SF vs. Tokyo-Technology’s SaaS Startup CEOs talk about their backbones, cities, and investors (2/2)

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  • Post last modified:2020-11-25
  • Post category:Interview
  • Reading time:19 mins read

In the last post, Mr. Bjoern Zinssmeister from Templarbit, which provides security service for applications and enterprises, and Sider’s CEO Koichiro Sumi talked about their background, mission, and stories behind starting their own companies. In this post, they talk about their challenges and advantages that are unique to their locations; Tokyo and SF. Is SF really a sole go-to city for tech startups?

Left: Koichiro Sumi (Sider, CEO) Right: Bjoern

Running a Company in SF vs. in TOKYO

Koichiro:
What is the best thing about running a company in San Francisco or Tokyo?

Bjoern: 
I can only speak to San Francisco because Tokyo is still new to me. But the best thing about running a company in San Francisco I think it is the help you get when you get stuck. You can ask for a lot of advice from people. It is also a very central place. So if you want to fly to Asia or Europe, it is easy to do as it has a good infrastructure. Also San Francisco has great talent that you can recruit to help you build your company. Some great universities are located in the Bay Area.

But there is quite a lot of downsides in San Francisco, too. It is a very expensive place. It is very hard to retain developers, so they leave quickly. Even if you raise a lot of money, it can be a struggle to make your money last. It was easier eight years ago because it was cheaper.

Koichiro:
Yes, I visited SF a couple weeks ago, and I visited Stripe, GitHub, and CircleCI. Their offices are really fancy, and their salary is really high. Maybe I think three or four times higher than Tokyo?

Bjoern:
How much is developer’s salary in Tokyo?

Koichiro:
4 million to 8 million yen. I guess average is 6 million yen.

Bjoern: 
6 million yen- so that is about $60,000. Yes, in San Francisco, it starts at $120,000, so 1.2 million yen. Yes, it is like double in San Francisco.

Koichiro: 
Really, is that the developer’s salary?

Bjoern: 
Yes, that is like an entry-level developer,– so a good one will be probably around $160,000, so it is not quite triple, but it is quite expensive.

Koichiro: 
How many developers are working for your company? What is the percentage?

Bjoern:
90% of our company is developers right now. I think the one interesting thing for us is that we even have a developer as a CEO, which doesn’t happen often. We have two sales guys, and everybody else is an engineer.

Koichiro:
That’s great. How did they join your company?

Bjoern:
Some of them are friends that I have worked with in the past. I think they like working with me so they follow me (laughs). I also think that the idea(the company deals with) is interesting (for them). It is a hard problem, so there is lots to build. Often times, the start-ups in San Francisco, in particular, they build very basic applications to automate something that was previously not digital. For example, DoorDash, if you go get some food at the restaurant that is not a very challenging technological problem, but cybersecurity is very challenging. So, a lot of people like that. We have lots of data that we have a look at, and people really enjoy those kinds of work environments.

Koichiro:
Do you have any question about Tokyo?

Bjoern:
Yes, it seems like in Tokyo, you can be a little bit more relaxed with your burn. So you probably can hire a few more people and the money lasts you longer.

Koichiro: 
Yes, it is a bit more relaxing. The burn rate in Tokyo is apparently lower than that in SF. I think this is one of the good things.

Another good thing is that our market has a sort of language barrier. The size of the market is relatively big. But, since a lot of other industries need localization, so that makes it harder for the international competitors to come in. Even the tech companies that provide tools for devs such as Slack, CircleCI, GitHub, and AWS — they all launched a Japanese corporation, built a local website and offers their services in Japanese.

Bjoern: 
Also, it seems that in Tokyo the people are happier to work for a startup.

Koichiro:
In Japan, the larger corporations do not provide many perks to employees, but startup companies do. This corporate culture is coming from SF, I think.

Bjoern: 
It is interesting. Sometimes people think the perks extend all the way to wherever they go, so you got to make sure you set the bottom line.

