Disrupting Japan is one year old, and ready to party. To celebrate , we gathered some of the leaders of Tokyo’s startup community together in front of a live audience, had a few drinks, and talked about the future of startups in Japan.
Our panel included perspectives from software, IOT, and venture capital, which naturally led to some interesting discussions.
- Matthew Romaine (@quanza) – CEO & Co-Founder of Gengo
- Hiro Maeda(@djtokyo) – VC, Co-creator of Open Network Labs and Beenos startup accelerators
- Hiroshi Asaeda (@asaeda ) – CEO & Founder of Beatrobo
We discuss the challenges and the advantages of working with an international staff, the financing situation in Japan, and discuss the future of startups, and startup founders, in Japan.
On a personal note, it’s hard to believe a whole year has gone by. Disrupting Japan has grown faster than I ever imagined it could. When the podcast launched last September, we had a total of 44 listeners the entire month — and I suspect I know every one of them personally.
Today, thousands of people from all over the world listen to each episode, and we are featured regularly in English language news and podcasts from all over the world. And starting this month, Disrupting Japan is being translated into Japanese and published in the Fuji Sankei newspaper.
I want to offer a communal thank you to everyone who has pitched in to make this project a success. There is no way I could have built this by myself. The real key, however, is the subject matter.
Japanese startups and Japanese startup founders are far more innovative and far more interesting than most in the West give them credit for. I look forward to continuing to bring you their stories.
Thanks for listening!
Show Notes for Startups
- The challenges and advantages of working with multi-cultural staff
- What value incubators provide and how to tell a good one from a bad one
- The most important differences between Silicon Vally and Japan
- How Japan can energize its startup community
- The three most important things for new founders
- What the future will look like for startups in Japan
Links from the Host
Transcript from Japan
Tim: Welcome to Disrupting Japan straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for coming out tonight. Man you guys are awesome.
Okay those of you at home or wherever you might be out in podcast-land have noticed that we’ve got something special for you tonight. We are recording live from Super Deluxe in Roppongi with some of the most innovative, creative people on the face of the planet which is the Tokyo Startup Community.
All right and before we get rolling with the podcast proper I would like to thank our media sponsor Gaijin Pot who helped a lot with the coordination and in so many other little ways I can’t even begin to count and to give a special shout out to Akihabara news who helped us get the word out and who’s doing the video and running around taking all kinds of pictures tonight. So a big thanks to everyone who helped out on this as well as guys. So… it’s not a proper one year anniversary or a proper podcast without a kanpai so please get your drinks ready and 一周年記念日にありがとうございます。乾杯！
Tim: Ah Tokyo ale, good stuff. All right, now I am going to introduce the panel here. I’d let them introduce themselves but two of them are far too modest to tell what they are really doing and one wouldn’t shut up about it, and you know who you are.
So to my left is Matt Romaine, co-founder and CEO of Gengo, Japan’s… no probably the world’s largest and leading software’s of service based Translation Company. Next is Hiroshi Asada of Beat Robo, an incredibly cool and innovative internet of things company which how I am going to explain this? It’s basically content delivery based on mobile… okay… for mobile accessories and you’ve worked with everyone from Lawson’s Convenience store to Linkin Park. And rounding out the panel with the VC perspective is Hiro Maeda who has been on the founding team of two of the most innovative incubators here in Japan both digital garages open network labs and Vinos inception program and now you’re on to bigger and better and more in control of your own fun things.
Hiro: We will find out soon.
Tim: All right. So let’s give a big hand to the panel.
Tim: Okay guys, now one of the things, we’ve all talked about this before, one of the biggest trends we’ve seen in japan within the startup community is the amount of foreign Japanese mixed teams. Both in engineering and in management and I want to get your thoughts and Matt let’s start with you because I know this is something very dear to you. I want to get your thoughts, is this just a trend, is this something that’s actually a competitive advantage? What do you think of it?
Matt: So first I want to say thanks everyone for coming and thanks Tim for that introduction I think that was great and congratulations of course on your first year anniversary.
Tim: Thanks so much.
Matt: So yeah, diverse multi-cultural teams I think it’s going to be around for a while, I think it’s a competitive advantage and I think, I don’t know how long it’s going to last but for right now there are some areas where international and multi-cultural environments can definitely be harness their competitive advantage from anything from recruiting to access to capital and—
Tim: Can you think of anything that is like a specific time where a problem was solved or it took you in a direction that you might not have thought otherwise if you had a standard American team in San Francisco or a typical Japanese team here in Japan?
Matt: So at least for the first one, so our engineering team is very international we have 12 engineers or so representing at least seven different nationalities. And, there was a period where we wanted to give the engineers a space to be more creative outside the office, and so a lot of engineering teams do things like the Hackathons. And so we mixed the Hackathon concept with a bit of a Japanese flavor and actually did it over at a Zen temple at KamaKura and we did it overnight in futon.
Matt: Yeah. And the food of course was fantastic and the next morning a bunch of the engineers had to wake up around 4:30 or 5:00 to do a little Za Zen and fuse a bit with the Japanese the culture and continue hacking.
Tim: Oh, excellent. Hiroshi, I know one of the things that you talked about was the difficulty in the very first foreign hire.
