Video is taking over the internet, but in many ways, it has not changed significantly in the past 40 years. The way we discover and pay for video content has changed significantly, of course, but we still consume video in a continuous, linear sequence, and that’s about to change.
Sandeep Casi and his team at Videogram are using deep learning to change the way you and I discover and watch video. They’ve already had success in the enterprise realm, and they are now bringing the technology to consumers.
Interestingly, Videogram was not founded the way most startups are, and Sandeep’s approach to leveraging the intellectual property locked up inside Japan’s large corporations might represent a unique and important avenue for innovation here in Japan.
One that might become every bit as important as traditional seed-funded startups.
We also dive into the paradox of enterprise innovation, and Sandeep explains a few things that all startups need to understand about corporate accelerators before joining.
It’s an interesting discussion, and I think you’ll enjoy it.
- Why the key-frame model of video presentation is broken
- How General Motors pioneered VR in the early 90s
- Why there are fewer breakthrough technologies than you think
- What a startup can do when you are too early to market
- Why technology companies need to be content companies
- Why we might see more spinouts from Japanese enterprise
- How to raise funds as a foreigner in Japan
- How the Olympics will force Japan’s video market and culture to change
- How to overcome the aversion some Japanese VCs have to foreign founders
Links from the Founder
Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero, and thanks for joining me.
Today, we’re going to be talking about the future of both how we create and how we consume video. Now I grant you, this may sound like something that’s pretty hard to do in an audio format but I think is some ways it’s actually easier. After listening back to this interview after I recorded it, it became clear that imaging the possibility in your mind’s eye us much more powerful than laying it all out for you in two dimensions. But we’ll get to all of that in just a little bit.
You see, today we sit down and talk with Sandeep Casi, founder and CEO of Videogram. We talk not only about the future of video but also about a new model for unlocking some of the intellectual property that’s currently locked up in large Japanese companies. Sandeep and his team followed a very different startup model than what we see in Silicon Valley. It’s something we might be seeing a lot more of in Japan because the model is so well-suited to conditions here in Japan.
Sandeep also has some really practical advice for participating in corporate accelerators and for new things startups absolutely must keep in mind when trying to sell innovative products to large enterprises. There are definitely tradeoffs. In fact, you could say there’s almost a built-in conflict of interest. We also share some real-world suggestions on how foreign founders can successfully raise multiple funding rounds in Japan.
But you know, Sandeep tells that story much better than I can. So let’s hear from our sponsor and get right to the interview.
Tim: So I’m sitting here with Sandeep Casi of Videogram, which is an amazing video product. Thanks for sitting down with me.
Sandeep: Thank you, Tim, and thanks for the opportunity to talk to your audience.
Tim: It’s so hard to describe video on an audio podcast. But if I understand it correctly, you use AI to create paneled previews of videos. It’s kind of a storyboard or a comic book view.
Sandeep: What you see as an end product is what you just described which is more of a pictorial summary of a video. But what’s going on in the backend is a much more deeper technology. We actually use machine learning to understand the context of a video, whether the video has scenes that’s of interest, celebrities that have certain status that we think we should be surfacing for discovery, as well as objects which might be interesting for monetization within the video.
Tim: As it scans through the video, it could actually recognize not just there is a person here but wow, that’s Angelina Jolie or —
Sandeep: Or it recognizes maybe something she’s wearing, maybe sunglasses that she’s wearing. And if you have trained the system, we can also recognize brand of that sunglass. So what we do is we index the video down to its most atomic level. If you look at what Google does with text indexing, it indexes and brings in contextual results when you type in the key word. So we de very similar things for video. We break a video down into the most atomic level by understanding what’s inside of the video, not only from the perspective of the scene, the clip, the music, the lyrics, and object, as well as context. For example, beach, a car on the beach. Once we get that metadata, it’s almost like a lego block. Once we have all of these lego pieces, then you could construct different use cases from that lego.
Tim: Okay. You put those together in an engaging panel format.
Sandeep: That’s right.
Tim: It’s really cool technology but why is it important? What’s it good for?
Sandeep: There are many different use cases. The first use case is a discovery piece. If you notice with online video from its inception, it’s usually one frame with a play button. That one frame, it has no context because by definition, a video is a bunch of frames. And then a publisher picks one frame in order to create an advertisement of that video, so enticement frame, as we call it. That frame is what enables you to click into the video. Most of the times, that frame is actually a click bait.
