Japanese startups are catching VCs' eyes as regulatory issues roil China.

Plus: How much investment does climatetech need to prevent warming above 1.5ºC?

Inside.com Part of   Network December 17, 2021

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Japanese companies raised over $3B in the first half of 2021, driven by turbulence in China and hidden unicorns. That figure is three times higher than for the same period in 2016, according to data from INITIAL reported by Bloomberg. More: Big international investors have begun looking at the country's young companies, including Sequoia, Soros Capital, and Peter Thiel's Founders Fund. The most interesting development is SoftBank's Vision Fund taking stakes in Japanese companies for the first time this year. CEO Masayoshi Son was previously openly contemptuous of the country's business culture. It took stakes in biotech firm Aculys Pharma and sneaker marketplace operator Soda Inc. Many top-tier VCs are keeping Chinese companies at arm's length in the midst of the country's regulatory crackdown. This development frees up funds for other markets and puts pressure on partners to source top deals elsewhere. Domestic Conflicts: Japanese startups are hampered by investor demands for short-term profits, which makes them bad bets for the country's punters. However, young people are more willing to take risks than their parents, often opting for a position at a startup rather than attending an elite university for a safe, albeit boring job at a bank later on. The Public Secret: Japanese companies thus tend to go public earlier, meaning that many successful startups never achieve unicorn status on private markets.  The minimum valuation to go public on the Mothers board is just $4.4M, considerably lowering the entry costs to public financing. However, many companies on public markets are less than 10 years old and valued at over $1B, making them "hidden" unicorns. Officially, the country only has one unicorn, according to CB Insights.

A total of 142 European and Israeli startups went public so far this year, raising $104.7B (€92.7B) in aggregate funding. The respective increases in each geography over 2020 come in at 149% and 780%, reports Pitchbook. However, these stats hide the poor performance of stocks in subsequent trading. More: Two-thirds of these companies are now trading below their listing prices. Deliveroo is down 45% from its listing price. Fintech giant Wise's shares opened at $10.66 but now stand at around $10. The main problem seems to be that companies are too highly valued when they reach public markets in the first place. Between 2017 and 2021, the average pre-IPO valuation in Europe grew from $141.6M to $874.1M. Several companies have already delayed their debuts in the face of investor reluctance, such as language learning app Babbel and Swiss watch trader Chronext.

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Analyses Made Easy PitchBook Analyst Note: Archetypal Investing into Climate Tech* *The following summary is based entirely on the above-named report by PitchBook. As was revealed at the UN Climate Change Conference (COP26), most emissions can be reduced with existing technologies. However, there remains a technology gap that accounts for an estimated 35% of emissions goals. That 35% is where climate tech companies can step up to help governments and industries keep warming below 1.5 degrees C. We are currently on track for 2.7 degrees C warming by 2100. With trillions of dollars pledged by over 40 countries, there is plenty of capital available to develop new technologies to cut emissions by the almost 27 billion metric tons per year needed to stay below 1.5 degrees of warming. A growing number of climate tech VC funds are already cashing in. They include Breakthrough Energy Ventures' Catalyst Fund, Jeff Bezos' Earth Fund, and Energy Impact Partners' Energy Impact Fund. They will be integral to securing the blended capital (a mix of public and private funds) that can support technologies that are as of yet unable to economically compete with current, CO2-heavy industries. Blended capital reached $640B in 2020 and should exceed $1T in 2021. The annual investment must triple to $2.6T by 2025 to meet the summit's goals. The private sector could provide 70% of that amount to reach net zero. Financing the transition to net zero emissions by 2050 will require about $125T of investment, including $32T in six primary sectors over the next decade. $34.2B of VC was invested in climate tech in 2021, with $3.3B invested during the past six weeks. According to analysts, there are five sectors that account for 50% of emissions. The report sees four major archetypes for investment. Grid and PV power in southern world countries Power grids are carbon-intensive, particularly in developing countries where energy consumption is expected to double by 2050. The annual investment is projected to reach $1.3T in the next five years and further increase to $2.2T by the 2030s.  Top technologies include:  Long-duration storage Advanced controls Software and communication Vehicle-to-grid integration Building-to-grid integration Next-generation nuclear High-efficiency materials Clean Industry Industrial processes account for roughly 20% of GHG emissions globally. It will require annual investments of $190B by 2025 and $390B by 2040 to decarbonize.  The clean energy industry currently accounts for 6% of 2021 VC deployed into climate tech, or $1.85B in 2021 YTD. Top technologies include: Green steel Alternative protein—both lab-raised and alternative-source protein Industrial electrification Green hydrogen Chemical electrification Battery and energy storage This sector is crucial both for transport (EVs) and long-duration energy storage. Transport electrification tech accounted for 48% of 2021 global climate tech VC investment. Total investment is likely to triple from $390B annually to $1.2T by the 2030s. The built environment The building sector accounts for 38% of all energy-related CO2 emissions. As temperatures increase, billions of people will begin purchasing air conditioners, only driving this number up. This dynamic will be concentrated in the Global South. The total investment to decarbonize buildings consists mainly of retrofits and heating and cooling appliances. It could quadruple between 2020 and 2040, from $190B to $710B annually. Did you enjoy reading this piece? Most of my Analyses Made Easy features are reserved for premium subscribers. To gain access to all my premium features, upgrade to Inside VC Premium for either $10/month or $100 billed annually. For a limited time, we are offering a 14-day free trial of premium. Click here to sign up! (Other premium features have included Silicon Valley’s Impossible 2020 and What Happens Next, a Pitchbook report on LP cash flow, Autotech and the SPAC, and more.) Upgrade now to Inside VC Premium

