All posts by hyunjunglee2017

Japanese startups face hurdles in exit opportunities

By Katherine Hyunjung Lee

Entrepreneurship is becoming a more accepted career path in Japan, but certain persistent traits of Japan’s economy and culture are adding a color of their own and altering the trajectory of growth.

In the U.S., the term “serial entrepreneur” is used to describe those who start multiple new businesses, grow them quickly, make them valuable acquisition targets for bigger companies and become rich in the process.

Between being acquired and going public with an initial public offering, 77 percent of startups said they would likely be acquired, according to Silicon Valley Bank’s 2017 U.S. Startup Outlook Survey. 50 percent of entrepreneurs also said they expected stronger mergers and acquisitions activity in 2017.

In contrast, approximately 80 percent of startup exits in Japan are IPOs, according to James Riney, a partner at the Tokyo office of global early-stage venture fund 500 Startups. Only 20 percent exit through mergers and acquisitions.

Many characteristics of Japanese society contribute to this difference, said Masako Ueda, a professor of economics at Northwestern University.

Japanese people believe in dedicating their entire careers to one workplace, according to Ueda. The belief influences all aspects of work culture in Japan, from people’s preference for large, stable companies as workplaces to relatively low executive compensation.

If starting your own company instead of joining a stable organization was once unimaginable, having your leaders ousted by the management of another company is still abhorrent to many. The risk of cultural clashes keeps many startups from choosing the same path.

Even at startup incubators, where promising startups are introduced to opportunities to work with big investors and corporate venture capital, most entrepreneurs are not looking to attract an acquirer.

“They don’t believe in handing over the businesses they founded to others,” said Eunkyung Heo, a corporate planning unit manager at Tokyo-based startup incubator and venture capital firm Samurai Incubate Inc. “They start out with the intent of going public.”

Photo Gallery: A Day in the Life of a Startup Incubator

Samurai Startup Island, a startup incubator and co-working space in Tokyo, offers various networking and funding opportunities for entrepreneurs in Japan.

Heo said entrepreneurs treat their startups with the traditional Japanese small business mentality: they would found their own businesses, and they would stick with them and take care of them.

The lack of M&A activity is representative of the whole Japanese business environment and is not exclusive to the startup community, according to Ueda.

“For mergers and acquisitions to become common, they must reach a critical mass,” Ueda said. The current Japanese business environment does not have a diversity of merger models and professionals to take on the different transactions that various companies would need.

James Schrager, an economics professor at the University of Chicago, said Japanese businesses have a negative perception of M&A.

“Companies, once they are established, are fiercely independent,” Schrager said. “Those that are already large companies, like Sony, have had very bad luck during acquisitions. The longer term view is taken that this is not a good way to build a business.”

Still, corporations show keen interest in investing in startups through corporate venture capital funds.

“They might just be trying to keep an eye on new ideas,” Ueda said. “As investors, they can watch what happens in those startups. If they wanted to develop similar functions, they may want to grow internally within their own companies.”

The younger generation in Japan is increasingly open to the idea of startups as a potential career. Prestigious academic institutions like the University of Tokyo have entrepreneurship classes and incubators on their campuses that allow students to seek mentorship and advice from business school professors and experienced entrepreneurs.

Riney writes on the “500 Startups” blog that because the Tokyo Stock Exchange has a lower market capitalization requirement for IPOs, Japan might provide a better environment for people who want to build startups.

But reaching a threshold market capitalization is just one hurdle.

“IPOs in Japan generally require the company to be much further along than the U.S.,” Schrager said. “You must be profitable, you must be growing, you must be able to make a projection one year ahead that you can make a net profit.”

With M&A an unattractive option for many Japanese, and IPOs requiring greater proof of success, startups are in a Catch 22.

“The youngest generation is more open to founding startups,” Schrager acknowledged. “But it’s much harder to do it. They don’t have an M&A as a way out, and an IPO can only happen much later.”

Photo at top: Samurai Startup Island, located on a small island in Tokyo Bay, Japan, is run by early stage venture capital and seed accelerator Samurai Incubate Inc. (Photo by Katherine Lee/MEDILL)

Discover Financial seen advancing with industry tailwind

By Katherine Hyunjung Lee

Analysts are optimistic about growth prospects for Discover Financial Services in 2017 as the company continues to post stronger than expected loan growth. The banking and payment services company based in Riverwoods, Ill., continues to expand its national footprint while riding on the growth tailwind of the credit card business.

Discover Financial’s stock price has been on the rise. When markets closed Thursday, shares were $70.99, up 45.4 percent from a year ago.

Of the 28 analysts surveyed by Bloomberg, seven give Discover Financial a “hold” or “neutral” rating and 20 give it a “buy” or “outperform” rating, with one “underweight” rating. The 12-month consensus target stock price is $79.88.

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Logan Square toy store thrives despite retail headwinds

By Katherine Hyunjung Lee

In a gentrifying neighborhood increasingly attractive to families and children, boutique toy store Play is thriving in an otherwise struggling toy retail industry. The store, owned by toy business consultant Ann Kienzle, has been growing its reputation as a specialty store since first opening on West Logan Boulevard seven years ago.

