that.

Now, a term sheet is an important document, but it is not a contract. It does not mean that the fund will invest in your company. It’s a serious opening offer. It’s the start of negotiations.

The final numbers may be different, the VC may or may not invest, but things are definitely moving in the right direction. Now, get the ball in the goal.

The third, and by far most common, response you are going to get will be requests for more information. This might be requests for more details about your sales or service, or requests to meet the rest of your team, or for you to talk with some of the other partners. Obviously, you want to answer those questions and move toward a term sheet and an investment.

But as you answer these questions and attend more and more meetings you might notice that some of these VCs seem to be really slow.

Now, part of this is just because, well, Japanese VCs are kind of slow. But in some cases, you’ll find yourself dealing with a VC that will keep asking questions and keep the conversation going, but who will never move to a term sheet no matter how you answer their questions.

Some VCs just won’t give “no” for an answer.

Why do they do this? Most of the firms that string you along like this are doing so to keep their options open. I mean, maybe a famous VC will decide to invest in you, and they don’t want to miss out if that happens. Maybe you’ll be successful and they might want to invest in your next round, and they don’t want to hurt your feelings by saying “No” outright. Maybe it’s just their misguided way of staying friends.

However, the cynical strategist in me can’t help but notice that a very useful position for a VC to be in is to always be just about to invest, to always have the option to invest, but to only actually doing so at the last possible second as the round is closing.

Some VCs may do this consciously, some unconsciously, and maybe I’m reading this all wrong and it just looks this way from the founder’s side of the negotiating table, but it’s a damn good strategy for a VC if they can get away with it.

So how are you supposed to get the ball in the goal when you are not even sure what game the VCs are playing?

Well, if a regular VCs and you have already agreed on a term sheet that you are both happy with, then that VC can be a huge help in closing the round. If they want to take the entire round, great you just need to decide when and where the money to be wired.

If the VC only wants to take part of the round, they will be acting as your lead investor, which means that all the other investors in this round will be investing under the same terms listed in the term sheet. And as your lead investor, they will be in a great position to know who else should be investing in your startup and to make those introductions.

And here is where Japanese CVCs really shine. While many of them struggle to make investment decisions based on direct pitches from startups, most are quite comfortable co-investing in a deal brought to them by a VC they trust. In fact, connected VCs will be able to bring in a collation of CVCs to fill out the round.

In general, the most effective way to pitch a Japanese CVC is to have your VC do it for you.

Whether a VC will do this for you really depends on the investor. Not the VC firm, but the individual person you are working with. Some people will particularly put the deal together for you, and some will just ask you to keep them posted on your progress. It’s a personality thing.

But no matter how helpful your VC is here, it is your responsibility to get the money in the bank. Closing your round is not your VC’s top priority, so it had better be yours.

If don’t have a VC who is willing to actively lead the round, then you need to take your term sheet in hand, set a closing date and start hearding your cats. Now, some founders don’t like to set a deadline, but I do. Too many investors will wait until the last minute, and having that deadline creates a sense of urgency for both them and you.

From here on out its really just a sales process, and I admit it can be hard to know if you are making progress. It can be genuinely difficult to know which VCs are asking legitimate questions about your strategy and finances in order to make a decision, and which are just trying to keep their options open.

In general though, if the investor is asking for specific information that you can provide right now, you are probably making progress. However, comments like “We’d really like to see a bit more traction next quarter” or “We’d feel much more comfortable investing once you close that deal.” Actually mean “no”.

Never delay your close in an attempt to accommodate these investors, because they will probably be just as indecisive even after you’ve achieved the targets they specified. Stay friendly, stay in touch, but focus on the investors you think you can close.

However, I think that you will find that the most persuasive argument you have in getting VC to invest in your startup is which other VCs are investing. Perhaps the most common question you’ll be asked by VCs is “So, who else is investing?” 

And once you get a term-sheet from a respected VC, you will find that, by an amazing coincidence, many of the investors who have been slow-walking you for months will suddenly decide they have enough information to move forward.

And if you don’t find a VC willing to lead your round, you can still close it, you’ll just have to work a lot harder. But as I mentioned before, even if you have a respected VC actively leading your round, getting the money in the bank is your responsibility.

What Comes Next?

So congratulations, you’ve successfully raised your first round of venture funding. Give yourself an evening to celebrate with your team. You’ve earned it.

But tomorrow morning, you need to focus on the really hard part; growing your business. After all you’ve been through, it may be hard to believe, but raising funds, that’s is the easy part.

If all goes well, your next funding round should be easier. You’ll have your existing investors to set up meetings with later-stage VCs. And since you’ll have a few more quarters of real-world results to point to, indirect validation like recommendations from other founders and pitch contests will play much less of a role.

But those real-world results don’t come easy. The truth is, most venture-backed startups fail, and every startup is different. So trust your gut, make friends with other founders, and listen to other people who are also trying to figure this all out.

In fact, that was one of my main motivations in starting Disrupting Japan – to let you hear the different, and sometimes contradictory, real-world experiences and ideas from founders that are out there growing their companies and trying to make sense of this whole startup journey.

There has never been a better time to start a startup in Japan. If you have already launched here, or if you plan on doing so, and I sincerely hope you do, get in touch sometime and let me know how things are going for you.

As you grow your startup, you will find that while your funding will come from VCs, your most valuable advice and encouragement will come from other founders.

If you want to talk about raising money in Japan, and I know you do, come by and let’s talk about it. If you leave a comment, I guarantee you I’ll respond. 

And hey, If you get the chance, please check us out on LinkedIn or Facebook, but even better. If you like the show, tell people about it. Disrupting Japan was recently ranked the third biggest business podcast in Japan, and that’s really thanks to you. Disrupting Japan has grown not by social media marketing or advertising, but because listeners like you enjoy it and tell their friends about it.

But most of all, thanks for listening, and thank you for letting people interested in Japanese startups an innovation know about the show.

I’m Tim Romero, and thanks for listening to Disrupting Japan.