Today's Funding 💸 Adtech/Martech Rokt (New York, N.Y.), marketing technology for online shopping: $325M E led by Tiger Global Management. Mavrck (Boston, Mass.), platform for brands and media companies to source and engage with influencers for marketing campaigns: $120M from Summit Partners. Agtech Infarm (Berlin, Germany), vertical farming firm: $200M D led by Qatar Investment Authority. Greeneye Technology (Tel Aviv, Israel), AI-enabled precision spraying technology for agricultural applications: $22M led by JVP, participation from Syngenta Group Ventures, Hyperplane Venture Capital, One Way Ventures, et al. Phytofarm ​​(London/Boston), agricultural platform to grow crops despite climate change: $5.7M led by Eniac Ventures. Biotech/Health Found (San Francisco, Calif.), modern weight care platform: $100M B led by WestCap, participation from IVP, The Chernin Group, G9 Ventures, Able Partners, et al. ViCentra (Utrecht, Netherlands), small and light wearable insulin pump: $74M led by Partners in Equity BV. Depixus (Paris, France), fast, accurate, and straightforward extraction of multiomic information from DNA, RNA, and proteins: $35.4M A from Lansdowne Partners, PSIM Fund, et al. Blockchain Nansen (Singapore), analytics platform that pairs blockchain data with wallet labels: $750M from Tiger Global, Accel. Consumer BandLab (Singapore), social music creation platform: $53M led by Vulcan Capital, participation from K3 Ventures. Pace (San Francisco, Calif.), modern support network that helps people connect with custom-matched strangers with mediation: $18M A led by Pace Capital, participation from Sequoia, BoxGroup. Data/Analytics Advocado (St. Louis, Mo.), data platform connecting and powering cross-screen advertising: $10M from Crescent Cove Advisors. Qonsent (New York, N.Y.), data privacy enablement and consent value exchange platform built for consumers and brands: $5M Seed from Zekavat Investment Group,  Gary Vaynerchuk, Michael Kassan, Tom Chavez, Crosscut Ventures, et al. Continual (San Francisco, Calif.), AI platform for the modern data stack: $4M Seed led by Amplify Partners, participation from Illuminate Ventures, Essence, Wayfinder, Data Community Fund. ​​DevOps Gtmhub (Denver, Colo.), OKR software platform: $120M C led by Index Ventures. Enterprise Cockroach Labs ​​(New York, N.Y.), cloud-native distributed SQL database CockroachDB: $278M F led by Greenoaks, participation from Altimeter, BOND, Benchmark, Coatue, FirstMark, GV, Index Ventures, et al. The company was valued at $5B. Dialpads (San Francisco, Calif.), cloud communications platform: $170M led by Iconiq Capital. The company was valued at $2.2B. CData Software (Chapel Hill, N.C.), global provider of cloud connectivity and integration solutions: $140M B led by Updata Partners. FruitSpec (Tel Aviv, Israel), yield management platform: $5M led by Amathaon Capital, Ocean Azul, Smart-Agro. Fintech Stocktwits (New York, N.Y.), social media platform used by day traders and other retail investors: $210M led by Alameda Research Ventures, participation from Times Bridge. Re:cap (​​Germany), non-dilutive funding platform: $111.5M Seed led by Felix Capital, Project A Ventures, participation from Entrée Capital. Taxdoo (Hamburg, Germany), API-based tools to help e-commerce companies with tax compliance: $64M B led by Tiger Global, participation from Accel, Visionaries Club, 20VC. Silverflow (Amsterdam, Netherland), global payment technology: $17M A led by Coatue Management, participation from Crane Venture Partners, INKEF Capital, Global Paytech Ventures, et al. CreditBook (​​Pakistan), consumer financial app: $11M Pre-A led by Tiger Global, participation from Better Tomorrow Ventures, Firstminute Capital, Banana Capital, VentureSouq, et al. Gaming Legacy (France), NFT-based creative dream: $54M from a token sale. Mana Interactive (Boston, Mass.), rewards platform designed specifically for gamers: $7M Seed from One Way Ventures, Pillar, Quasar Holding, et al. Industrial Elementary (Los Angeles, Calif.), AI machine vision platform for quality and inspection in manufacturing: $30M B led by Tiger Global, participation from Threshold Ventures, Fika Ventures, Fathom Capital, Riot VC, Toyota Ventures. eLeapPower (Toronto, Canada), smart inverter system for electric vehicles: $16.4M A from BDC Capital's Cleantech Practice, et al. Logistics Nowports (Mexico), digital freight forwarding: $60M from Tiger Global Management, SoftBank Group Corp. Proptech Clikalia (Spain), digital platform for buying and selling homes: $70M led by Fifth Wall, participation from Luxor Capital, Mouro Capital. The company also raised $450M in debt from Deutsche Bank. Did you enjoy reading about all of today's funding in one place? The funding roundup is only available to free users on Mondays and Fridays. Upgrade to Inside VC Premium for either $10/month, or $100 billed annually, to receive the full list in every issue! For a limited time, we are offering a 14-day free trial. Click here to sign up! Subscribe Now