Tim: Yes. Of course, like any headline.
Sandeep: Like any headline, right. What happens is that even people click into that, they kind of drop off immediately because there’s no instant gratification. They licked into that frame because they want to consume that frame but they don’t see it. Or even when they scan it, maybe they don’t see it and they drop off. So what we do in terms of discovery is by surfacing the storyboard of the video, a contextual storyboard, everybody has a choice of their interest in the video. Somebody might actually see a dog in the video that they might be interested in or somebody might see sunglasses of a celebrity that somebody is wearing. So everybody has a choice and then they can click on to that frame and there’s an instant gratification because what they clicked on is what they see.
Tim: Okay. It certainly makes sense that when you’re providing more variety, you should get a higher level of engagement and higher level of people watching the videos. Do the numbers bear that out?
Sandeep: Yes, it does. Usually a click-through rate for a single frame video is in the range of 15%. We are actually seeing anywhere between 40-60%.
Tim: Okay. So three times plus.
Sandeep: Three times. And it’s very simple. The reason that we see a larger click-through rate is because there’s more choices to click on. So imagine a website which has one headline and that’s the only headline you have. If I don’t like that headline, I don’t click on it. But imagine an article with multiple headlines. Each headline going into a certain paragraph of that article, I’ll be more interested in choosing the paragraph that I want. So by nature, we were actually not trained to watch content from end to end. This is an issue that for some reason platforms like YouTube and Facebook have created, that a video should be consumed from beginning to end and [publisher] have bought into it. But if you look at how a newspaper or a magazine is consumed. Let’s go into the analog world. You don’t read the newspaper from the front page to the back page or a magazine —
Tim: No. it’s very nonlinear.
Sandeep: Nonlinear. So you jump into the parts that actually entices you. You scan or browse and you jump in. You consume and you comment on it, maybe, to you friends, whatever you want. So why can’t video be the same way? That’s basically the vision behind Videogram, to create at random access into video so that you can consume the parts that you like. And once you like that part, you should be able to share that part or clip or segment with other. And then number 1, you don’t have to consume end-to-end.
Tim: Right, right. And so you’re mentioning sharing. So if I decided to share a video, I could share just a particular snippet of it?
Sandeep: That’s right.
Tim: Interesting. Tell me about your customers. Who’s using Videogram and how?
Sandeep: We have variety of customers that are using Videograms. We actually ran a few trials with almost close to 29 studios globally, in India, in Los Angeles, and even in Japan. Out of that, we came out with verticals. The first vertical is called Videogram Music. If you notice SoundCloud, SoundCloud is all about commenting on a certain clip or a certain segment of the audio. So we provide same type of features for music videos where you could stop at a frame and then you could basically comment on that frame and that comment is attached to that particular frame. And when you’re scanning, you’re able to jump into that and clearly engage on that. The second vertical we do is Videogram Live which is mostly focused on sports, e-sports. And the third is Videogram Ads. Videogram is a very good ad unit by itself. And the last vertical which we are actually starting to take off very soon is we are creating a vertical for Videogram Anime which is very much focused on taking Japanese content into overseas markets.
Tim: All right. I want to dive deep into the verticals and the business models a little later.
Sandeep: Sure. No problem.
Tim: Before we do that, I want to back up just a bit and talk a bit more about you and your own history.
Tim: You’ve got a really deep background in video. You did it at General Motors. You worked at Lucas’ Industrial Light Magic. You ended up at Fuji Xerox Palo Alto lab. Almost 20-year career in big company video R&D.
Sandeep: That’s right.
Tim: How did this project come about? What on earth made you decide to —
Sandeep: It’s interesting. I started my career and I worked for big corporates all my life before I started this entity. I’ve been in video for almost 20 years, as you mentioned. I was part of the first VR, virtual reality lab that was built at GM back in ’93-’94 timeframe. VR was used heavily in automotive and manufacturing.
Tim: What were they using it for in automotive?
Sandeep: For crash analysis. Instead of crashing real cars, we would actually use VR to look at strains and stresses on human body. And then we would also use VR for collusion. So if there are parts that are colluding when they’re designing — because parts of design at different locations for different teams. And when it comes together, you have issues in terms of collisions between parts. If you can actually put an engineer in a space where they can walk around with the car and look at collusion, they can actually then readjust and go back and do things much quicker and it’s less expensive, rather than building the model and then figuring out that it’s not really fitting.
Tim: GM was doing this back in ’93.