Hiroshi: Yes, so we haven’t hired as much foreigners, I don’t want to say that but–
Tim: I know it’s okay. We know what you mean.
Hiroshi: Because we started it as three Japanese founders so three co-founders. They were all Japanese they did not speak English and I was the only English speaker. But we still wanted to “go global” so this is still Japanese as well. but like my set was to think that you are like the same as any Silicon Valley company, it’s like thinking in the global way from the beginning and to make that happen and to think about that long term we needed to have like an international aspect. So we started speaking the English when we were all Japanese people.
Tim: Really before—
Hiroshi: And it’s like “can I speak in Japanese if it’s important?” Sorry people I didn’t mean it. So like, but we found out that the Japanese team were not scared of English after all, it was just having the moment to use, to find the moment to actually use it. And the first guy joined our company, actually made that happen, so every meeting turned to English, our today’s task reports turned to English, everybody started to read English blogs. So like things actually changed from the first guy.
Tim: So was the transition smooth or were people being driven absolutely crazy for the first couple of weeks?
Hiroshi: No, it’s a startup so they were like “we’ll do it.”
Tim: Got to love that about startups. Hiro you are involved with so many different companies and you’ve got a much more kind of top down impression on this. Is multi-cultural teams something that you look at as an investor as a positive, a negative or is something that is incidental to you?
Hiro: So first of all I think diversity is great and having different cultures getting together and different ethnicities getting together to do stuff together is great and it’s great for the country, it’s necessary for the country. But for startups to be honest diversity is not so great. The reason why is because when you are a startup with two or three girls or guys you have the need for speed. The only thing that is your competitive advantage is how fast you can execute things and how fast can you make decisions right. And so because of that unless like you know one of the co-founders or all the co-founders have international backgrounds where they have been immersed into very different cultures while they were young usually causes friction. If a very domestic guy and a very let’s say America guy gets together to start a company that usually causes friction usually it goes to a very intermediary solution and those kinds of things. And so you don’t want that. You want honesty, you want openness, you want quick decisions. And so for startups to be honest I don’t think it’s a great thing to have a very diverse startup team.
Tim: So that does make sense. So you are saying that if you’ve got a team that is very similar they are going to gel together faster as a team, they are going to execute better because they are more likely the think along the same way.
Hiro: Yeah, so you want complementary skills. So obviously the skill set should be complementary, the thought process should be complementary but you don’t want friction in the communication because of the different cultures, something that has nothing to do with the business right.
Hiro: So I am pro-diversity for the country, but anti-diversity for startups.
Tim: Okay. Is that ever something that factors directly into your or other investors decision making or is that kind of an incidental data point?
Hiro: It’s usually just incidental right because I know a lot of great startups that are successful with very diverse teams but you kind of have to be like Matt who has a very international background, you came from ASIJ right? And so very international background and so only people like them you know I forgot what your background is but like—
Hiro: But only people like you guys.
Tim: It’s pretty crazy frankly.
Hiroshi: Until thirteen.
Hiro: Lived in America until thirteen. So I think each of us has developed a sense of empathy in the fact that we can understand and read that friction and can work around it so that is important.
Tim: Okay. Let’s talk about fundraising because that is something that everybody asks me. In fact people tend to ask me way before they should about how to raise funding. Japan in the last five or six years have sort of been overrun by incubators and Angel investors and in America it’s even more crazy. So, Hiro I really want your input on what companies should be looking at incubators? What companies should be looking at Angels? Which companies should be bootstrapping? Where should someone start particularly with the accelerators?
Hiro: So you should start with whoever will give you money.
No to be very, very honest because—
Tim: So you were like a prostitute in a former life?
Hiro: No you are a prostitute when you get started right? You get all the help you want. No but obviously like because traditional VC’s they are not built to take risks.
Hiro: They are more like a model of looking for the next significant company and they would deploy as much capital as they can in that company. So they actually have the luxury to wait right. But on the other hand accelerators is a very good model because the model is based on taking risks. So usually accelerators invest in cohorts so like Y Combinator has 100 cohorts. There are 100 companies in a single cohort right now. And I bet like KDDI accelerators and Open Air Lab accelerator usually have 10 companies per cohort. So they usually when they think about investing they think about in batches, but in traditional VC’s we think about in individual companies so it’s very hard for us to take risks. But accelerator is built so that we can take risks. And so accelerator is good if you are looking for, basically if traditional VC’s won’t give you money accelerator is good.
Tim: Wait let me drill down on that because I think there is an interesting pattern forming here. So well there is two questions there. You are talking about first go to the VC’s and kind of work your way down to good accelerator than to bad accelerators. But if you have got an accelerator that’s got 100 companies in a single cohort do you think they can really add value to a founding team?
Hiro: Probably not, probably not. Because the value is more in the kind of network or their interaction with the other companies that are in the same cohort or maybe the group of companies that are part of that accelerator right or maybe even the network. So Matt’s Mentor for Open Air Lab and so having that access to mentors or other startups who’s been there done that could be valuable right. But, it’s really up to the startup on how they leverage that. So if you are very I guess passive on team advantage of accelerators then you are not going to take advantage of accelerators at all you are just going to take like 50 grand and that’s it right. So I know a lot of great founders who leverage the hell out of us. And so, and that’s very good. They ask for every intro, every connection and try to ask every question so if you are very proactive on that I think accelerator is a good thing.