A message from ALEGION Automated Data Labeling in Machine Learning: Fact or Fiction Data labeling for training data in AI or machine learning can be a time-consuming process. Data scientists want to automate the data labeling process as much as possible. There are a lot of theories on how automated the process can be. However, an overly automated labeling process can result in inference and localization errors that are far more expensive and inefficient to correct after the fact. Industry experts weigh in on how much automation is realistic.  Read More

Quick Hits GoPuff, the Philadelphia-based instant delivery platform, is raising $1.5B in convertible notes at a $40B valuation. Guggenheim Partners is involved, as are other investors. The company could debut on public markets as soon as early 2022. India’s Byju’s, the country’s most valuable startup and provider of an edtech platform, is reportedly considering merging with a blank check company led by Churchill Capital. The startup is looking for a $45B valuation. Women-led VC firm Anthemis raised another $700M to invest in embedded finance startups. The strategy will involve both startup investments and a SPAC. Alitheia IDF, a women-focused private equity fund in Africa, raised $100M to invest in gender-diverse businesses. Waste and recycling platform Rubicon Technologies will merge with Founder SPAC to go public at a valuation of $2B. The deal will bring Rubicon $431M between PIPE and funds from the SPAC. Spotify acquired podcast technology platform Whooshkaa for an undisclosed sum.

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Inside VC's writer/curator Stephen currently lives in Berlin and is pursuing a Master's degree in philosophy. He otherwise spends his time trying his hand at recipes from India and Southeast Asia, escaping it all at the kickboxing gym, and offending aural sensibilities with his band. Editor Aaron Crutchfield is based in the high desert of California. Over the last two decades, he has spent time writing and editing at various local newspapers and defense contractors in California. When he's not working, he can often be found looking at the latest memes with his kids or working on his 1962 Ford.

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