Sandeep: ’93, yeah.
Tim: That’s amazing. That’s awesome.
Sandeep: It’s actually a research that came out of the University Urbana-Champaign. It was called the Cave, the VR Cave. I was part of the team that built the first VR Cave for GM. Since then, every automotive company, every manufacturing aerospace uses VR. VR is nothing new. It’s new from the consumer perspective.
Tim: It’s cheaper.
Sandeep: Right. But it’s been around for at least 20 years. All my career, I’ve actually worked on VR. There used to be a language that we used to code in back then. It was Silicon Graphics which is dead right now. There used to be a language called VRML. Just like HTML, there used to be something called VRML. We would use VRML to manipulate geometry to figure out basically location and things like that. And the accelerometer that you have on your iPhone, this function as done by a company called Ascension Technologies. It was a big brick called Flock of Birds, huge magnetic brick. If you look back 20 years later, what the iPhone has today was basically what it was back then but the unit was much bigger.
Tim: It is amazing when you start digging into any technology, really digging into it. It’s amazing how much it’s driven by continuity rather than radical innovation.
Tim: Clever people can put the parts together in new ways and bring cost down. But the components do seem to have this continuity that stretched back decades.
Sandeep: And it’s just basically persistence from whoever first enabled that technology and stayed on and just looked for different use cases and different models and finally it all ended up in the smartphone. I say it’s the case with VR as well.
Tim: Back to you in Palo Alto, you were working on stuff you loved to work on. It was exciting work. Why leave that for —
Sandeep: I didn’t leave, actually. I was part of the team. My mandate was to look at interactive media. We were part of the team that looked at interactive media. The product Videogram comes from there. This product was before YouTube. So there was no online video at that point of time. We were very, very ahead of the curve.
Tim: What year was this?
Sandeep: This is 2003. YouTube was 2005. So 2003, we had a mature product. The reason that this product was invented in the first place was for training. If you look at Fuji Xerox back here in Japan, there used to be copiers and printers. The iteration is pretty quick. Every three months, there is a new copier and a new printer released to market. After sales repair becomes an issue because they have to keep training these people with new models and new parts that’s coming in. The whole concept of Videogram was let’s take those training videos and then chapterize it automatically so that people can randomly jump in to, say, how to fix a toner or how to fix a paper jam.
Tim: So this was the first use of that panel display?
Sandeep: So around that time, Fuji Xerox basically decided that they wanted to productize this. They created a team called Media Depot. I was working directly with the Media Depot team so I ended up traveling to Japan a lot. I looked at that and said, well, this might be interesting even for the consumer space. Consumers were not creating video and the studio is very, very much focused on DVDs and VHS. So there was no online. Netflix changed that market but the fact that I was in Japan and I was looking at the smartphone market, the feature phone market, but Fuji Xerox is not really a consumer company. It’s an enterprise company.
Tim: So they were pretty happy with just using the product for training video and — yes, I could see that.
Sandeep: It was a dead end for me there. The only way that I thought this has any kind of viable opportunity for this to get to what I wanted to do was wait. Wait until the market caught up. I left Fuji Xerox and then I kept in touch with the team that I was working there, the licensing team and so forth. And around 2008 when YouTube really started to get into main traction, then I went back and negotiated patents with Fuji Xerox. So we got access to 30 patents. And then I decided to start a company.
Tim: Okay. Is Fuji film happy to lease you or sell you the rights to these patent?
Sandeep: Fuji Xerox is very happy. They don’t really see any value for them inside the company but the fact is that they had spent so much time and resources to build this technology. They were happy that somebody from the inside is taking this to market and so they’re very supportive even to this day.
Tim: That’s really encouraging. Did they invest?
Sandeep: No, they didn’t invest because, again, I was just a basically a B2B2C business. They are not in that space. But the licensing deal is pretty good. It’s a very founder-friendly licensing deal.
Tim: Excellent. Well, that’s interesting because your company itself, you’ve sort of bounced around quite a bit. You’ve been in Japan. You were in the US both in San Francisco for a while and LA. Why the moving? Most companies move either when they’re chasing funding or when they’re chasing clients.
Sandeep: At first I thought this would be a company that’s better off being in the US, in Silicon Valley. What really happened was that out of the three individuals that started this company, I’m the only US citizen. The other two, one is Indian, the other guy was Japanese. We couldn’t get visas.
