Tokyo’s ‘Silicon Valley’ startup – Gengo

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When they first thought about launching an Internet startup in Japan, Matt Romaine was close to moving back to Silicon Valley. The startup scene in Tokyo was, well, close to nonexistent. Then he and his partner, Robert Laing, came up with the idea of building an online translation company. Matt said to Robert, “What about bringing something like that to Tokyo?” The two partners did just that.

In late 2009, Matt and Robert flew to Silicon Valley to raise angel funding. By April 2013, a cumulative $19 million in global funding had been secured. That’s extraordinary given that Japanese startups rarely raise large amounts. This is the story of how the two brought a Silicon Valley style startup − to Tokyo.

Robert was born in Australia to British parents. He grew up in Melbourne, went to high school in Brussels, studied design in London, and then moved to Asia where he set up his own web agency. Matt was born in Boston. He grew up in Tokyo, studied at Brown University, worked for Sony and then also set up his own web agency.

When their paths crossed in Tokyo, the two had much in common. Both were in their late 20s. Both had international backgrounds. Each knew how to build websites. Neither was satisfied with limiting their career potential to doing ‘client work’.

They did a couple of client projects together while they kicked entrepreneurial ideas about. Robert was still learning Japanese and thought an application to help people read Japanese news was a business idea worth considering. That morphed into building a simple way for people to order translations online. “From the beginning, we wanted to make it super simple for people to get translations online,” Robert told Beacon Reports. “That hasn’t changed.”

The pair launched the startup company, Gengo, Inc., in the fall of 2008 while continuing to work on client projects. Neither knew much about the translation business. “Our first goal was simply to make a new product, launch it, see what happens and to get some experience,” says Robert. “We weren’t thinking, “Oh, we want to make the next Facebook.” They simply hoped to get some web traffic and make a little pocket money.

For the first half of 2009 they worked from Robert’s apartment. Robert’s wife would come home every day with the two sitting there. “When we took on an intern, I felt I could not ask her to work in my apartment,” says Robert. The partners wisely rented a couple of desks in a shared office space. They juggled what few desks they had among interns as the headcount rose.

During the year Robert and Matt spent more time working on Gengo and less time on client projects. Gengo was just making enough to pay for the server and basic overheads. “Even though the rent was only ¥60,000/month, it felt like much more,” says Robert. “We weren’t making money…. but we knew Gengo was cool, interesting and exciting.”

Just how Robert and Matt identified the niche they operate in − and a rather big niche at that − is a story to itself. The very first version of the system they built provided a basic way for customers to order translations online. Jobs were allocated to individual translators and then dispatched to customers. When they got the service up and running, Robert and Matt were surprised by the type of content clients asked to have translated. Among the broad range received were requests for translations of twitter feeds, product descriptions, customer service correspondence and user reviews. Many of those requests came from the non-English speaking emerging market countries.

According to Matt, the need for online translations is growing in parallel with the adoption of the internet, especially from social media and e-commerce firms located in the fast growing economies. “The Brazilian economy is growing like crazy,” says Matt. “The Middle Eastern region is also growing. This provides an opportunity for Gengo to serve as a platform for human communications.”

Whether the discovery of this niche was calculated or made by pure luck is unclear. “We approached the market in some ways as amateurs,” says Robert. We made many guesses of how to do that and it turned out to work. We were quite lucky in that respect.”

Gengo’s niche sits between the markets served by machine translation companies and traditional translation agencies. Machines translate in near real time, but their quality leaves much to be desired. The better traditional agencies, on the other hand, such as SDL and Lionbridge are good at project managing enterprise level translation assignments. “We could do that type of work too,” says Robert, “But we think traditional agencies already do that very well. What our clients want are translations of 10,000 user reviews that previously would have been too expensive or too much of a bother to translate.”

Robert and Matt set out to build a platform that would scale and was capable of processing many millions of orders. Gengo’s platform had to be effortless and transparent to both customers and translators across the globe. The system needed to integrate with those of their online clients through an API (application program interface). There was no room for bottlenecks. Once ordered, translations had to be dispatched to customers within a few minutes. Nor was there room for inconsistent or poor quality translations. The system had to ensure quality control.

“We’re trying to build a technology platform that allows translations to be done super efficiently,” says Robert. “The customer experience has to be as effortless as downloading a song in iTunes. That takes time and money. But we believe it will allow us to become a company that can serve almost everyone in the world and to build ourselves up into a company that could be as big as an Oracle or Microsoft.”

In September 2009, Robert and Matt raised $30,000 of seed funding from friends and family. That allowed them to employ contractors to continue building Gengo’s site. “We knew that we either had to get profitable without money or raise more money from angel investors,” says Robert. The pair tried raising angel funding from Japanese investors with little success. They were not well-connected in Tokyo and the incubation scene was in its very early days. “We had met a couple of wealthy individuals in Tokyo, but none of them had signed on,” says Robert. Open Network Lab, a leading incubator in Tokyo, had yet to open its doors. The pair struggled to raise money during 2008 and 2009.

Dave McClure, CEO - 500 Startups

Dave McClure, CEO – 500 Startups

The breakthrough came when Matt learned that Dave McClure was to visit Tokyo. Matt had met McClure (the man who would go on to found the incubator, 500 Startups), at a dinner party shortly after leaving Sony. The two had remained in e-mail contact with one another ever since.

Robert and Matt successfully made their pitch to McClure in Tokyo in December 2009. McClure gave Robert and Matt $10,000, enough to buy a plane ticket to fly to Silicon Valley to find more investment. “Dave helped us massively,” says Robert. “He got out his spreadsheet with all these names on it and went through the list saying, “Oh, this guy has worked overseas, so he might get the idea,” and, “This guy has lived in Japan,” and so forth.

McClure’s connections proved golden. During a two-week trip that Robert and Matt made to Silicon Valley in January 2010, the pair made almost 40 presentations. As a result, they raised $760,000 of first round funding from global investors. Among them were four Americans, two Germans, one British and a Japanese.

At the end of 2010, Robert and Matt raised $900,000 in a second funding round. A third funding round in September 2011 raised $5.25 million from Atomico, a London-based VC (backed by Skype co-founder Niklas Zennstrom) whose partner included, luckily, a  Japanese national based in London. In April 2013, they raised another $12 million from six investors including Atomico, Intel Capital and DoCoMo Innovation Ventures Inc. In total, Robert and Matt raised $19 million.

Reflecting on the challenges posed by bringing a ‘Silicon Valley’ startup to Tokyo, Robert and Matt said this: “Today, raising money internationally isn’t so unusual. There are people, like Dave McClure, who are prepared to invest internationally. Everyone in our angel round had a little bit of craziness in them. They each had some international experience. They could empathize with what we were trying to achieve.”

Robert and Matt admit that, for startups, Tokyo is not the same as Silicon Valley. “In the Valley, you can throw a stone to get feedback from somebody who has experienced a similar problem to the one that you’re currently struggling on here. That does not happen much in Japan. It’s getting there, but Tokyo still has a long way to go.”

 

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