The store, which sells toys for children ranging from newborns to age 10, occupies a 1,000-square-foot space packed with books, puzzles, games and stuffed animals, among other playthings.

Photo gallery: Explore Play, the boutique toy store Ann Kienzle opened seven years ago.

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Business inventories rise in January, signaling economic growth

By Katherine Hyunjung Lee

Business inventories for manufacturers, wholesalers and retailers in January increased a seasonally adjusted 0.3 percent, after a 0.4 percent rise in December, according to data released Wednesday by the U.S. Census Bureau.

Auto inventories posted the sharpest rise — up a seasonally adjusted 2.4 percent. Economists said a broad increase in other durable goods categories, such as furniture, appliances and building materials, were a good sign.

“Inventories will provide support to headline GDP for the first quarter of 2017,” Daniel Sanabria, senior economist at Comerica Bank, wrote in a blog post.

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For decades, Kuni’s in Evanston stays true to sushi tradition

By Katherine Hyunjung Lee

On Saturday afternoon, two elderly Japanese women sat at the sushi bar at Kuni’s Japanese Restaurant in Evanston. They were waiting for their “omakase,” or chef’s choice, sushi lunch.

Yuji Kunii, the sushi chef and owner of the store, stood behind the sushi bar, carefully making a series of exquisitely shaped sushi and serving them one piece at a time. With each piece, they thanked him.

They asked him questions from time to time. He answered them quietly in Japanese. They knew him well, and he remembered them well. They had been patrons of the restaurant for decades.

Nestled in the suburbs of Evanston is a small sushi restaurant whose long history still eludes most residents. For more than three decades, the owners of Kuni’s have dedicated themselves to the artisanship of traditional Japanese cuisine.

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Kohl’s profit and sales decline, stock drops

By Katherine Hyunjung Lee

Kohl’s Corp. (NYSE:KSS), a Wisconsin-based department store chain with more than 1,100 stores nationwide, Thursday reported its net income declined by 14.9 percent to $252 million in the fourth quarter ended Jan. 28 from $296 million a year before. But diluted earnings per share beat Bloomberg’s consensus estimate of $1.29 per share at $1.44 per share.

The stock dropped $1.04, closing at $40.91 in NYSE trading.

“They beat the earnings estimate, but that estimate was adjusted in January. And those were well below planned, adjusted from $1.65 to $1.35. They came in at $1.44,” Brian Yarbrough, an analyst at Edward Jones, said in an interview. “So they beat estimates, but there was a lower guidance back in January.”

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Expensive Chicago parking tickets contribute to huge bankruptcy filings

By Katherine Hyunjung Lee

Costly parking tickets are causing thousands of cash-strapped Chicago drivers to flock to the federal bankruptcy court to get their vehicles released from city auto pounds.

Of the 8,809 Chapter 13 consumer bankruptcy filings that attorney Tom Vaughn, a Chapter 13 Bankruptcy Trustee in Chicago, oversaw in 2016, 47 percent listed the Chicago Parking Bureau as a creditor, according to Vaughn’s office.

This peculiar rush to bankruptcy protection helped cause the Bankruptcy Court in the Northern District of Illinois to receive the highest number of non-business chapter 13 filings in the nation for at least the third consecutive year.

Despite this continuing phenomenon in Chicago, consumer bankruptcy filings are decreasing, both here and nationwide. In the Northern District of Illinois, the number of consumers filing for protection under chapter 13 bankruptcy, also known as the “wage earner plan” for allowing debtors to develop gradual repayment plans, declined 1.2 percent between 2015 and 2016, according to the court. Similarly, those filing here for total liquidation of assets under chapter 7 bankruptcy declined by 10.4 percent.

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Wintrust Financial reports 54 percent boost in quarterly net income

By Katherine Hyunjung Lee

Wintrust Financial Corp. (NASDAQ:WTFC), an Illinois-based bank holding company providing community banking and financial services, late Wednesday reported its net income increased by 53.8 percent to $54.6 million in the fourth quarter ended Dec. 31 from $35.5 million a year before. Diluted earnings per share beat Bloomberg’s consensus estimate of 91.6 cents per share at 94 cents per share.

The stock opened at $70.02, up $1.08 from Wednesday’s close at $69.14, but dropped 92 cents on Thursday, closing at $68.22 in Nasdaq trading.

Net interest income of the company amounted to $190.8 million, up 14.1 percent from $167.2 million in the prior-year quarter.

“The increased loan volumes and stable net interest margin during the quarter resulted in an increase in net interest income of $6.1 million,” Edward J. Wehmer, president and CEO, said in the company’s earnings announcement.

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Caesars Entertainment bankruptcy approved after two years in court

By Katherine Hyunjung Lee

In what he described as a “monumental” case, Judge A. Benjamin Goldgar of the U.S. Bankruptcy Court in Chicago approved on Tuesday the chapter 11 reorganization of Caesars Entertainment Operating Company, closing the $18 billion bankruptcy case that began two years ago.

Caesars Entertainment Operating Co., a wholly owned subsidiary of Caesars Entertainment Corp., operates two casinos in the state of Illinois and two in Indiana. Eighteen properties belonging to CEOC were included in the chapter 11 filing. The company operates 47 casinos in all.

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