I extend my sincere wishes to all readers of this blog for a wonderful 2023.

May this year of the rabbit bring calm, elegance, and good luck to you and your close ones.

In many ways, 2022 proved to be an inflection point.

Exactly three years ago, I wondered openly on this blog when the music would stop. After a global pandemic, unprecedented stimulus, runaway inflation, major Central Bank policy shifts, corrections in capital markets, and a massive fraud, the music finally stopped in 2022. Having said that, in our universe of early-stage venture it appears that some folks are still dancing and haven’t found chairs yet.

I recently shared my musings on the current state of the market with our fund’s LPs. Here is an excerpt:

A convergence of factors has rendered early-stage venture in Japan particularly appealing right now. Specifically, the new generation of ambitious entrepreneurial talent, the acute market need for digital innovation across many sectors, the propitious support of the Japanese government, the global macroeconomic backdrop, and the JPY devaluation — have all contributed to produce one of the most compelling opportunities for asymmetric upside that we have seen in our investing careers.

In addition to bringing renewed outside investor interest to Japan, the new macro environment of reduced liquidity and quantitative tightening has wrought some adverse effects… first on public companies, and subsequently on late-stage private tech company valuations. Many growth equity investors face significant write-downs on their portfolios’ net asset values. We believe that these adjustments have not yet fully been reflected. Although early-stage venture is more insulated, we expect trickle-down effects. We are already witnessing some early-stage startups struggling to raise new funds due to prior round valuations which are unjustified at today’s benchmarks. Similarly, investment decision cycles are lengthening. Furthermore, the dearth of risk capital for early-stage startups in Japan has created a market dynamic in which VC funds willing to act decisively face a wealth of opportunity.

All the best as you ramp up this new year. Stay humble out there.

Recommended book of the year: Rabbit, Run (John Updike)

Recommended reggae club of the year: Wild Hare (Chicago)