Riding the digital revolution

The Economist Magazine’s special report on tech startups published on January 18th describes the entrepreneurs who are riding the digital wave sweeping our planet. With the building blocks of the internet now inexpensive and widespread, The Economist says that digital entrepreneurs are turning out an “astonishing variety of new products and services that are penetrating every nook and cranny of the economy.”

The digerati are often young, mobile and global. Mark Makdad, Ross Sharrott and Paul Chapman are good examples. Through their Tokyo based startup Moneytree, the trio aim to become future leaders in mobile personal money management. Makdad explains: “We think there is going to be a big shift towards ‘connected living’ over the next ten years.” By ‘connected living’ Makdad refers to the trend for products to communicate with their users through the Internet. He points to Google’s decision to pay $3.2 billion for Nest, a firm that gives users control over home appliances via the iPhone as one example.

Services also are being interconnected. Makdad believes the Moneytree iOS app, which helps users manage personal finances, is the first step towards providing consumers with interconnected personal financial services. The founders of Moneytree hope to position their app to be the future leader in its field.

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The entrepreneurs came together in 2006 when they met while working at Wall Street Associates (now called enWorld), a well-known Tokyo based recruiting firm. Chapman and Sharrot, both web developers, were busy building a $2 million customer relationship management system for the company. Makdad worked in the firm’s sales department, but spent his off-hours helping the other two design the CRM system. Over the course of the project the three became friends.

One long weekend over Golden Week in May 2009 the three were lounging around, drinking beer and discussing the future. All had recently bought iPhones. They were intrigued with the iOS mobile app platform which Apple had released a few months earlier. The platform provided a stunning new distribution channel, one which allows any programmer to sell a digital product direct to anybody, anytime and anywhere.

The three discussed the possibility of building a Japanese vocabulary learning program. As much as they enjoyed working for Wall Street Associates, none wanted to be working in recruiting in ten years. “Apps were so much more the future,” says Makdad. So they started the suitably named company, Long Weekend LLC, and got to work.

Over the next two years the team produced five commercial apps. As is typical of startups, they also consulted and did contract development work, taking on any work they could find in the mobile space. They even taught an iOS programming course.

Some people might say they were living ‘the dream’, making good money and being their own bosses. But the trio had bigger dreams. They watched as other developers, especially from the US, successfully launched ‘big ideas’ with venture capital funding. Although the friends had discussed many such ideas before, until then they were dismissive because most took more money than they had. Makdad recounts the group’s thinking: “We thought we could sit there and be stubborn, not take VC money and not report to anyone. Or, we could take a chance with VC funding to make something awesome that’s positively going to change people’s lives.”

Finally, they decided to take the money and run… with Moneytree, which they launched in April 2012. It was a gamble. Not only did the team put several hundred thousand dollars of their own money into the startup, but they would need to raise millions more from outside investors. The move put them on a fund-raising treadmill in which the only way off is to become profitable or exit by trade sale, public listing, or by going bankrupt.

Moneytree’s first investment came from a business angel. Next they raised AU$1.6 million from DG Incubation (part of Joichi Ito’s Digital Garage, a Tokyo based venture firm) and from other private investors late last year. A follow-on ‘Series A’ round is soon scheduled. More rounds after that may be needed, as is typical of entrepreneurs holding lofty visions. To put that into perspective, Matt Romaine and Robert Laing, the founders of Gengo.com, raised cumulative $19 million between 2009 and 2013 to fund their Tokyo startup.

To raise the next investment round, the founders of Moneytree need to show they can continuously perform. “The real performance test,” says Sharrott, “is whether you can convince investors to put in the next funding round.” That’s because when a startup stops being able to capitalize the business, it’s ‘game over’. “The VC route is a ‘ride’,” laughs Sharrott.

Moneytree has so far ‘performed’. Their free app has been downloaded over 315,000 times since its release on the Japanese iTunes app store in April 2013. Last year it was selected by Apple as its top non-game app across all categories.

The team has also proved that Japanese users are willing to trust sensitive financial data with them. Users must first give Moneytree password access to their confidential bank and credit card information. The app then collates spending habits using an automatic learning algorithm and serves it up in a simple to understand format. It answers the question, “Where did the money go?”

Now Moneytree needs to prove they can monetize their app. The team plans to offer a premium service providing expense reporting features to small business owners. Long term, they hope to use what they learn about personal spending habits to become advisors to the financial industry. The Moneytree app already supports interconnectivity to 560 financial institutions, including banks, credit card companies and credit unions. “Integration with Japanese financial institutions is what we do,” says Sharrott.

So what is the secret to raising venture capital in Japan? Drawing from the dating scene in the 1996 movie, ‘Swingers’, where ‘cool’ Rob advises his ‘not so cool’ friend to pretend not to care about her if he wants to get the girl, Sharrott says, “Raising money is a lot like dating.” He added,  “They (the girls and VCs) only want ‘in’ when you are clearly winning.”

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