There are too few global startups in Japan. Language, cultural and immigration barriers limit aspiring Japanese entrepreneurs, who typically look no farther than the domestic market to sell their goods and services. Such obstacles did not deter 30-year old Satoshi Sugie from pursuing his entrepreneurial dreams to build the worldwide market for the innovative “personal mobility” device he designed. Against all odds the former Nissan Motor Company industrial designer raised $1 million in seed funding. Then he moved his business, WHILL Inc., to Menlo Park, California.
It seemed an unlikely story. When I first met Sugie, he had raised a mere $10,000 from a single incubator, Tokyo based Open Network Lab. Yes, he had built a working prototype. Yes, he had passion. But Sugie’s English skills were poor. He was a self-proclaimed geek, not a businessman. Given the enormity of the undertaking, I was surprised to learn just five months later that his venture had made great strides.
Equally surprising, the lead investor in the seed funding round was a division of Japanese trading house, ITOCHU Corporation, a firm not generally known for risk taking. Beacon Reports met with Shinji Asada, director of ITOCHU Technology Ventures, Inc., to understand the logic behind ITV’s $600,000 investment in the risky startup.
According to Asada, WHILL had the elements of an attractive investment. The firm was trying to solve a meaningful problem. The technical team, comprising Sugie and his partners, was superb. They held intellectual property. And, they were passionate.
The problem they were addressing was the stigma of being wheelchair bound. Traditional wheelchairs aren’t sexy. With today’s extended life spans and perceptions of extended youth, some people might not want to be seen in a wheelchair. They might, however, feel less self-conscious in a well designed, modern looking “personal mobility” device.
With that in mind, Sugie and his team developed a technically superior, next generation wheelchair with a sleek, trendy design that would make Steve Jobs smile if he were still among us.
The unit itself looks a bit like a Segway (although it uses different technology). It is powered by two separate motors, each independently attached to a rear wheel. The handle is patent pending. Simply tilt the handle forward to advance. Tilt it to the right, to turn right. Tilt it left to turn left. The patent pending tires are equipped with 24 smaller tires which roll independently of one another for sideways ease of movement. They also allow WHILL to negotiate larger bumps than would a standard wheelchair.
The technology was developed by the founding partners (pictured above). Most had worked at big Japanese companies. Junpei Naito had previously been a mechanical engineer at Sony Corp. Muneaki Fukuoka had been an electrical engineer at Olympus Corp. Naoto Sakakibara had worked at Sony and had earlier founded an engineering business. Atsushi Mizushima had been an M&A lawyer.
Asada was amazed that Sugie’s team had built a working prototype. “That shows how lean it can be to produce a product,” says Asada, adding, “It’s possible to produce units in small quantities that can be sold without investing a hundred million dollars.” The team plans to outsource production rather than manufacture the device themselves.
That gives WHILL the ability to take baby steps when entering the market. The firm’s first goal is to build and sell 50 units to early adopters. To prove there is a demand for smart-looking wheelchairs, they plan to incrementally raise sales to 100, 500, 1,000 units and so on. Thereafter, a 5 – $10 million “A” round of finance is planned. The added capital will be used to increase production and marketing. The first model soon to be available for purchase is the WHILL Type-A. It will retail at a premium. Sugie hopes that future models, given larger production volumes, will be priced for as little as $6,000.
Asada plans to leverage ITOCHU’s expansive network to source batteries and motors for WHILL at an attractive price – items that ITOCHU already purchases in large quantities.
Asada believes the company can achieve $50 million in sales, a figure large enough to facilitate a potential trade sale. That would allow ITV’s general and limited partners to realize a healthy capital gain on their investment. It seems to him a realistic goal, given the US wheelchair market is worth approximately $2 billion alone.
The global wheelchair market is expected to rapidly grow as the population of developed nations ages and as the ratio of care givers to the elderly declines. Japan has a fast aging population while its ratio of working population to the aged is in free fall. Put bluntly, mobility devices are required as there won’t be enough people to assist the elderly.
When Asada first met Sugie, it was far from clear that Sugie was capable of building a global company. Asada was skeptical that Sugie could raise money from US investors. That would be necessary if WHILL was to market their product globally. So he set Sugie the hurdle of first raising money from 500 Startups or from other providers of US based seed capital. 500 Startups is a well known Silicon Valley based firm owned by Dave McClure. The firm invests small amounts in hundreds of startups.
Luckily, Dave is a frequent traveler to Japan (his wife is Japanese) and he has a history of backing Japanese ventures. McClure at first invested a small sum of his own personal money into WHILL. He later put an additional sum of 500 Startups’s money into the business. It was not the size of the checks that mattered. An investment by 500 Startups in any amount helps entrepreneurs to tap McClure’s wider network of fellow investors, who often follow him into such investments.
“If he hadn’t sold to David McClure,” said Asada, “I would not have come to the table.” Other seed investors include Sunbridge Global Ventures, Wingle and Facebook engineer, Eric Kwan.
Asada is looking to back other globally minded Japanese entrepreneurs. He wants to support “stars” able to lift Japan’s venture community in much the same way as pitcher Hideo Nomo lifted Japanese baseball into the major leagues when he joined the Los Angeles Dodgers in 1995. “We need heroes in the Japanese venture community,” says Asada.
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