The other thing that I have noticed about Tokyo is that it seems to be very easy to get around on the subway, and it is very fast. So you can probably do way more meetings in Tokyo than I can in San Francisco. So, if you want to go sell to large enterprises and you have to set up meetings, you can probably do way more in Tokyo in one day than you can in San Francisco.

Koichiro:
But many technology IT companies are located nearby in San Francisco.

Bjoern:
Yes, I guess it depends on who your customer is. If you sell to technology companies, then San Francisco is the best place. But generally, for people like me, we sell to technology companies but also banks and older companies (that are more spread out to the broader areas). So, in places like London and Tokyo, I have more meetings in one day than in San Francisco.

Koichiro: 
I think you’re right. Since Tokyo is a small and dense city, we have a lot of events and community though SF still beats us on this. Thanks to that, the networking is easy for BtoB business and BtoC business.

Challenges in SF and Tokyo

Koichiro:
Next, I want us to talk about the most challenging thing about founding a startup company in San Francisco or in Tokyo?

And speaking for myself, I found it very easy to have founded the company in Japan. I didn’t have any problem with starting my own company.

You can also start your business while you still have a full-time job somewhere else, then once things start to get rolling, you can incorporate your business and raise capitals. Paul Graham, who is a founder of Y Combinator, seems against doing other things when you start a business in his essay How Not to Die. But, some people became successful this way.

In Japan, the startup founders who can write code tend to get more recognition, which I think is probably the same case in SF. Many of the entrepreneurs in Japan do not have a coding skill. So, having an engineering background makes it easier for the founders to raise capitals in Japan. The average size of venture capital is small, and our first earning is small.

Bjoern: 
Like a small check?

Koichiro:
Yes, so that is a low risk, so they want to invest.

Bjoern:
So, are you saying that it was easy for you to get started and get some money to start a company was easy in Tokyo?

Koichiro:
Yes, getting money is easy. But, creating a team is difficult if you don’t have friends or coworkers that want to join you.

Bjoern:
Doesn’t it matter how much money- like is it easy to get small money but hard to get a lot of money?

Koichiro:
Less than 1 billion yen, say 50 million yen, is easy. I guess more than 80% or 85% of the companies who receives less than 1 billion yen investment die quickly. But raising above 1 billion yen is very difficult.

Bjoern:
Okay, so getting a series A is hard.

Koichiro:
Yes, a seed is really easy but series A and series B are tough.

Bjoern:
Who does the money come from, the seed money? You say it’s kind of easy, but where do you go? Is it venture capital, is it corporates?

Koichiro:
Sider gets investment from Open Network Lab, which is a company venture capital.

Bjoern:
What did you have when you pitched them? Did you have a product?

Koichiro:
Yes, back in 2012, we have a different product and a different team; we had smartphone applications. When they were hot.

Bjoern:
So today, if you had an artificial intelligence startup, do you also get a lot of money in Tokyo?

Koichiro:
I think Japanese investors like AI, the fintech, the blockchain, and the VR.

Of course, every company says their products includes AI technology but…

Bjoern:
Often it is not true. Yes. It seems similar to the U.S. The reason why I asked is that in the U.S., sometimes it’s easier to raise money if you do something that the VCs are looking for and it sounded like maybe Tokyo is the same.

Koichiro:
It’s funny. Everybody likes talking about AI, but there is no particular VC that is focused on AI because everybody is talking about it.

Bjoern:
Yes, same in America. We have some focused AI funds but not a lot. There’s maybe one I can think of.

Hiring in SF and LA

Koichiro:
What is the current major challenge that you think is specific to your location?

Bjoern:
Yes. I think hiring is going to be a challenge in San Francisco. I mean we knew this is going in because we have been in San Francisco many years. We have been there before big money came and seen certain stages, and the trend has been what used to be easy to find people that are passionate about startups. They would take a little bit of a pay cut to do the startup in exchange for stock. Today, that’s no longer the case. They want to maintain a paycheck from Google but also do the startup. And that can be challenging for a young company. And I think it puts a lot of pressure on a lot of the startups right now to pay big salaries and offer perks and compete with Google. Frankly, I think it’s stupid. That’s not how startups are made. They are made by sacrificing up front in the hope of a big payout at the end.

