Japan’s land of dreamers, robots and folding start-ups

Four years ago, a Tokyo-based startup called Seven Dreamers stole the show at Japan’s biggest technology trade fair with Laundroid — an artificial intelligence robot that could neatly fold clothes.

Despite Laundroid taking well over five minutes to process a single T-shirt, the machine became an instant superstar and Japan’s collective imagination — always eager for the next miracle robot — was piqued. By 2017, said its makers, the $16,000 machine would be on the market. By 2018, it would be sold to nursing care facilities. By 2020, there would be a Laundroid unit ready for ordinary people’s homes.

Unfortunately, the start-up itself has proved it was better at folding. Technical problems mounted, commercialization was elusive and not a single unit ever sold. Seven Dreamers filed for bankruptcy in April, and in late July liquidators said they could still not find a

buyer. The death of Laundroid, say, analysts, is a parable of Japan’s relationship with high-tech, venture capital and, particularly in the field of robots, the gulf between promise and reality.

The huge success of Laundroid’s pitch was nevertheless viewed at the time as a pivotal moment for Japanese start-ups, long seen as fighting an impossible war in a system rigged against entrepreneurs and starved of the disruptive Silicon Valley spirit.

Seven Dreamers, whose credentials were bolstered with former staff of Sony and Fujitsu, quickly attracted over $50m in backing from blue-chip Japanese corporations including Panasonic and homebuilder Daiwa House. That was soon augmented by investment from the two founders of private equity firm KKR, Henry Kravis and George Roberts.

Initially, Seven Dreamers seemed to represent an antidote to Japan’s perplexing shortage of “unicorns” — privately held companies with a notional valuation of $1bn or more. Despite its reputation as a technology powerhouse, Japan has failed to punch its weight in unicorn-breeding — one effect, said CLSA strategist Nicholas Smith, of the huge problems that would-be unicorns face in Japan gaining access to funding on the far more supportive scale and terms available in the US and elsewhere.

Another issue, highlighted by Mizuho strategist Masatoshi Kikuchi, is that Japanese start-ups are too easily enticed to float their shares prematurely in Tokyo, forcing them to submit to market discipline before they have privately attained unicorn status.

Jesper Koll, the head of Wisdom Tree Japan, said the problem was mischaracterized as a lack of entrepreneurship in Japan. Instead, he said, the growth of unicorns was stunted by the lack of the sort of ecosystem that, in other countries, fuses tech with the necessary business elements.

“It takes five or six components to build a business and to take a piece of technology to commercialization. There is plenty, plenty of innovation in Japan, but it is very difficult to assemble those components around it. You need more than a good robot to commercialize a robot,” he said.