＜Discussion＞Discovering the Future of Japan Through the Challenges of Tech Startups
Masaru Murai（TEP Executive Advisor, Angel）
Yuya Nakamura（President and CEO of AXELSPACE Corporation, TEP Entrepreneur member）
In June 2003, the University of Tokyo and Tokyo Institute of Technology simultaneously accomplished the world’s first achievement -- the successful launch of micro-satellite by students. Some of the participating students chose to start up a business to make full use of the possibilities of micro-satellite in society. One such company, Axelspace Corporation is now in its 7th year in business. A startup of 14 members is challenging global competitors in the field of space business. 5 angel members from TEP have been assisting the company not only through funding but also through management support.
Mr. Yuya Nakamura, the President and CEO of Axelspace Corporation, and Mr. Masaru Murai, the Executive Advisor of TEP representing the angel members were able to come together for a discussion, with topics ranging from how they met, the future of space business as Axelspace sees it, to the future of Japanese technology based startups.
1. If there is no ideal company, you start one up
2.Challenge the major players with a capital of 1 million yen
3.Growth of business and those who supported it
4. Innovation of intellectual property -- challenging the global competitors
5.The never-before-seen Series A and beyond
6. The great possibilities of technology based startups
If there is no ideal company, you start one up
Tell us how you decided to start up a company.
Nakamura（N）：The 3 founding members, including myself, were developing a satellite the size of a hand called “CubeSat” when we were university students. We managed to actually launch it in 2003. It was the world’s first satellite project handled only by students. We worked to proceed to the next step, and completed three satellite projects before we graduated. I personally wished to continue working using this micro-satellite technology even after graduation. I was confident from our projects that this micro-satellite technology would become useful in society, but I didn’t see any company in the world doing business from that perspective. At the time of my graduation, I learned that my laboratory had introduced a university-launched startup supportprogram, and realized that I just needed to start a company myself. I asked the professor of my laboratory for cooperation, and started to prepare for the founding of a company.
How was the satellite business in the beginning?
N：It was not easy, once you actually start doing it. We thought of who our potential buyers might be and went to see companies like toy maker and map publisher. They were first interested in us developing satellites, but further on in our discussions, they would say that they can’t imagine how to utilize them within their companies. There were no precedents, and the expected return was unclear while hundreds of millions of investment would be required. Time went by without any customers.
From meeting Mr. Hiroyoshi Ishibashi (deceased), the founder of Weathernews Inc. until actually starting a project together, was the most difficult days for us.
Mr. Yuya Nakamura
President and CEO of Axelspace Corporation
Born on December 31, 1979 in Mie Prefecture.
Received a doctorate from the Department of Aeronautics and Astronautics, University of Tokyo.He participated in the development of micro-satellites XI-IV, XI-V, and PRISM. Following graduation, he became a project researcher in the Department (university-launched startup creation program) and went on to establish Axelspace Corporation in 2008.
Murai（M）：Mr. Ishibashi established a private company in the field of weather to contribute to society. At the time there were a number of restrictions, and it was unthinkable for a private sector to go into this field. Similarly, Mr. Nakamura doing space business is also a new challenge. To me, Mr. Ishibashi at the time and Mr. Nakamura overlaps.
Challenge the major players with a capital of 1 million yen
How did Mr. Nakamura and Mr. Murai first meet?
M：I first met Mr. Nakamura at Tokatsu Techno Plaza (incubation office for technology based startups in Kashiwa City, Chiba Prefecture) where Axelspace had its office at the time. It was just after we had established our organization and were accepting applications from entrepreneurs to offer our support. That was the autumn of 2009, so it has been over 5 years since we started supporting Axelspace. When we asked Mr. Nakamura what they needed supporting, he asked us to introduce customers. When I asked how much capital fund they had, the answer was 1 million yen. So I advised him to increase the capital first. For an employee at a major company, it’s fairly difficult to get an approval from the superiors when he wants to introduce something new through a company with a capital of 1 million yen. But I saw their unique technology, and an effort to find a client, so I felt I should somehow assist as an angel.