The way we get around it is we have a second office for engineering team in Los Angeles, and we recruit a lot from UC Irvine which has some of the best artificial intelligence and machine learning talent because they invest heavily in that sector. And also you have a great computer science department that has the same curriculum as Berkeley, so we literally have an office across the street from UC Irvine. And we just recently added two new computer science graduate students from UC Irvine, and we still pay great money but they are not looking for the same paycheck that somebody does in SF, and they also stay with you longer hopefully.

Koichiro:
Is your Los Angeles office like only for devs?

Bjoern:
Yes, right now it’s only for the developers.

When we started, we had both offices, and they were equally small, and every job was for both offices. And we just happened to be finding better talent in Los Angeles than in San Francisco, which was surprising to me at first. But, as a business owner, I liked it. Because people don’t have the rent that is as high as San Francisco, the salary is a little bit less crazy. And, it makes for a deeper, more pleasant way to work together. Sometimes, when I was working in San Francisco, I felt like a lot of people are in a race. Like even when you work with another developer, they’re trying to get to a better paycheck or trying to cash in, so they can afford a house, and that’s really distracting for them.

Koichiro: 
You say it’s a bit less crazy, does it mean it is still crazy in Los Angeles?

Bjoern:
It’s still a little crazy, but it’s not as bad as San Francisco.

There was another reason why we did Los Angeles though, in particular in Irvine. There are other cybersecurity companies, huge ones that have offices down there. We sit in the same neighborhood as some of these. And they were getting ready for an exit, maybe IPO or something, and so some of their talents should be coming back to the market in a couple of years. And so when we get older, we can probably get some of their talent to help us put a leadership together. These are really valuable companies. Like Cylance is valued more than a billion dollars, and CrowdStrike is also valued over a billion dollars, and they are all in our neighborhood. And since they secure endpoints and we secure applications, they are not our competitors.

Raising capital in Tokyo and SF

Koichiro: 
I want to ask you about how the venture capitals work in the US. In Japan. Many of the venture capitalists tell you to set the rate for the stock option pool at 10%.

Bjoern:
Yes, so the venture capital tells you, “Hey, for the employees, you need to put X percent employee, yes. The Americans do that tool, but you don’t have to listen. You can negotiate with them, and there is a reason why the VC does it because the VC gives you money, right? And they say you want to put 20% away for the employees, right?

Koichiro: 
Right.

Bjoern: 
Because once that is gone, you have to create a new one. And when you create a new one, everybody involved gets diluted including the VC. So,it’s in their interest to do it upfront so that they don’t get diluted later. If you create a big pool upfront, the VC is protected.

Koichiro:
Both of our companies receive the investment from venture capital, and I would like to ask your opinions about the difference between Japanese VC and the American VC.

Bjoern: 
I don’t know Tokyo very well, but it seems the corporations in Tokyo prefer to provide the money to another fund that will invest it in their name. I don’t see a lot of activity directly from Tokyo in San Francisco. I know a lot of corporates in Tokyo give money to VCs in the Bay area, and then the VCs in the Bay area invest for them. It is interesting. It’s actually much more interesting to compare Japan VC with European VC. I think the European VCs are much more active investing themselves, so they have a lot of investments in Europe. But, they also extend to the East Coast and the West Coast of the United States. Japan, I don’t see much. They’re much more like “here is the money, invest it for me,” but they don’t have a lot of VCs that actively engage, making it on deals.

Koichiro:
Did you get finance from two VCs?

Bjoern:
VCs, yes. There are three actually three VCs in our cap table and a couple of angels.

Koichiro:
How much is their fund size?

Bjoern:
I would have to lie it, I don’t actually remember it. But I think that no fund is smaller than 50 million dollars. I think the smallest fund I ever talked to was 50 million size. Most of them are 100 million and up.

Koichiro:
How about your lead venture capital?

Bjoern:
That is way more, but I don’t know exactly how much.

Which city is better?

Koichiro:
Which city you think is better for your product or business?

Bjoern:
San Francisco.