Tim: Well everyone is saying that startups are the new MBA and it sounds a lot like the MBA where you don’t really learn anything of value from your instructors but the networking opportunities and what you can learn from your peers are phenomenal. And at least in the accelerators they are giving you money.
Hiro: But in the MBA they are giving you are degree right?
Tim: Yeah and you are giving them and awful lot of money. Well, Hiroshi you went through the Movida accelerator.
Tim: How did that affect you, your company? Did it accelerate it? Did you—
Hiroshi: I actually cheated on it.
Tim: Oh see it is like an MBA!
Hiroshi: There was like the first batch and you know you usually apply and do whatever right. Like you put, had in all these ideas and documents and stuff but we never did it.
Tim: What you just showed up?
Hiroshi: Yes, that’s what happened.
Tim: Showed up and claimed a desk.
Hiroshi: We are like “okay we’re getting an investment from this company, this VC, who is really strict in numbers so we need another side that supports us on passion. So I was like okay Taizo Son you never worked in a company and you lived here in the 40’s and your still like happy, I want somebody like you, like can we do something together? And that is how the thing started.
Tim: So was your experience similar or different from what Hiro is saying? Did you get most of the vantage from working withTaizo Son and the other mentors or was it more of a networking opportunity for you?
Hiroshi: The issue was that I was like the second batch ever so there was still no networks or people who or the senpai people. We needed to be one so I actually did two years later I was like the speaker there so like I feel like I got more because I was closer to the actual people like being very close to Dave McClure at the very beginning right. So that is why I was able to meet Taizo Son before he sold Puzzle & Dragons got really being. So like that part I got benefit but for the accelerator part not yet.
Tim: Okay, now Matt you didn’t go through an accelerator I am not sure if you’ve got anything to throw into this?
Matt: Yeah so we didn’t go through an accelerator where we received investment from Dave right before he was setting up his and I guess one of the key things that helped us was having a cheerleader and Dave was definitely our cheerleader and someone who has introduced us to the whole sort of space, introduced us to additional investors and so in some capacity that sort of mentorship we got just directly from him as he was forming his incubator.
Tim: Okay. So it was more of a traditional investor company relationship than an incubator program?
Tim: Okay, another question I want to throw out and this is really open ended, it’s one that used to annoy me but people just won’t stop asking and I’ve come around to realize it’s actually a pretty good question. And so everyone is asking what the main difference is, what are the important differences between the startup ecosystem in Tokyo and with the very successful startup ecosystems in San Francisco, Silicon Valley. And we can make a list that is almost infinite but I want to ping you guys and see what you think is the most important? What one could learn from the other. Mistakes that the other can avoid? Hiro can you take a shot at that one?
Hiro: There is a lot of differences; there is a crap load of it. But I think… so taking it a little bit back more to the investing side. So I think essentially what is causing the difference is competition so just to put things into scale is the venture capital spending this year is going to be 70 billion dollars but amount of venture cap—
Tim: In the US.
Hiro: In the US, if that was in Japan that would be crazy. But if in Japan it is about 1.1 billion right. And so there is nearly 70x difference for two countries for the GDP in like 4x or 5x difference. And so competition is the ultimate drive of the differences and because of that there is no urgency especially the investing side there is no urgency because there is no competition. So we don’t have to work hard to basically you know—
Tim: You are talking about competition are you talking about competition deal flow or are you talking about competition of different startups for money?
Hiro: So when there is no competition among them between the investor for deal flow that means there is no urgency to make decision, there is no urgency to be different or to add value basically. So you can be a non-value add investor and get good deal flow right if you are in japan don’t quote me on that. And then, but also on the startup side if there is no competition amongst each other or even for either building business or getting investor money then there is no, this kind of urgency to try to grow, or this urgency to try an become better faster, so it’s both sides that kind of driving I think the difference with the ecosystem.
Tim: One of the biggest differences I have noticed between San Francisco and Tokyo or even San Francisco and say New York is the speed at which investors in San Francisco will make a decision. So do you think that is cultural or is that just a result of the dynamics you are talking about now, the completion among them?
Hiro: Definitely competition because I make a decision whenever I invest in a US company within 48 hours, but when I invest in a Japanese company I can wait for weeks and I actually do that.
Tim: Now I have long thought investors will take as much time until someone finally forces them over the cliff.
Hiro: Exactly right so competition drives a lot of our thought process on how we actually you know do stuff right and it’s the truth.
Matt: So different funds are organized differently and structured differently and Hiro obviously you can be a sole decision maker. There is a lot of corporate and venture capital funds out there where you need to have this process after process of getting approvals before you know a target, before a company can actually be invested in. And so initially I thought it was more cultural but having thought about it a bit more I think definitely the competition is a huge drive because there is definitely cases of venture capital that has been deployed within weeks if the decision maker realize that they can’t get in then they are going to use the opportunities.
Tim: Here in Japan?
Tim: Are we talking about your most recent round?
Matt: I was thinking of some other rounds but yeah.
Tim: Okay. Hiroshi I know you don’t spend a lot of time in San Francisco but you think about it an awful lot.