You have seen numerous entrepreneurs. What was so special about Mr. Nakamura?
M：The first thing was their clear vision and high ideal. I always say that “Entrepreneurs are artists building new societies.” Like Matsushita, Honda, and Google, successful companies had great visions and changed the world.
The second thing was that he saw the needs of the clients. More often than not, especially tec startups tend to get caught up in their mind that their technology is unfound anywhere, and not really seeing the actual needs of the clients.
The third is, like Mr. Nakamura did himself, to continue putting effort in one thing. That is how the company was able to obtain its first major client, Weathernews.
N：The university-launched startup creation program had a deadline, so I knew I had to find a client somehow by then. I was fortunate to meet Weathernews and gain their attention. The 3 founding members went over and over the proposal, and then presented it. That was how we were able to start up a business, but we were all engineers and didn’t know about management. An ordinary startup would have failed at this point, but we were very much influenced by Mr. Ishibashi. We learned a lot about what a company is through working with Weathernews. Then we met Mr. Murai and other TEP members, and received lots of advice. As we proceeded in the growth stages of our company, the management aspect became more and more important, and it finally reached what it is now after 2 to 3 years through more advice. We didn’t really understand then why we needed to receive support, but now, we believe it is extremely important for startups with only engineers to learn the know-how of those with management experience and be allowed to take advantage of their network.
Growth of business and those who supported it
What do you remember most of Mr. Murai’s advice?
N：He advised me about the capital over ten times. That was our limit at the time, since it was our own fund.
M：The capital fund was only 1 million yen, but the product the customers are going to buy is expensive, hundred million yen products with high risks. It would be difficult to win the hearts of customers with that capital.
N：It didn’t come to our mind that the capital would affect the success of business. Our feeling was more like “you can start a company with 1 yen, but look at us, we have 1 million yen." One more advice I remember is “Do not emphasize too much about your business being ‘university-launched’.” He said “You smell more research than business if you say ‘university-launched’.
Mr. Masaru Murai
Founder and Executive Advisor of TX Entrepreneur Partners (General Incorporated Association) and others
Mr. Murai was a general manager for Communication Products and Services at IBM Japan, Ltd. He helped found Compaq Computer Kabushiki Kaisha in 1991 and assumed the presidency, later becoming its chairman. During his time at Compaq, Mr. Murai chaired the Foreign Information Industry Forum and was a governor of the American Chamber of Commerce in Japan. He has helped launch more than 10 start-ups in Japan and abroad, serving as an outside director or advisor for those entities. Mr. Murai was the first chairman of the Review Committee for Entrepreneur of the Year Japan.
M：Honestly speaking, lab-made products and mass-produced products are similar and yet dissimilar. How to draft a design, how the organization should be, are 100% different. Saying “university-launched” is like promoting that it’s“for trial use, not for practical use”. Since Axelspace could manufacture micro-satellite for commercial use with its own technology, I thought it won’t be necessary to give that impression.
N：It was something we could not have thought on our own. We thought “University of Tokyo - launched” would be the appeal.
How much exactly was the investment from the angels?
N：Prior to receiving investment from the angels, our capital had increased to 24 million yen. We had received investment when the second micro-satellite was about to be launched, after the first one was requested by Weathernews and was launched to monitor the Northern Sea route. After that, we received an investment totaling 30 million yen from 5 TEP angels.
M：That is the minimum amount of capital to enable serious discussions with major companies.
N：Yes, and even if we had the money, our proposal won’t sound realistic if we hadn’t achieved actual launches. Therefore, it meant a lot to have our first micro-satellite launched, and the support from people like Mr. Murai also meant a lot in obtaining trust. Our next goal was to broaden our business by receiving capital investment from venture capitals, so in a way it was a preparation stage.