Sandeep: Yes. For H-1B visas because H-1B visas mainly for startups is very hard to come by even to this day. So we fell back into Tokyo.
Tim: Do you feel like the US is just a more innovative market in terms of video and trying new things?
Sandeep: No. That’s not the reason I wanted to be in the US. I wanted to be in the US because of the talent. My first choice would have been Japan, if I could build a talent here. The mentality of the Japanese market is such that startups are the last thing that they would consider because of the risk factor which is how the perception is.
Tim: It’s getting better than it used to be but —
Sandeep: Yes. But not back then. Not in 2012, right? 2012, it was very difficult for us. Added to all that, there was also the language issue. So my intention of going to US is to solve those things. Now we have offices here in Tokyo, where the headquarters is. All the headquarters operations are here. The dev team sits in India.
Tim: These days, distributed teams are so much easier to manage than they have been at any point in history.
Sandeep: Absolutely. Yes. I think with technologies like Slack, for example, I don’t really see any issues in distributed teams at all. We work quite efficiently without being in one place.
Tim: When you were in the US, you were part of the Turner Broadcasting media camp.
Sandeep: Yes, that’s right.
Tim: Those kind of programs are really interesting. I’m curious. Enough time has passed now that I think you got a really good perspective on it. Immediately after these programs, it feels like there’s all these momentum are people are really excited about it. But long term did you guys get a lot of benefit from it?
Sandeep: Having gone through the Turner Media Camp Program, I would say that the intention of the Turner Media Camp team was they were very entrepreneur. They were two media camps, one was Turner and one was Warner. Both of them were very entrepreneurial teams but the problem was that they were trying to crack the nut. They’re trying to wag the dog by its tail.
Tim: What, they were just look for something too specific? What was the problem?
Sandeep: No. What happens is that big organizations and the media companies, I’m not going to single out Turner, but big media companies, they fiefdoms inside. Each fiefdom has its own strategy, has its own KPIs, has its own intention on what they want to do. If the startup that’s trying to do doesn’t fit into their internal bureaucracy and organization, they’re not going to move towards that.
Tim: So the people in charge of the media labs don’t have the political clout to force other people to change.
Sandeep: They don’t. Because they are just like us. They’re also a startup. The only difference is they’re only one investor which is the media company. They’re just founders like us and they’re trying to push us into different groups and into different use cases and it almost appears forced. There are certain stakeholders and sponsors that really like you. But in any big organization, having worked at GM, having worked at big organizations, innovation is very, very difficult when it comes from outside.
Tim: Yes, it is. Even when you have really strong internal sponsors from the top-down. Nobody like to change the way they do business.
Sandeep: Right. Yes. I think in hindsight, it was a great program. Would I do it again? Maybe not. But did I enjoy being there along with the people that actually organize this media camp? It was the best time of my life because it was — everybody were entrepreneurial. We could bounce ideas. But I’ll say one thing that we did get out of that program is that because of the media camp and mainly because of the content relationship they have with social networks like Twitter, we got status with Twitter. We are one of the few media platforms that have embed status.
Tim: So Videogram can run natively inside —
Sandeep: Natively inside Twitter.
Tim: Excellent. That is huge.
Sandeep: That came about because of media camp.
Tim: It sounds like for startups going into these programs, they need to manage their expectations.
Sandeep: We had a product market fit but problem is that our product market fit was not necessarily what would have worked for Turner. They were still behind the curve. We had innovated much further downstream. Their systems haven’t caught up to that. So it was wishful thinking that we would bring them forward but that’s not how it works. You can’t move the elephant.
Tim: Right. You have to be exactly what they’re looking for at that point in time.
Sandeep: You have to be in their line of sight as they’re approaching you, right? But you can’t make them approach you. As they’re approaching you, you have to be in their line of sight. We were trying to get them to approach us which is not possible.
Tim: Which sounds like a losing battle.
Sandeep: It’s a losing battle.
Tim: Yes. Actually, I’ve heard you mention before that you don’t view Videogram as a technology company. You view yourself as a media company.
Sandeep: Yes. We view ourself as a platform plus content. The content plays a part in how the technology develops. We are very much focused on machine learning and AI. Content is very important for us and understanding how users are behaving on their content is what contributes to the platform.
Tim: You got some great content partnership. You’ve got channels for TechCrunch and Tyra Banks. I guess what I’m curious is the media play, creating the content, is that largely as a market-based proof of the technology, hoping that others will understand the advantage and adopt it? Are you trying to really make money and make viable business strictly around the content?