Hiroshi: I don’t have a visa so…
I need to be a tourist to go to San Francisco but it’s true. So I actually don’t know the San Francisco culture but I think there is an advantage to do something in Japan meaning about the population and about Tokyo. Like Suika Card will probably take years or even more to work in the US, but in Japan it just worked in like a year or two and now everybody is using it. If you are thinking of doing any service like that I think it’s better to do it in Japan, I mean Tokyo. But, yeah for about the startup culture that’s the only thing I can say for now because I don’t know.
Tim: Well I think that—
Hiroshi: I only know it in like blogs.
Tim: Well this is one of the things, its similar to kind of my opinion on it because my take on it is that it’s find to look at all the differences but the last thing that Tokyo or Japan should be trying to do is make itself like Silicon Valley. That was a one time in history event that just kind of happened and they couldn’t do it again if they had to. And, I firmly believe that Japan is going to kind of find their own way you know through this and it will be different, but each year is better than the one before. Now the question, like I said I get tired of getting asked that, the question that I wish people would ask me but nobody ever does so I am going to ask these three guys. Is, the real secret to creating a steady stream of innovative startups is having a dynamic and supportive community which we definitely are seeing the seeds of right in this room. It is great to see you guys. But what I want to ask you guys is, what can we do as individuals in the community now as investors, as founders to improve the startup community here in Japan and if someone wants to get more involved what should they be doing? Matt.
Matt: Well so, compared to five, six years ago when we first launched I think there was maybe one incubator that I remember that existed at that time now it seems like there is over 20 or so and there is a lot of events going on now. You’ve got the weekend hackathon, startup weekend events, innovation, we’ve got, hacker news met ups going on. And so and then you have these incubators themselves are now; well the companies are now setting up incubators and then doing their events there as well. So participating in that is a definitely key part of it.
Tim: So just signup for whatever looks interesting and keep trying until you fit in.
Matt: If you want to get involved yeah. I mean you got to start by understanding the participants and who’s involved.
Tim: Cool, Hiroshi.
Hiroshi: I think what’s important is to like be able to find who’s similar with you meaning, for example I always look for a person who has never worked in a company because I have that. I started my own company when I was 22, I was in graduate school and I am 32 now and I have never worked in the company I have been CEO my whole life. So—
Tim: How hard is it in Tokyo to find people who never worked for a proper company?
Hiroshi: Well go to an accelerator and maybe you’ll find a 22 year old saying “I want to do my own startup” and you know I can actually believe him because I am still living. Right?
Tim: Right, you are not dead yet.
Hiroshi: I think it’s the other way around to, like the point is to find somebody that is similar to how you want to live. So who I respect today is Taizo Son, he started Yahoo Japan in his 20 whatever and he still never worked in a company probably. And I also like Sanada-san from K Lab. He started his company, he made his company, he had his company go public twice and he’s also never worked in a company he has been CEO his whole life. So that’s who I respect. If I see another 20 year old somebody I believe this guy would never work in a company and will still be successful. But usually if you meet the wrong person they will be like “oh you should work for three years and understand how you feel hired. Understand bad management and then you can hire somebody else.”
Hiro: That is usually the advice I give.
Tim: I was going to say that sounds exactly like Hiro was recommending earlier about seeking out people who are similar to you and that will make your life a whole lot easier. Hiro what are your thoughts on it?
Hiro: So I actually have a theory that I haven’t validating yet but I’d like to share. So I think a lot of the internet or the entrepreneurship, or the internet entrepreneurship in Silicon Valley was driven by scientists right. And so some scientist found the internet you know they thought it would be interesting to have TCP IP be connected everywhere else and communicate with each other. And then there is a company like Silicon graphics and the guy from Silicon Graphics built Netscape and then the guys from Netscape built PayPal and those kinds of things. So it was very driven by kind of scientists. And scientists kind of have this—so I was a computer scientist when I was in college and we have a very collaborative kind of DNA. So we are all about collaborating for the greater good so things get better so that you know, and you know open source came from a the scientist right. So we are very collaborative and they like to pay it forward a lot.
And my theory is that the Japanese ecosystem or the Japanese entrepreneurship is actually driven by businessmen. So some guy found out there is this thing called the internet in Silicon Valley and they decide oh this could be something good to distribute ads or something so let’s build a website and so that kind of drive, the internet entrepreneurship ecosystem in japan and so it is very business-ish or whatever the word, the stance is. So it’s very secretive, non-collaborative, it’s all about having arbitrary knowledge and that kind of thing. And so, in order to kind of have, not similar but like a more, a stronger ecosystem in Japan I think everyone just has to pay it forward a little right or be more collaborative.
So I think anyone who has some good knowledge to share should spend some time to pay it forward. And what I do activity is I have these open office hours that anyone can apply on in my blog and I spend about 2 and a half hours per week with just like nobody like it’s just getting started but unfortunately I can only accept 20% of the applicants and I usually pick the ones that I can help most right. So if everyone does that like gives that 2.5 hours of their time to help someone else then I feel like it’s going to become all and all a better ecosystem. So I think people should just pay it forward.
Tim: All right. That’s fantastic. Well listen I’ve got just a couple more questions here, but one I want to ask each of you what is the best or the most important advice you can give someone who is just starting a company right now here in Tokyo? What would you give them? Hiroshi why don’t you start this off.
