Luup and SMBC Venture Capital: Reshaping Transport in Japan with Micromobility
Amidst ongoing population aging and decline, urban mobility is becoming a real social issue in many Japanese cities. Shared micromobility start-up Luup is boldly attacking this problem by creating next-generation infrastructure that enables anyone to move freely anywhere, anytime. In just five years since founding, Luup has expanded its operations into eight cities and expects to widen that range still further on the back of recent legislative revisions.
How will Luup’s emergence change mobility in Japan? We talked to Luup president and CEO Daiki Okai and Motohiro Takeuchi from SMBC Venture Capital—a staunch Luup supporter from before the company launched its services—about the world of mobility innovation.
- Looking beyond micromobility infrastructure to urban development
- Service development addressing both hardware and software enables easy access with just a smartphone
- “I was intuitively convinced that he would succeed”: Luup CEO’s ability to rise to challenges wins BVC funding
- Turning point after the funding decision sees tie-ups with corporate majors and rapid business growth
Looking beyond micromobility infrastructure to urban development
Could you outline the services that Luup provides?
To realize our mission of making the whole city a station area, we provide sharing services for e-bikes, e-scooters, and other micromobility devices that can be used by anyone so that places that would normally be at least a 15-minute walk from the nearest station can be reached in just a few minutes.
What’s your current service area?
At present, our services are available in eight areas—Tokyo, Osaka, Kyoto, Yokohama, Nagoya, Kobe, Hiroshima, and Utsunomiya—and we have set up a whopping 6,000 “ports,” or parking stations for device pick-up and return (as at January 2023). Legislative revisions that went into force in July 2023 mean that our e-scooters, which fall within the new category of Specified Small Motorized Bicycles, can now be used by anyone over the age of 16 without a driver’s license, allowing us to further expand our service area.
Japan has a number of bicycle sharing services. What sets your services apart?
I think the biggest difference is our ultimate goal of urban development. We don’t see existing forms of transport like trains, buses, and taxis as competitors but rather as partners in helping to improve our cities. Our services are designed to provide last-mile transportation of around 10 minutes, enabling people to get from a transit stop to their destination.
Take, for example, our high-density port installation. In the case of Tokyo, it’s no more than a two-minute walk between ports in most parts of town. In other words, we make sure that our ports are ideally located for users to hop on and off a mobility device.
To achieve that kind of density, we also work hard to reduce the size of the actual mobility devices. Unusually for a shared mobility service provider, we collaborate with external partners on device development. The idea is to produce more compact mobility devices so that we can secure parking ports even in tight urban spaces.
Another area that we’ve put a lot of thought into is service specifications—like our destination port reservation. There’s no point getting to your destination only to find that there is no space left to park. Our system prevents that situation from arising by having customers secure a parking space at the destination port before they start their journey.
Service development addressing both hardware and software enables easy access with just a smartphone
How did Luup come to launch its current business?
Even before we had decided on what services to offer, our plan from the start was not to try to elbow into a crowded market with the same existing services, but rather to create something unique. In other words, we wanted to do something that no one else could do so as to provide the kind of value that would make Luup services an indispensable part of customers’ lives.
So we set about trialing promising services one by one to identify Luup-only services that would still be essential in Japan in 50 to 100 years given the expected rapid population decline.
We came up with our current business when we were trying to develop an in-home care service that would allow customers to request caregiver visits using a smartphone. While we ultimately gave up on that particular service, it opened our eyes to the seriousness of the mobility issue in Japan. For example, when a caregiver is sent out to someone’s home, if no public transport is available in that location, the caregiver has to use a car. But using a car means parking fees, which then add to the service price.
While car and motorbike sharing might seem like a solution, that’s not the case. Trains have always been the central form of transport in Japan, so our cities haven’t been built on the premise of car and motorbike travel the way they are in the West and Southeast Asia. As a result, roads are often so narrow that people can’t drive close to their destinations. And while Japan’s train and bus systems are very advanced, on-demand mobility options have been limited. That, we decided, should be our starting point.
We began our investigation into mobility services with an industry analysis that revealed four vital elements: hardware such as vehicles and roads, the software required for service management and data connectivity, mobility data for building optimal transport networks, and alliances with local and central government.
At the same time, we realized that few companies have a well-balanced approach to all four of these elements. Auto manufacturers are great with hardware, but they don’t put much effort into software sales. Rideshare services excel at software, but they tend to lack effort in communicating and developing alliances with the central government and local companies. We felt that rather than pursuing the same business model as existing companies, Luup could offer a unique value proposition by developing new services that addressed all four elements. And that’s where we came up with our current business of developing micromobility infrastructure.
“I was intuitively convinced that he would succeed”: Luup CEO’s ability to rise to challenges wins BVC funding
How did Luup and SMBC Venture Capital connect?
We were introduced by a mutual acquaintance back around November 2019, before the COVID-19 pandemic. At the time, Mr. Okai was debating whether he should seek bank funding.
That’s right. I didn’t know much about the types of venture capital yet, and I was still trying to figure out what kind of investors we should bring in at that initial phase in order to achieve business scale. Given that Luup would need to deal with banks going forward, I decided to connect with a bank-affiliated venture capital (BVC) firm. I worried, though, that Luup might not be taken seriously given that our services were only just getting off the ground.
The concept of placing micromobility devices all around town that could be accessed by anyone with a smartphone was very novel, so there wasn’t much on which to base a judgement on the likelihood of success. On top of that, the development of legislation on e-scooter use was still under discussion and the outcome was far from clear.