Sandeep: We are trying to make valuable business strictly around the content. While we are doing that, we are making sure that our technology platform is continually evolving. We started off a technology company. We spent a lot of time on the technology side but now we are breaking out into also becoming a content company. So we are putting together platform plus technology.
Tim: It is so difficult and so expensive to build content, video content. So why not just run your service on top of YouTube?
Sandeep: Many different reasons. First of all, YouTube wouldn’t use our technology because it breaks the dedicated player and it also breaks that existing monetization. YouTube’s monetization is pre-roll videos, pre-roll ads in front of videos. Our way of monetization is contextual. We don’t want people to start videos from the beginning. We want people to start videos and access videos randomly from wherever they are. We don’t truly believe in Pre-roll advertising. We believe there’s got to be contextual advertising, commerce-based. That’s basically why we have to stand alone because we can go and sell our technology into existing platforms because there’s no market for that.
Tim: My background is all B2B software sales. So anytime I hear about a product, maybe there’s just some background process that’s saying like, how could I sell this to businesses? But to me, it would seem like one of the strongest cases for this technology would be, for example, sports but not necessarily sports on your channel like on their own homepages or applications in like e-commerce or demonstration videos type thing.
Sandeep: Those exist and those, we do it for free. We use that as our branding and marketing.
Tim: It’s similar to a freemium model where a handful of videos it’s free and then after certain a threshold —
Sandeep: Yes. It is converged. Most of the players that we are going after have large assets, large libraries. The music label that we work in India, they have close to some 7,000 music videos. We make a contract with one label and open up a Videogram music and then other labels add to it, and then you start to really now look at a whole vertical.
Tim: Now that this technology is getting out in the market, I’m always curious, is it changing the way people watch videos? Do they jump around more?
Sandeep: Yes. We call that snacking. Snacking is something that people do a lot. Even on YouTube, they do that but it’s just that you don’t realize it because you’re always scrubbing the video on YouTube.
Tim: Right. You just manually scrub.
Sandeep: Yes. You’re manually scrubbing. YouTube does provide you a visual — when you’re scrubbing, it does provide you a visual frame but it’s small. Whereas in our case, let’s say that you were watching a video and you’re clicking more on a certain type of dog. The system is learning that you really like this dog. So the next time around there’s another video, there’s a dog. Then what happens is that your discovery layer is the dog shows up in one of the frames.
Tim: Okay. How dynamic is this? Are these storyboards generated automatically so if I personally really like dogs, I’ll be seeing a lot more dogs in everybody’s music videos or whatever?
Sandeep: It’s personalized to the individual, to the geography, to the audience network. Most of the cases, the media companies have audience data so there’s a lot more information about a consumer. The thing is indexing is global. It’s one index, right?
Tim: All right.
Sandeep: But each and every person has their own graph. A 5-minute video might have, let’s say, 60 key frames, whereas we would surface maybe only 6 key frames or 7 key frames to entice you. And that 7 key frames that we would surface for you would be different from somebody else because it’s personalization where your interests might be different from them.
Tim: Yes. That’s truly fascinating. It’s one of those things that feels like it’s a technology where we’re just beginning to understand how it could be used.
Sandeep: Yes. We have a lot of data that we collect in the backend. It’s pretty complex to mine it because there’s so many things you could do with the data. As I said, we’re breaking the lego blocks and you can take each block and then build a use case from it.
Tim: It seems to me this is a commercial advertizer’s dream because if Toyota comes up to me and says, “Okay. We need a video to sell this year’s Prius.” They could make a 30-minute video and then use this profile and so everyone that views the video would see the sections that would most appeal to them.
Sandeep: That’s right. I’m pretty sure that there are a couple of companies that are working in the same space as we are but the market is so huge and also the platform and the algorithms are so complex. You’re absolutely right. It’s an advertiser’s dream but that means all of these ad agencies have their own existing workflows. I’ll tell you the simplest issue with and ad agency. When they go to a brand and make a deal, they’ll make the advertisement. They’ll hire actors. They’ll do the scripting and storyboarding. They’ll shoot the video and then they have distribution channels. Along the way, one of the line items in the sale is the creative. Where the creative are, it’s the art director, the creative director, and there’s a web director. So there’s a lot of jobs involved here. If we use Videogram, those things will go away.
Tim: It’s a lot like the same issue ran into with Turner Media.