Hiroshi: Okay… it’s about not quitting. You never lose until you stop or quit. So, if you believe in something just keep on doing it and people you know, honest enough people will like you and you’ll be happy.
Tim: What if you run out of money?
Hiroshi: Well work at a company whatever. If you want to do something working at a company is nothing. Like if you want to be a famous band those guys actually work at a company.
Tim: Yeah most of them do.
Hiroshi: It’s, yeah somebody said a startup is like a rock band, everybody knows the famous rock bands but there is like a million other rock bands that were never famous. But they like invest everything. But you need to believe that you could be that famous rock band right.
Tim: That’s fantastic advice.
Hiroshi: Or else it will never happen.
Hiroshi: So don’t quit.
Hiroshi: I am still not successful.
Tim: I think you are doing pretty good.
Hiroshi: Like this guy is famous, this guy is famous like…
Tim: You are doing pretty well.
Hiroshi: I will try to like join this group someday, be equal, whatever.
Tim: So, he was obviously one of the two too humble to—
Hiroshi: Don’t quit that is my advice I should say.
Matt: So there is, let’s see there is the clique you know doing a startup is kind of a marathon and acknowledging that an if you’re not massively athletic but if you are familiar with running and interval training you know that if you want to extend the distance that you can run you do interval training you run very quickly for short bursts and sort of push your limits. So thinking of a startup that way, recognizing that you are going to have cycles and good days and bad days and it’s going to, that’s why it’s also called a roller coaster and just acknowledging that and you know tomorrow is just going to be another day to fight strong and to make it through. But the other one that I think is pretty key that maybe I don’t hear as much is finding cheerleader. Finding someone who is not working with you one like a co-founder or like a daily bases but finding someone who can be more of a mentor and just be a sanity check because there is going to be some tough times.
Tim: Okay, fantastic. Hiro.
Hiro: So it’s very similar to the two advices but keep your burn rate low, right? Your personal burn rate low and its actually quite liberating when you find out that you don’t need that much money to live right? It’s very liberating. And so you don’t need that apartment in Nishi-Azabu and just live in somewhere like Gotanda or something. Not to dis Gotanda but like they have really nice cheap apartments in that area.
Tim: So you are still single?
Hiro: Yeah I am. No but like, but I mean you can keep burn rates low even if you are married it’s just a little bit higher burn rate but you can still keep your burn rates low right and you just have to convince your wife not to spend too much money.
Hiro: He’s not happy. I made someone’s wife mad.
Tim: That is clearly someone who is married
Hiro: I think that was from my future wife. But no it’s very liberating right and so if once you find out that you have very low personal burn rate and that you won’t die then you can do anything. And the great thing about Japan is you can get really good food really cheaply right and like you know it’s healthy to, and life if you go to Singapore or even US everything is like greased up and everything so. So yeah—
Tim: You stay healthy on a budget.
Hiro: Yeah stay healthy on a budget. You know keep your personal burn rate low so that you can do the marathon and not give up on your dreams you know.
Tim: All right, there we go. Well listen I’ve got one last question before we open it up for Q & A there is a mic stand over there so anyone that wants to ask a question can que up. But I am going to ask you guys to kind of polish off your crystal balls here and tell us what you think Japan and particularly the Japanese start up ecosystem is going to look like five to ten years from now. Matt why don’t you take a stab at it.
Matt: Well I don’t know what it’s going to be like but I know what I kind of hope for. It ties in a little bit with what Hiro was saying earlier about paying it forward. I do hope that the successes as they come out, most of you guys as well over the next five to ten years start to feedback, feed the capital back in and continue to support the ecosystem and I think that’s one of the big drivers in the Bay Area that we kind of miss right now. A lot of them, it’s more anecdotal but I think there has been a couple of very successful exits in Japan and the individuals end up moving to the Bay Area because they want to challenge themselves over there as opposed to giving back to Japan.
Tim: Okay, Hiroshi.
Hiroshi: I feel like all three of us are going to say the like the same thing. So I was trying to say something different but I couldn’t come up with one. So ten years I wish to be an angel investor.
Tim: All right.
Hiroshi: Meaning I am still doing my own business and still an investor. I don’t want to be an investor only thing yet. Yeah which means to support the community, to understand, to be the person to understand the new guy who wants to be like us now ten years later.
Tim: So do you think that, so a lot of us here on stage and in the audience are deeply involved in the startup community already but it isn’t main stream right now. Do you see it becoming more mainstream where parents will not completely freak out if their new grandchild says I want to start a company?
Hiroshi: Well so if we become parents. At least I can understand if I have a kid right. I think that things will change people will understand more technology right. We know that babies can play with the I-pad right? Like three year olds can like launch and play a game and do anything by themselves.
Tim: Excellent. Hiro what do you think it’s going to look like?
Hiro: What is it going to look like…?
Tim: We going to have more competition for deal flow here?
Hiro: It’s going to grow, it’s definitely going to grow but like I said competition is the drive for more growth right. And so I think it’s going to be a quite modest growth for the next five, ten years to be very honest. And so, I think we, it will be almost a miracle if 3x our venture capital spending in five years if we can. And… but I hope that happens. But I think it will grow, it will grow modestly.