M：It overlaps with my own experience in the computer business, but it takes about 15 years for the project to bloom. For example, personal computers were introduced in the latter half of 1970s, and actually became widespread from 1995. Going back further, computers were born around 1950 at IBM. But it actually became familiar from 1965. The current Axelspace could be considered it’s at Phase 1 until the world faces a lot of changes in the 2020s, supposing it would take 15 years from its establishment in 2008.
Numerous changes could be considered. One of Axelspace’s ideas is to obtain realtime information on earth by launching multiple micro-satellites. This idea is different from launching one or two satellites per purpose. And this is becoming a reality in our society. I believe we are now at the turning point and a time of opportunity, and we can see the same from the past changes in the communication industry.
Innovation of intellectual property -- challenging the global competitors
There must be a lot of competitors. What kind of strategies will you be taking?
N：The main competitors are of course, the U.S. companies. We are starting to see Japanese companies announcing to go into the micro-satellite business, but they are still feeling their way around, and moreover, since it’s only one part of their companies involved in this business, they don’t have a sense of danger or crisis, that they desperately need to succeed. In contrast, our company has been polishing our technology on this business only since establishment, and we are constantly thinking of how to compete with the world. In Japan, we are practically the only one devoted on satellite business without having any other options to turn to. In the U.S., billions of dollars are invested even without any actual launches. They think “if you don’t have any technology within the company, bring engineers from NASA.” This is impossible in Japan, and we also didn’t have money nor people we could bring from JAXA (Japan Aerospace Exploration Agency). That in turn enabled us to develop and utilize what we had been thinking when we were university students. We are realizing low-cost products which can never be accomplished in the U.S. We can manufacture in 1/10 of the cost in comparison to a U.S. company we see as our benchmark. I don’t think we will lose in terms of cost performance. However, cheap hardware is only one of the advantages. What is important is how the end-users can use the micro-satellites to create values. In that sense, I think we need to aim at something no one has ever done before.
M：One Axelspace satellite costs about the same as purchasing a large-scale computer server. Even an ordinary person would wonder why you wouldn’t buy it. It’s obvious that there would be space networks in the future and various applications would be developed.
N：Comparing with the computer industry makes it easier to understand. Currently, making one large-scale satellite requires a large amount of money, like a super computer. We consider micro-satellites to be equivalent to smartphones. The needs of companies and individuals thinking of using micro-satellites vary, so we want to realize a world where everyone can use micro-satellite like using apps in their smartphones. We are not creating satellites, we are “creating a platform”. I think we can make use of the entire information on earth gathered by micro-satellites in every scene.
Is it like “Google Earth” being updated real-time?
M：Yes, it’s like a “big data” where all the information on earth gathers in an instant. It’s a competition of who will first make it a business.
So it is going to be customized according to the needs of client companies.
N：Yes. Images of the earth are collected in terabyte sizes. We can also compare with information from yesterday, a month ago, or a year ago, and not only use the current data. I believe this will make us not just image sellers but would create values. Since we don’t need to limit the information source to satellites only, we want to incorporate drones which have been gaining attention recently, and ground-based sensors. We can take in information from other companies. By doing so, I believe we can provide services which can be more fitted to the clients’ needs. Additionally, in terms of the output of the information, we would like to enable other companies to put their own added-values using our information infrastructure. This is like asking other companies to develop apps for smartphones. Our objective is to collect all the information on earth and nurture a platform where we can provide an up-to-date, necessary information to the end-users.
M：It’s the backbone in creating a social infrastructure. Perhaps that kind of perception is not widely shared in the world. Just like the arrival of the age of smartphones which was unimaginable 15 years ago, now it’s becoming the age of "wearables”.
Information revolution arrived after industry revolution, and now I think there will be an “intellectual property revolution”, since we will be able to accumulate all the information around the world, including old data. Until now, we had been pulling out data thinking how it was some specific years ago, but with Axelspace’s business, information will be accumulated automatically.