Tim: Even if they can use you, they have to be at that exact point in time where they’re ready for it.
Sandeep: Exactly. So we are at the inflection point right now. We have waited and waited and waited. We’re at a point where we’re starting to see the agencies ad agencies and the media companies starting to now look into machine learning that didn’t exist four years ago or even two years ago. Suddenly, every media company and ad company is saying, well, you need to take a look at this. Even the Japanese ad companies are saying that which is quite fast for a Japanese enterprise. Now is where we actually are in a position to start to really work with these guys and start to take this to the next level.
Tim: Let’s talk a bit about Japan in general.
Tim: You took a really different path to founding your company than most entrepreneurs did. You self-spun out of a company. You negotiated for the IP and Japan has tremendous intellectual property. Japanese enterprises have always done fantastic fundamental research.
Sandeep: Absolutely. Yes.
Tim: So you see other people in Japan taking the same path you are or if not, do you think we’ll see more people spinning themselves out?
Sandeep: I would love to see more people do what I’ve done. The issue here is that first of all, the Japanese companies, they’re not very open on the patents that they have. It takes an insider sometimes to figure this out. The issue here is that if I’m entrepreneur X on the street, I cannot knock on an enterprise in Japan and say, give me the patents and I want to work. It can only happen if you’re an insider. I think instead of looking at entrepreneurs, the Japanese companies should look at intrapreneurs. They should educate and basically fund internal people to spin out.
Tim: So maybe go out of their way to have the intrapreneur say, hey, take a look at this patents.
Sandeep: That’s right. So if they can create internal processes to educate young people or even people that have been in the company for a longer time. They have a lot of data obviously and a lot of experience. If they can actually get them out, see them. See it a little bit. Let them loose and let them go survive and raise money from others. And then at any point of time, you have control to buy that back if that becomes a viable business. I encourage companies every time I meet companies and I encourage them to do it. But I have not seen anybody do it so far.
Tim: Really? So just talking about it?
Tim: You know, that Japanese universities have a similar problem. They have a lot of patents but they’re terrible at licensing it.
Sandeep: Right. Just my own experience working for Fuji Xerox, the patents that Fuji Xerox has even to this day is amazing. It’s not even the tip of the iceberg what I have.
Tim: Is the problem that people don’t know what patents they have or Fuji Xerox just doesn’t have a process or that they —
Sandeep: From my personal experience, I think where the issue here is that you have great technologies and then you have the business people that know how to monetize that. In my case, I got both. So the Japanese companies either have one or the other and they have to get them to a team. So this is what the Silicon Valley think about founder CEOs is a good thing.
Tim: Right, right. Because they can understand the patents and see the market value.
Sandeep: In my case, my business is not so deep compared to my technology. My technology is deeper. But the fact that I could understand some pieces of the business that I’m able to piggyback on that and try to look at different use cases and move that forward. And then plus the ability to raise funds which is very important. It’s an art by itself.
Tim: Yes. It’s exhausting.
Sandeep: It’s exhausting.
Tim: You mentioned before, all of your fundraising has been in Japan.
Tim: You’ve gotten a lot of Japanese media companies investors like Asahi.
Sandeep: Asahi Broadcasting.
Tim: Have the Japanese investors been more anxious to deploy the technology than, say, the Turner network?
Tim: No, they haven’t either? Is it the same problem?
Sandeep: It’s the same problem. It’s universal in the media companies. It’s the same problem. Both Docomo, Samsung, Asahi, they invested and they really, really wanted to deploy our technology internally. But they’re internal stakeholders and fiefdoms. That’s an issue. And then the second issue in Japan — rights. Rights is a big issue here. Just because somebody has broadcast right for a piece of content doesn’t mean that they have streaming media rights.
Tim: Even in Japan? I thought things were so silod here.
Sandeep: So once those rights issues are somehow cleared, then you will actually see an explosion in the market. So today, they struggle a lot in putting their content into YouTube. It is not an easy thing for them to do. They feel that their copyright will be infringed on. If you look at the content that they do put on YouTube, it’s a piece of content that’s so small, like two minutes, three minutes.
Tim: So really just baby steps.
Sandeep: Yes, baby steps. Right. They’re still researching whether to license their content to OTT platforms like Netflix. Look at Netflix. Netflix is having a tremendous amount of pain in Japan in acquiring local content.
Sandeep: Even that, this is not yet ready to let go of the content.
Tim: Amazing. It’s definitely improving. It just seems to be improving very slowly.