Tim: Well 3x in five years is pretty quick growth by normal standards.
Hiro: By normal standards that’s why it’s called a miracle, but yeah so I think, but I think what’s going to happen is there is going to be more and more of these kind of people like Matt, people like Hiroshi who have this exposer to many different cultures kind of like transferring their perspective to other entrepreneurs which I think would cause this chain reaction of people who kind of want to pay it forward people who want to understand what’s going on you know. As a whole we will become a little bit more advanced or the bottom will go much higher a decade down the road yeah.
Tim: So it sounds like you are seeing a lot of the current trends continuing in a very steady and orderly manner. A very Japanese approach to startup growth.
Tim: Okay. Excellent. Well listen, let’s give our three panelists a huge hand because I think you guys did great.
And I’d like to open it up to questions for anyone who has anything at all to ask to any of us. You have a, actually just hand him a mic if you—
Question 1: You spoke about how scientists drove innovation in the Bay Area.
Hiro: I haven’t validated it yet.
Question 1: You haven’t validated it but I think there is some realism in that statement and Japanese research is a very well know and strong industry driven by great schools. But most often we see small companies that get started out of the best research in Japan get swallowed up by the Mitsubishis and zaibatsu of this country. So how can we encourage great countries in the robotics industry, in the genetic industry to arise from those schools and become the next big company of Japan?
Hiro: So I am not the right person to answer this question. A lot of it has to do with how IP is protected with whatever is developing at research institutions so like I think a lot of the ownership goes to universities which is very hard and gets locked up in in situations like that or whoever sponsors the research. And so I think in order to break out and have these ideas break out of these labs is to figure out how the IP transfer works or make it more liberal or like how Stanford did it with Google right? And so they just took some equity from the company and that equity is worth like billions of dollars. So that was the status a couple of years ago when I heard that so I don’t know what their status is right now, I know there is some incentives that are trying to change that so I am hoping that it has evolved yeah.
Tim: I will throw a comment on top of that. I agree that sorting out the IP licensing that the universities do is a huge priority but another thing that is really going to help is that a lot of Japanese companies now are looking to global markets where it’s not just shopping and idea to three potential buyers all of who have no incentive to jump on an idea quickly. If you go to the global market it puts pressure on these domestic companies to act faster and to take risks on new technology as well.
Any other questions? Yeah?
Question 2: Ah thank you so much it was a very interesting speech. I know that progress is slow and you have to take time and it evolves and it’s a cycle about creating a system and everything but if you had to do something right now to really spike the startup ecosystem what would be that one thing that you would do?
Hiro: Okay I will take a stab at it. So if I had the magic wand and could do anything I wanted to do?
Question 2: Well not magic wand.
Hiro: No magic wand?
Question 2: If this was like your goal, like you have six months from now to really spike out the startup system what can you do?
Hiro: Other than bribing politicians?
Question 2: Yes.
Hiro: So I think what needs to really happen is some incentives that would attract more and more talent and more and more money into this country right. And so, I mean if I can’t bribe a politician I don’t know what I can do. But like I think Singapore is a very wonderful kind of case because they had all these tax incentives. They attracted a lot of talent and basically PE funds and Hedge funds to basically set up base in Singapore. They also even subsidize whenever you hire someone locally right and those kinds of things. They made it extremely attractive for a lot of foreign companies to come into Singapore and set up shop there and I think Japan should do the same.
Matt: But do you not think there is not enough capital already in Japan?
Hiro: There is enough capital but there is not enough capital that is unlocked. There is a lot of capital that is sitting in these large corporations right and like we are sitting in Trillions of dollars right and so, and it’s hard, –there is a lot of factors as why this is happening it’s just because that is how larger corporations kind of function right now is to try and generate a lot of profit and just sit on it. And so rather than re-investing into the ecosystem or they’d rather they should put it into RND or something. So those things should happen but I don’t know it’s pretty hard to do in six months to a year but yeah.
Tim: Well I will give something for the grass roots. I think one of the most important things that you can do to support the startup ecosystem is to have startups work with each other. This is something that is starting to change but the more startups try to work with other startups rather than with large corporation contenders the more people will get used to this fast paced dynamic, startups get much better feedback than large corporations. So I would say the best thing that could be done quickly is to encourage startups to work with each other as much as possible.
Matt: I think if you can influence policy pretty quickly then it’s probably one of the fastest ways and one might be to yeah incentive corporations. There is probably also just a hesitant and risk adverse work force aspect where if there is a way to create a sense of, ironically to create a sense of safety amongst a young you know creative work force that it’s okay for like a year to just go do whatever you want to go and you know at least look for an idea that you want to sort of build upon and have a safety net and I think that might actually inspire a lot more ideas to fruit.
Hiroshi: I would make a fund that invests $10,000 to every startup that is made by a high school student. Like I will invest in all of it. And that could probably change something in six months.
Tim: We would get some interesting startups out of it.
Hiroshi: At least there will be like five cool ones that are actually better than any old startup.
Tim: That’s true.
Hiroshi: So, that’s what I would do.
Tim: Excellent. Great thanks guys. Next question? Here we go.
Question 3: Hi there I am from San Francisco and Taiwan and I think this is a fantastic event, good energy, great panelists.