The never-before-seen Series A and beyond
Mr. Murai is also participating in the board meetings of Axelspace as a part-time director.
M：Mr. Tomihisa Kamata (Founder & CEO of TomyK Ltd. and Co-founder and former CEO of Access Co., Ltd.) is also a member. The Board itself is not different from other companies, but Axelspace is fortunate in being able to receive new suggestions one after another. Another important thing is the participation of Dr. Shinichi Nakasuka (Professor of School of Engineering, The University of Tokyo). He is the top figure of our country in micro-satellite research. The level of contribution from these people is probably different from other companies. What do you think, Mr. Nakamura?
N：Yes, certain roles are expected for the people involved as directors and advisors, and we often find ourselves thinking “we would like an advice from this person on this issue”, so in that sense, everything is going extremely well.
What is the reason for being able to receive that much support?
M：That is due to the virtue of Mr. Nakamura. His strength is his open-mindedness, that is, he listens to all opinions. More often than not, founders often stick to their own ideas and tend to reject other opinions. But that’s not the case with Mr. Nakamura. If he realizes he is wrong, he acts flexibly and adjusts himself.
What is the vision forexit of Axelspace?
N：We are scheduling a launch of 50 satellites as a plan to build a satellite information platform, as I explained earlier. We would need tens of billions of yen to do this. Since there is a lot of demand for funds, we are also considering IPO as well. It would be best if we could launch 50 satellites at once, but that would require tens of billions of yen at once. Therefore, we are currently planning to collect funds to first launch 3 satellites, and raise 1.5-2 billion yen with Series A, probably a scale never heard of in Japan.
I see. And how will you expand once you realize the launch of 50 satellites?
N：Once the infrastructure is complete, we will probably expand our services in outer space where people exist. It might even become realistic to have our satellites active on Mars.
M：In a little while, the value of this business would expand further into the world.
N：We are receiving more and more inquiries from overseas. When we first began, there was no concept of “doing business using space”, but now I feel it’s being more accepted. I think it’s becoming more common “to make use of space” as a means to realize something.
The great possibilities of technology based startups
That sounds exciting. My last question to you both -- what do you consider is important in the future for technology based startups to put their business on track?
N：I think a lot of new technologies are coming from universities. What is extremely difficult is how to connect those “seeds” to the needs. I believe the key is how to connect the founders who believe in the possibilities of their own technologies and wish to disseminate it across the world no matter what, and people who are willing to support them in order to realize it through their rich experience. There are many organizations supporting startups, but new startups do not know how to be connected. Recently, education on entrepreneurship are actively being pursued in universities, and it would be interesting to see organizations like TEP cooperating with such activities.
M：Yes. The possibility of success with “technology” itself is extremely low. When you think one technology is the best solution, one day a better technology would suddenly appear. No technology could be the best. One investment company I was involved in before even had a policy not to support technology based startups for that reason.
N：In that sense, unlike the information technology business which aim at short-term results, for engineering companies aiming at long-term results, people like TEP angels mean a lot. They need people who would support them patiently even though it may take time, and they are probably not venture capitals.
Is TEP specifically focusing on Japanese tech startups?
M：Yes. From a broader perspective, there may be an understanding in Japan that they are “leading the world in technology”. However, considering the decreasing scale of Japanese economy, it would probably be difficult to continue to be that way. This may be our last chance. That is why I believe we should energize Japan by creating business in technology. Like Honda and Sony, I want to nurture companies that would support the Japanese economy through manufacturing. However, the truth is that this is extremely difficult, compared to other industries. You never know what kind of competitors would appear, and those in management must be the kind of people who can listen to other people’s opinions.
N：We need to create lots of success stories, and Axelspace needs to be one of them.
M：We at TEP would like to create more success stories of small organizations. If we have more people following our path, then the possibilities of the Japanese tech startups would fully bloom.