Sandeep: When it accelerates, it will accelerate quick as everything in Japan. There’s an inflection point and there’s — I think that change is coming because of the Olympics, because there’s going to be a lot of video activity in Japan in the next three years. So one of the issues is livestreaming of sports, right? I think all of that will change the market. Because if Japan doesn’t take care of its internet livestreaming before the Olympic happens, another country will.
Sandeep: So that will force, I think, to a certain extent, to open up and start to do things.
Tim: Excellent. Well, listen Sandeep, before we wrap up, I want to ask you what I call my magic wand question.
Tim: That is if I gave you a magic wand and I told you you could change one thing about Japan, anything at all; it’s education system, the way people think about risk the attitude towards startups, anything at all to make it better for startups in Japan, what would you change?
Sandeep: Risk capital.
Tim: Risk capital?
Tim: Just more of it?
Sandeep: No. More intelligent. Not spray and pray.
Tim: What do you mean? So example, like the fact that Japan, there’s so much corporate VC?
Sandeep: Yes. There’s a lot of corproate investors in Japan. There’s very few that take the lead. That’s number 1. Number 2, there is an eversion to investing tin foreign founders in Japan, and I have encountered that a lot here. I know that other foreign founders here in Japan have also encountered the same situation.
Tim: Yes. It’s very real. They’ll do it but you’ll get extra scrutiny. That’s for sure for that.
Sandeep: So I think I want to see more investments on foreign founders as well. That will hopefully mentor the local Japanese education system and start to really bring in the next level of founders.
Tim: Actually, getting back to the comments you made first about the smart money in Japan, I have noticed this, and one of the things I advise people who are looking to raise funds in Japan, probably only 1 in 10 funds are willing to lead around.
Sandeep: Yes. That’s true.
Tim: They’ll take meetings all day long but —
Sandeep: I think that’s going to change. That has to change. There should be more VCs that should take the lead. They should be taking micro shots. I’m not talking about investing millions of dollars. Seed the companies. I’d like to see, basically, large companies start to do this as well. If large companies start to do their intrapreneur thing that I was talking about, then, I think, the VC system will improve.
Tim: The only thing that ever changes VC behavior is fear of missing out, not getting into a deal.
Sandeep: Yes. See, that’s another issue that I see. That’s where the valuations go out of alignment in Japan.
Tim: Because everyone crowds into the same deals.
Sandeep: Crowds into that. I’ve noticed companies raising 10-20-30 million these days but everybody is crowding into it and upping the valuation. It hasn’t even seen the product market fit and it’s already gotten $10-15 million in investment. That’s why I said investing smartly. Grow the entrepreneur. Grow the ecosystem. Not one company or one founder, just grow the whole ecosystem.
Tim: So when you were out raising as a foreign founder, what sort of extra scrutiny did you feel? Did people just ask you directly? Are you going to have a Japanese co-founder? Why isn’t he presenting today?
Sandeep: Not necessarily so directly but they always wonder what are you doing here in Japan? Why are you not in Silicon Valley? What is your intention of doing this in Japan?
Tim: What did you tell them?
Sandeep: I always tell them, “Look, ideas can be seeded here. Silicon Valley is not a magical place where just because you raised money 5 miles from Sand Hill Road, you become successful. It doesn’t happen.” The success and failures of startups is universally the same. 9 in 10 startups fail. It has nothing to do with whether I’m close to Sand Hill Road or I’m in Tokyo. If I have a good product, it will survive. If I have persistence, it will go to the next level. That always convinces them actually, when I say that.
Tim: You successfully raised all your rounds and all your funding in Tokyo. So you obviously over those hurdles.
Sandeep: Well, I keep getting all those hurdles one step at a time. It continues.
Tim: Yes. So it’s just more due diligence.
Sandeep: More due diligence, yes.
Tim: But definitely possible?
Sandeep: Yes, definitely possible. I think I would say that it’s getting better because we raised enough money that there is critical mass and then we have a great product and we have access into other markets which starts to open up opportunities for us. So I’ll continue to raise money here in Japan. I will continue to raise money in the region for the mere fact that Silicon Valley doesn’t invest anywhere outside of the 10 mile Sand Hill Road radius.
Tim: They don’t have to. The world comes to them.
Tim: What advice would you have for foreign startup founders here in Japan who want to raise money?
