“This is my story, it won’t fit someone else. Take the good part from many entrepreneurs and create your own story. It’s very important to survive. I am not sure what is success, but until you lose all the money, you can recover from it. Or at least until about US$80,” laughs Naoki Yamada.
“That’s what I learned since 2009.”
Naoki last month sold his crowd translation service Conyac for US$14 million. The deal with Japan-based Rozetta roughly worked out to 50 percent in cash and 50 percent in a stock swap. Naoki had about a quarter of the company’s stock at deal time. While Japan makes a lot of foreign acquisitions, domestic buyouts are more of a rarity, especially in the tech space. But through bankruptcy scares and continued feelings of uncertainty Naoki managed to pull off the improbable.
“I went to India. I was staying at an orphanage and was talking to a boy there. I asked him, ‘What do you want to be in the future?’ He told me he wants to become an engineer.” At the time Naoki was taking a vacation from his job as an engineer and he realized he never really thought why he took up the position. He felt as though the child told him he was blessed to be living in a country like Japan with abundant resources and opportunities, but never taking advantage of them.
I was quite panicked… We almost died there.
Inspired, Naoki came back from vacation and left his job in 2008. Months of bootstrapping later, Conyac still had zero contracts signed and only US$80 left in the bank. Luckily, a small feature on TechCrunch grabbed the attention of investor Kentaro Sakakibara. Naoki says he honestly didn’t know who Kentaro was at the time. After asking around, Naoki agreed to meet.
Kentaro wired the money the next day.
For the first two years the company made barely any revenue. “The price range for [consumer services] is very small. A few hundred yen,” Naoki explains. “Even if we piled up all the requests it was like US$1,000 a month. It was quite hard.” After getting more interest from large companies, Naoki decided to focus on selling to corporates. Sales quickly shot up to over US$50,000 per month and continued to grow.
The team soon expanded from four to 25 people and picked up another US$600,000 investment in 2013.
“I felt like we could increase our sales if we hired more sales and operation people.” But acquisition costs for business customers weren’t the same. The company was bleeding US$150,000 per month.
“I was like oh shit, oh shit! One of my investors told me, ‘decrease the burn rate or die.’” Naoki spoke with every employee individually. “I told them that we need to focus on sales to survive. If you can’t follow our target which is sales, I guess it’s better for your career to move forward or find another job.”
By early 2015 the team was back down to six people.
Gotta make that change
“I was quite panicked,” Naoki says. He blames his inability to properly communicate the future vision with employees for the huge loss of team members. Pointing to the giant dip in the graph he drew for me on the whiteboard he laughs, “We almost died there.”
The crew was settling into business sales while strategy took another turn. Conyac had an army of bilingual professionals, yet they were just translating. Naoki transitioned the business from a translation platform to a marketplace where you could hire bilingual people to not only translate but produce content like blog posts for businesses directly. Things took off again and last year Naoki started to look for new business partners, which led to merger talks, which led to meeting the CEO of Rozetta.
“The CEO of Rozetta’s decision making is so fast. His passion to change the world is quite strong. That was the biggest thing for me to decide to choose M&A.” A month after meeting, the deal was signed.
Naoki gathered his 20-person team; he was nervous. “I told them the morning of disclosure.” Up until this point, the team thought he was just raising funds. Only his co-founder and investors knew.
“I don’t usually practice for presentations, but that moment I did. I was practicing for a couple hours what I was going to say to the team. If I say something negative, that would mess up everything after the M&A. Maybe someone is going to leave if I say something bad at the moment. I felt that it was the most important moment for the directors to say something good.”
“In Japan […] most of the people, especially those not running a #startup think that M&A is a bad thing. If you are in Silicon Valley or the states. M&A is a good thing and entrepreneurs are like God or superstars, but in the Japanese ecosystem, it is totally different. I didn’t want our members to feel like we got acquired and we need to give everything to the acquiring company,” he explains.
“I just told them about the future of Conyac and what we are going to achieve if we join the Rozetta group. When I talked to them, I couldn’t disclose the name of the company because it was before the disclosure. The story I told was quite vague. But they seemed like they were happy about the news. And I was happy to look at their faces.”
I don’t want to be happy or get depressed with the criticism of other people.
While the decision came fast, it didn’t come lightly. Conyac had over US$5.5 million in sales and US$2.7 million in operating profit for the 2015 fiscal year. Things were growing and an IPO was on the table, but “it would take at least a couple years to go public,” Naoko explains. “IPO takes time and assets. We took the speed of growth.”
While contemplating the deal Naoki spoke to several entrepreneurs who had been acquired before. The founders mentioned it could be difficult to keep the team’s motivation up after the merger and difficult to give up decision making power as CEO. But Naoki believed in Rozetta’s complementary vision of helping anyone work for anybody through translation services.
Don’t look back
“M&A is just a way and tool to grow the business. IPO is also a tool… You should take the option that works for your company.” Naoki hopes to see more buy-outs in Japan and looks forward to the day when acquisitions the size of his company wouldn’t even make headlines.
He might even get into angel investing in the future to help the trend along, but for now it’s business as usual.
In the short term Naoki plans to focus on increasing clients and expanding beyond the majority of large Japanese corporations using the service. He doesn’t even look at the Rozetta stock he now owns.
“I thought it was not a good idea to focus on that. I don’t want to be happy or get depressed with the criticism of other people. Stock price is valuation by other people, stockholders, but entrepreneurs need to focus on what we are doing, which is our service, our product.”
The attitude is working well. Naoki recently learned one of their translators was able to buy a house from the money made on Conyac.
“It was an amazing feeling,” he beams. “We started from nothing and we could now change at least one person’s life. That’s a great thing. If we can change one person, we can change more. It’s quite exciting for us.”