Tim: Thanks for coming out and joining us.
Question 3: Yeah, so I travel a lot through different ecosystems actually right now about 90% of my time and I keep hearing the question of like how can we copy Silicon Valley and I think it’s great that you guys on the front mentioned you don’t want to copy Silicon Valley. So my question is like in Taiwan we did soul searching a few years ago and said it’s a hardware country right, let’s just do more in hardware. So what is Japan’s soul searching and where are some of these, you mentioned it, you alluded to it it’s a lot of research, a lot of IP. Where does that sit? Where are the startups outside of I-pad and apps and all the general stuff and copy stuff, where is the real like nitty gritty hardcore research startup, bio tech, nanotech? Where are they? And is there a chance for Japan?
Tim: That is a deep question. I can jump on that. Do you want to do that? All right. I think that part of it is that you can find little niches around but quite honestly I think in Japan I mean if you look at and I always say don’t copy Silicon Valley but in this case. We were talking about the pay it forward mindset and Silicon Valley has seen maybe seven, eight generations of successful entrepreneurs funding and mentoring the next generation and iterating on that. Japan right now is only in its first iteration. Right now we are really seeing, for the first time a lot of successful entrepreneurs are investing and mentoring new startups. On the software side we are really on the first iteration. If you look at what is happening on some of the internet of things type companies there is interesting stuff, there is like the seeds of something very interesting happening there but you’ve got a lot of people who have worked for 30 years in Sharp or Sony or Panasonic with real work production sourcing, QA experience that are leaving to join startups and so I am thinking we might see some really interesting stuff coming out of there. But, man it’s too early to tell. Step by step.
Question 3: Thank you.
Tim: Do you guys want to layer something on top of that?
Matt: When I think of Japanese ingenuity I love Wash lets. So that’s a space I am very excited in.
Hiroshi: I believe in what do you call it, the powered suit, the robot thing?
Hiro: Oh cyber guy.
Hiroshi: I feel like Japan will be really strong in the next 30 years using that because everybody else is going to be old around the world.
Tim: Solved the problem.
Hiro: I think one area I am really excited about is virtual reality right and the reason why is because we are so, Japanese culture. I don’t want to generalize but we are so into being kind of in a different fantasy world like that is why we have all these manga and like all these hentai going on right? And so like I think once if Oculus Rift of whatever virtual reality platform becomes quite dominate with like 30,000 units distributed or something like that I think it’s going to unload a bunch of you know, Not a bunch hentai. Anyway—
Tim: No, no that to I think.
Hiro: It’s going to unload you know a bunch of creativity right. And so I think actually and you know there will be a lot of interesting startups. That is why we have various powerful gaming companies because I don’t know what it is we just kind of want to be in a different world or something.
Hiroshi: Do you remember I was doing Second Life?
Hiro: Oh yeah, yeah. Yeah you did it at the wrong time.
Hiroshi: I did it in 2006.
Hiro: So that was the wrong time.
Hiroshi: Yeah. But now I see this world of about this Oculus Rift and Second Life being together and Second life is now like PlayStation Two level people can make it at any time that’s like the next internet and I still believe it. It’s been ten years but.
Tim: But I think there is this thing, we all, okay me more than most perhaps have a habit of poking fun at the anime and the manga and some of the stuff that is let’s say the further out there type of projects. But the fact is that even if you know 99% of them don’t go anywhere there is going to be 1% that is truly ground breaking and interesting and innovative and that makes the rest of it worth it right.
Question 3: Thanks so much.
Tim: Okay I think we’ve got time for maybe two more.
Question 4: Hey guys thank you so much for tonight. I will try to keep my answer very simple. My name is Warren Flykes and I run a startup called Qucci. The elephant in the room which is language. I met a lot of Japanese startups that the founders don’t speak a lick of English and then their websites and services go up and they are all in Japanese and there is a lot of talk about Japanese startups going global and being international companies. But then at the same time there is not anything in English on their websites. And vice versa when it comes to investment from VC, it’s like Hiro when it comes to integration teams you said anti-diversity so you know a guy who is American or Canadian and comes to Japan and wants to change the ecosystem and make it more global and international comes here and finds a Japanese dude that has the same vision that he has and then to kind of get ignored and looked over by most of the VC’s here because there is no way a Japanese VC guy is going to give a non-Japanese guy any money. So my question to you is that those two factors in play how does Japan’s ecosystem change given that a majority of the founders here are not really acting very global and then the VC’s here aren’t really investing in any of the international people who come here?
Tim: Hiro I know you are dying to dive on this one.
Hiro: It’s tough right to be very, very honest it’s really tough because as a startup you are, you don’t have much resources to work with right and so you want to do everything you can to speed things up. That’s why diversity is not good but same thing as when you address markets right? So as a startup do you want to address a market that you are not even close proximity with you know? So like you probably don’t want to do that, you probably want to address the market that you understand most where you can speak the language, understand the language and those kinds of things so. Strategically it makes sense for a lot of Japanese or domestic startups to first startup with Japan and their lack of speaking English is definitely a huge friction of going global and I think it’s going to be tough. We need some more Matt’s—
Tim: Who are some success cases that started out in Japanese and went global? Rakuten?
Hiro: Well it depends on how you define global.