Sandeep: Well, first of all, I think you need to have a very unique product. It doesn’t have to be technology. It could be consumer services. Anything that you do, it has to have the uniqueness. The most important part is it has to be global. You can’t take an idea that’s domestic and then juts work on that and expect to raise money.
Tim: That’s good advice in general, though. But you think Japanese investors are particularly —
Sandeep: If the validation of that idea doesn’t happen domestically, they don’t think there’s a market for it. Time and time again, I get asked to prove when I’m raising money, how is this going to work in Japan. I tell them, “Look, this is a global company. It is not just focused on Japan. It’s focused globally. Anywhere there is a market, we will chase it down. It doesn’t have to be in Japan. If it’s in Japan, it’s fantastic because we’re here.” That’s another hurdle that foreign entrepreneurs have to get past.
Tim: But in a sense though, when you’re saying no, it’s a global market. We live in a global economy. You’re turning your weakness of being a foreigner into a strength.
Sandeep: Absolutely. Because you’re basically applying yourself as a bridge from here to there. And then from there to here as well. And there’s opportunities there, lots and lots of opportunities when you actually start the bridging. Obviously today, in the last one year or so, we’re seeing a lot of cross border opportunities between India and Japan, for example, in the media space. There’s a lot of Indian media companies that have approached and saying how do we enter Japan. Can we do this to a Videogram platform? And it’s vice versa. We have Japanese companies approaching us and saying, “We have anime. It can be put on a platform and then can you just localize it into the Indian market?” That wouldn’t exist if I didn’t persist here for so long.
Tim: Or if you pitched yourself as a typical Japanese entrepreneur.
Sandeep: That’s right.
Tim: So go global.
Sandeep: Right. Go global from day 1. And when you decide to design your product, make sure that the design is scalable to all markets and raise funding on that and not on a very niche japan — I’m not saying that it doesn’t work if you have a niche product for Japan. But a niche product for Japan has probably less chance of success than a product that can be scaled outside Japan.
Tim: Well, listen, Sandeep, thanks so much for sitting down with me.
Sandeep: Thank you very much, yes. It was great. Thank you very much.
And we’re back.
You know, it’s interesting how some great ideas catch on right away. Some take years to be adopted and some never seem to work at all. We like to think that the march of technology is inevitable but there’s certainly a fair bit of luck and timing involved not only in startup success but in the success of any given technology as well.
Still, since there’s over 400 hours of video being uploaded to YouTube every single minute, it’s clear that we’re in desperate need of a better way to discover, share, and consume video. And Videogram has one of the best approaches I’ve ever seen to this problem. So if you haven’t seen these videos yet, you probably will soon.
As Sandeep and I discussed, it’s amazing to think about how much of what we consider to be innovative and breakthrough technologies that suddenly burst into the consumer and investor awareness are really the result of 20-30-40 years or longer of steady fairly predictable, continuous, and incremental innovation. So much of today’s VR and AR falls into that category. Don’t get me wrong.
It’s not that today’s innovators are not creative or that they don’t deserve the accolades and the recognition they received but it’s worth acknowledging that they are, in the words of Isaac Newton, standing on the shoulders of giants.
Sandeep’s problems getting a US visa as a founder is unfortunately a common one, and the US is one of the most difficult countries in this regard. Now, to be fair, Silicon Valley seems to have no trouble in attracting global talent and there’s no shortage of global founders who want to go there. But still, a lot of other countries are moving in the other direction and making it easier for foreign founders to move there. Singapore has made huge strides in this regard and so has Fukuoka and, to a lesser extent, Japan in general. They’re all becoming much more startup-friendly. However, as we discussed on the show, if you’re raising money as a foreign founder in Japan, you’d better have an international story.
Your global vision and your market understanding are the one area where you probably have a strong competitive advantage over your local competition. So be sure to sue it.
If you’ve got a story about creating or using video, Sandeep and I would love to hear from you. So come by DisruptingJapan.com/show106, and tell us about it. And when you drop by the site, you’ll see all the links and notes that Sandeep and I talked about and much, much more in the resources section of the post.
By the way, please feel free to get in touch and connect with Disrupting Japan on Twitter or Facebook or even drop in on our LinkedIn group. A quick search for Disrupting Japan on any of those platforms will take you right to us. I’d love to hear from you and we’ve a lot more information about Japan on the social sites and on our main website as well.
But most of all, thanks for listening and thank you letting people interested in Japanese startups know about the show.
I’m Tim Romero, and thanks for listening to Disrupting Japan.