Given the substantial risk, how did SMBC Venture Capital come to decide to invest?
From the first time we met, I was intuitively convinced that Mr. Okai would make his business succeed. As he says, Luup’s services were still in their infancy, but they were services that would clearly be essential to Japan in the future. I also saw potential in Mr. Okai’s ability to drive business forward.
The micromobility market has been expanding worldwide, and I could see a major market developing sooner or later in Japan as well. And when that happened, market leadership would be seized by an entrepreneur with the ability to rise to challenges.
Recognizing from the start that rules might not be developed for e-scooters, Mr. Okai had come up with a dual-track vision that included e-bikes, and in the few months between our first and second meetings, he already had an e-bike prototype at hand. I was amazed at how fast he moved. I saw huge potential in his ability to turn a concept into reality in a short period of time, as well as his management talent in terms of bringing team members on board. That driving force would unquestionably gain support, not just from me but from many others as well, I thought, and it could also change public opinion for the better.
Back at SMBC Venture Capital, I argued that even if e-scooter rules weren’t developed, with its e-bikes on hand, Luup still had every chance of creating a new market as a micromobility sharing company. In the end, other colleagues too bought into Luup’s thinking and the decision was made to invest.
Because BVC screening is so rigorous, I had it in my head that we would have to wait to receive funding. My impression was that BVC firms avoid risk by funding companies with the highest probability of going public. But SMBC Venture Capital conducted a rigorous screening and still decided to invest in Luup at a critical time when we needed funds. Having SMBC Venture Capital discuss the various risks with us at a time when we didn’t know whether we’d achieve our forecast profits or whether legislative revisions would go ahead really helped to clarify our business outlook.
What enabled SMBC Venture Capital to decide to invest in Luup in such an early funding round?
I think part of it was our corporate culture of respecting the wishes of investment managers like me when making investment decisions. As a company, we obviously have risk tolerance criteria, but they’re not our only basis for making investment decisions. This is because SMBC Venture Capital itself has gone through years of trial and error since its establishment, and that has led the company to realize the importance of trusting investment managers who, after all, have engaged most closely with the founders. That’s what enabled the company to trust in the vision and commitment of start-up founders as seen through the eyes of the various investment managers and make the decision, in this case, to fund Luup at that early stage.
Turning point after the funding decision sees tie-ups with corporate majors and rapid business growth
What kind of business growth has Luup achieved since receiving SMBC Venture Capital funding?
I feel that investment from a VC with the social credibility of the SMBC Group really opened the way for tie-ups with rail companies and other corporate majors.
The funds arrived right at a turning point. We started deploying e-bikes, which were immediately popular. That enabled us to verify that our business model of having a dense network of ports combined with a large fleet of micromobility devices led to value creation. We also conducted field tests on micromobility safety and cost that clarified the outline of our services. The funds we received from SMBC Venture Capital at that turning point definitely boosted the speed of our business expansion.
What are your plans going forward?
We have four main projects. The first is to develop our supply system. Following the July 2023 enforcement of the revised Road Traffic Act, we’ve been fortunate to receive numerous inquiries from local government, companies, and property owners interested in our micromobility options. The more users we get, the higher our profile becomes, and the more inquiries we receive. With those inquiries likely to continue to expand exponentially, we want to put resources into developing our supply system to ensure that we can meet customer demand.
Second, we want to expand into non-metropolitan areas that were previously out of our reach. Having conducted joint safety field tests with the government, we’re well-positioned to provide services to areas currently facing major mobility issues, including local cities, tourist destinations, and remote islands. We plan to aggressively pursue expansion in areas other than metropolises until we are delivering services nationwide.
Third, we will expand micromobility options. At present, the only options are e-bikes and e-scooters. In the future, we want to make micromobility services accessible to older people and people with physical disabilities by offering mobility devices with enhanced stability.
Fourth, we will launch businesses that go beyond micromobility to also engage in urban development. So far, we’ve been focused on growing our mobility business, but our business goals require more than that. Once people start visiting places that previously had no mobility options, we want to start pushing urban development to also make those places great places to live. For that reason too, we want to share the mobility data that we are accumulating with rail, bus, property firms, and other companies, building an urban development partnership.
With the help of the SMBC Group and other partners, we plan to continue to realize business growth with our eyes firmly fixed on achieving our mission of building infrastructure to turn whole cities into station areas.
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President and CEO
Luup, Inc.Daiki Okai
After graduating from the University of Tokyo’s Faculty of Agriculture, he worked at a strategy consulting firm, dealing primarily with PMI for listed companies and business DD for PE funds. He then founded Luup, Inc., becoming the firm’s president and CEO. In May 2019, he established and became chair of the Micromobility Promotion Council, a body spearheaded by Japan’s main e-scooter operators that aims to deploy new micromobility technologies out in society.
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Deputy General Manager, Investment Department IV
SMBC Venture Capital Co.,Ltd.Motohiro Takeuchi
Entered Daiwa SMBC Capital (DSCAP) in 2009, joining SMBC Venture Capital following the DSCAP split in 2010. A venture investment specialist, he has put over four billion yen into more than 50 companies to date. Of those, companies that have gone public are WealthNavi, Chatwork, ExaWizards, PLAID, Collabos, KIYO Learning, LOGLY, Safie, and Fixstars.
