Origami was valued at ¥43.5 billion, then sold for ¥1 a share. In 2018 it booked ¥222 million in sales and a ¥2.5 billion operating loss

A company valued at ¥43.5 billion was sold for ¥2.59 million.

After a funding round in September 2019, mobile-payments company Origami was valued at ¥43.557 billion including dilutive shares. Four months later, in January 2020, Merpay, a subsidiary of Mercari, announced it would acquire all of Origami’s shares. The price was not disclosed. Citing multiple people involved, Diamond Online reported that the price was ¥1 a share, about ¥2.59 million in total for the 2.59 million shares outstanding.

From valuation to sale price is a drop to roughly one seventeen-thousandth. Other legendary failures have drops as steep. What sets Origami apart is that the inside of the company before the fall is printed in the buyer’s disclosure. For the year to December 2018, sales were ¥222 million and the operating loss was ¥2.544 billion. The loss was 11 times sales.

Origami was a startup that took large sums from corporates and investors, which puts it outside this site’s criteria for cases, which record businesses that started small. Here it is read as a column, with valuation, sales and losses in one table.

From founding to the end of every app function

The amount raised is the sum of the three rounds in INITIAL’s free listing, at least ¥8.76 billion. Whether there were later rounds was not checked.

In three years, sales quadrupled, and so did losses

Lay out the three years in Mercari’s disclosure and the shape is clear. Sales went from ¥53 million to ¥178 million to ¥222 million, quadrupling in two years. The operating loss went from ¥689 million to ¥1.306 billion to ¥2.544 billion, 3.7 times in the same two years.

Losses were growing as fast as sales. In 2018, by this arithmetic, it took ¥12 of operating expenses to book ¥1 of sales.

For a payments company that is not unusual in itself. Until merchants and users multiply, fee income barely registers. The question is how long that shape can be sustained. In Impress Watch, Junya Suzuki wrote that most of Origami’s recent revenue came from payment fees. Fees are where payment companies compete hardest, and as long as it fought there, sales growth could not be separated from loss growth.

The valuation was not set by looking at sales

Divide the September 2019 valuation of ¥43.5 billion by the prior year’s ¥222 million in sales and you get about 196 times. That prior year’s operating loss was ¥2.5 billion.

Valuations are set not by past sales but by expectations of a future share. In September 2018 Origami formed a capital and business tie-up with Shinkin Central Bank, the central institution of Japan’s credit unions, opening a path to bring cashless payment to small regional businesses. A valuation of 196 times sales can be explained as startup pricing.

What the desk can state firmly is that such expectations hold up as a price only while the next money keeps coming. By Suzuki’s analysis, new entrants and fiercer competition drove down the company’s value, fundraising got harder, and finally its working capital ran up against a limit. Once the next round stopped, ¥43.5 billion became a price nobody would pay.

How a price of ¥1 a share was put together

Mercari’s disclosure spells out the steps. The only seller was the founder, Yoshitaka Yasui, who would acquire all of Origami’s shares by the transfer date and then transfer them to Merpay. At the time of disclosure, Yasui held 33.76% and Credit Saison 14.74%, with 22 other minority shareholders.

In other words, the founder first gathered the shares investors held, then handed them to Merpay in one block. On price, the disclosure said it was withheld under confidentiality obligations, but had been set at an amount considered fair and reasonable after appropriate due diligence. The reported ¥1 a share was what “fair and reasonable” turned out to mean.

What follows is inference: this price looks less like a measure of the company’s value than the price of the procedure for taking it over. Taking on a company whose losses were 11 times its sales before its working capital ran out, the buyer seems to have paid not for the business’s future but the minimum consideration needed for that handover.

What was bought was not the payments, but the merchants

When announcing the deal, Merpay said Origami Pay would be merged into Merpay after a notice period. In the end it was shut down, not merged. According to BCN+R, code payments and other functions stopped on April 28, 2020, and every function of the Origami app ended on June 30. The same article reported that Merpay’s aim was the merchant network.

The staff went the same way. Diamond Online reported that about 90% of the 185 employees, 160 to 170 people, were cut. What remained were the merchant relationships and some of the people who ran them.

This mirrors the structure in the column on menu’s shutdown and acquisition. menu’s acquisition also served a wind-down rather than growth. In both, what the buyer wanted was not the service itself but the business relationships it had built up.

Set beside the retrospective of dark-store startup Mesh published the day before, the difference is also clear. Mesh closed its business itself with a 4.8 rating and turned down acquisition approaches. For Origami, selling was the only road left before the working capital ran out.

What could and could not be confirmed

The limits need stating. Sales and losses were checked in Mercari’s disclosure, and the valuation and funding in INITIAL’s free listing. The ¥1-a-share price and the number of staff cut were reported by Diamond Online citing people involved, and are not official figures from Mercari or Origami. The disclosure itself keeps the price undisclosed. Sales and losses from 2019 on, Origami Pay’s user and merchant counts, and any retrospective by the founder were not in the sources read. For the valuation, Diamond Online also gives a different figure of ¥41.7 billion from a Nikkei survey.

¥43.5 billion was never a number the company held

Origami’s three years of results show a company whose sales grew and whose losses grew faster. On top of that sat a price of ¥43.5 billion premised on the next money arriving.

The day the money stopped, the price became ¥1 a share. The company inside had not changed. The 2018 sales of ¥222 million and operating loss of ¥2.544 billion were the same numbers in the disclosure table all along, even while the valuation stood. All that changed was that nobody was left to put a price on top of those numbers.