I think Tokyo is of course overall the better city. But, from building a startup point of view, I think San Francisco is better because there are so many tech companies and a lot of developers, and even large organizations that you can sell to, so it’s a very strong market.

Koichiro:
This depends on your product and the target market. I think San Francisco is an ideal place in terms of finance, hiring your team, and meeting clients. But, if you are creating a developer tool, we have talented developers in Japan too. The cost including infrastructure in Tokyo is much lower than in SF. You could have your dev team like Treasure Data. Like GitHub and CircleCI, you could also have some members work from Japan.

So, “which city is better” is not going to be an important question anymore for a developer tool companies.

Japanese Market

Koichiro:
By the way, you have prepared a Templarbit.Jp. Is that right?.

Bjoern:
Yes.

Koichiro: 
Do you want to enter in Japan market?
Japanese market may be a lot different from the US. Language-wise, Japanese dominate the market’s language. The size of the market is smaller than that of the US. But it is big enough for a SaaS company that only targets the Japanese market can be listed. There are large numbers of developers here. GitHub said that the Japanese market is the second most important market at the GitHub Satellite. The increase rate of the number of GitHub users in Japan is one of the biggest one, along with India and China. And unlike China, we do not have the issues to import the oversea projects. So, I would say this is an attractive market.

Bjoern:
Yes, I think for us, Tokyo, in particular, is probably the second most interesting market. There is a lot of need for what we’ve built primarily because there is nobody in Japan building great security software. If you look at some of the statistics, like people getting hacked. If you leave the English speaking world, like Britain, Canada, and North America in general, the second most breached country is Japan. I didn’t know why, so I researched a little bit like how that happened all of a sudden actually, and it had to do actually with translation tools.

A couple of years ago, it became much easier to translate a website or translate just anything in the world. And then a lot of these attack groups around the globe are now able to attack Japan easily because they use translation tools to understand a little bit of what the product does, which one is the login form and then they try to get in there. Then Japan is very poorly equipped right now to defend because there are no great solutions. And so it’s like this combination of things; a lot of money in this market, a lot of banks, a lot of financial services, easier to breach them with hacking tools and no defense. So, Japan is an interesting market for security products.

Koichiro:
I guess Japan is second priority market but your company is still a startup company, so the US is more important. So, I wonder why you want to decide to launch in Japan market — it’s a big challenge.

Bjoern:
Yes. Usually, the advice from all investors is to focus on one market, the North American market is the largest, so you focus there, they all say that and it is great advise. We actually didn’t want to enter the Japanese market very aggressively, yet. We just wanted to explore it first as we believe that it would take many years to understand the market. Most likely, I will fly to Japan like once a year or twice a year, make some connections and see what happens because ultimately a lot of the large cybersecurity companies are trying to get to Japan. A lot of them failed because they don’t understand the culture, so I thought it would take a lot of time, so better to start now.

We did the same thing with selling to enterprise. Selling to a bank as a startup is really hard. It can take a year or two years to close a bank. You might be out of money in two years as a startup, right? So it makes more sense to start trying to sell to an enterprise or a bank early when you still have a runway, and so we did the same technique with that as well. These are really big problems that you have to solve in like a year or two, and so it’s easy to get started early so that you can last and you can understand and learn and adjust. When we started looking at Japan, we just got so much help from everybody — VCs, the government, JETRO. Locals like Sider started communicating, and so it’s been a small snowball that keeps rolling down the hill, so now we have evolved more than we thought we would, and it’s also fun. It’s like a developing startup ecosystem here in Tokyo, so we can be part of something that’s coming up. And there is a real need from the corporates to learn about new security measures, so we are this perfect little startup to come to Tokyo and help figure out the market and deliver value.


We know that founding a startup is always a big challenge no matter where you are located.

Even though Sider and Templarbit have different problems to solve, we both are determined to make the developers happier by solving the problem we face everyday. Sider makes code review a better experience for engineers, and Templarbit makes cybersecurity more accessible. Sider and Templarbit will continue to contribute to the developers in Tokyo, in San Francisco, and eventually the rest of the world.

Thanks so much for joining us, Bjoern!


For more information about Sider, please go to our website.

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