Tim: Yeah, well they are definitely outside of Japan. Okay we are not going to beat up on Rakuten.
Hiroshi: Is Densu global?
Tim: I wouldn’t say they were a startup even from their inception.
Hiro: But the same goes to VC’s right. So as founders like okay some guy from Canada comes here and tries to do something and how much Japanese do you understand or how much of the culture do you understand? Will you be able to understand the nuances or what’s and what’s not and those kinds of things. Especially for consumer technology those are very important, even in business development you are at a disadvantage right. So as a VC we have fiduciary responsibilities of basically maximizing returns. If you think of it that way then we would rather place a bet on a guy who understands the market the most than the guy who is coming in. To be honest it’s tough and I think the driver of the change, so the drive is always going to be the exception right? And so when we find that one company, –there is going to be a few exceptional companies that is going to be able to you know as a Japanese be a successful entrepreneur in the US. I mean we are seeing that already right? Or as a US or as a foreigner being successful in Japan and we are seeing that in China already. And so like there is always going to be exceptions and those exceptions are going to be the drivers I believe. And so I think all we have to do is keep funding, keep funding whatever we think are good entrepreneurs are and hopefully one of those become an exception that would drive these changes basically.
Tim: And I will say that one thing, I question one of your assumptions in that my first company here in Japan Vanguard back in 1998 I spoke pretty horrible Japanese’s at the time. I had a mixed team of foreigner and Japanese an I raised funds, I made sales. So believe me it can be done people can do it. Japanese VC’s are quite willing to fund foreigners here in Japan if they are convinced they can execute.
Matt: There is that and if they are convinced that they are committed. And I think there is an element of transience that foreigners just sort of have being in Japan, I mean how committed are they to really slog in through and get through the difficult times in Japan and there is a concern, I can imagine there is a concern by investors where okay when it gets really tough how do I know you are not just going to pack up and go? And they are pretty sure the Japanese probably won’t because where are they going to go right? They are already here in their home country. But if a foreigner tries to raise money and execute in Japan and it’s gets really tough. So there is ways, you have to think about how you are going to experts and convince the investor that you really are committed. You know are you studying Japanese? Are you going out and selling to Japanese customers even if your Japanese isn’t that great? There is different ways we can express that. And once you have convinced them I think it gets a bit easier.
Tim: Okay, we’ve got one last question and we are going to wrap it up for drinks and networking.
Question 5: Yeah thank you. It’s an outstanding panel and questions so thank you very much.
Tim: Thank you.
Question 5: I also spend time between Silicon Valley and Tokyo. I had one comment on the different between Silicon Valley and Tokyo and I think is the fact that the business cases in Silicon Valley are much simpler. They are able to articulate the gap in the market much quicker and without a lot of you know PowerPoint slides following that and that leads also to an ability to pivot to new markets when the first idea did not work out and I think that is something we could take as best practice here to be faster.
Tim: Why do you think that is? Is it strictly a matter of education? Why do you think it is?
Question 5: I think it is detrimental to be as thorough as Japanese are.
Tim: As thorough?
Question 5: Yeah. Japanese really love thoroughness and completing things and explaining it in great detail.
Tim: I think that’s true and I am seeing a lot of nodding from the panel here. I think that’s dead on. Do you guys have anything to add?
Hiro: I don’t get what the question is sorry.
Tim: It was more of a statement.
Question 5: I know I have a question but I am getting to my question.
Tim: Oh you’re getting to your question. Sorry let’s get to the question so we can get to the drinks.
Question 5: My question is what do you think about women entrepreneurship in Japan and what can we do to encourage that?
Tim: Great question. Strange Segway.
Matt you got thoughts? Who wants to jump on this one?
Hiroshi: Just do it.
Hiro: I don’t even know what’s wrong with—
Tim: Maybe it helps as a westerner in Japan it’s easier to see but I do think entrepreneurship opens up an channel and an opportunity for a lot of women who can bypass a lot of the corporate hierarchies that have been in place. The women that have been on the show have been every bit as tough as their male counterparts. So I think that women are going to be perhaps even over represented in Japanese startup founders. Guys what do you think?
Matt: It reminds me of, I believe there is even an incubator or at least a work space that has a playroom for kids and toddlers to help encourage, I forget what it’s called but it’s over in-
Tim: Osaka Hub? That’s right.
Matt: Yeah Uso’s Place. Yeah exactly so there is an awareness that there is this need and there is growing facility for it so.
Hiro: So I think part of being an entrepreneur requires some stupid-ness right.
Tim: So where are you going with this?
Hiro: Because it’s kind of stupid to build a rocket right or to send it to Mars and its’ kind of stupid to be like let’s figure out a way to remittent money through this PDA thing. It’s almost like it requires a little dumbness but curiosity right. I think women in general…. Okay this is a very wrong way to start but like—
Everyone is giving me like “no don’t go there” no but women in general are much smarter than men to be honest, are much smarter than men—
Tim: Nice recovery!
Hiro: No, no. no right, I think there is some study right like that some women on average have 20% higher IQ than men and it’s true because you need some stupidity to become an entrepreneur and there are a lot of great CEO’s who are women. Sheryl Sandburg, you know Merissa Mayer they are very great as operators right that is why I feel like women as CEO or women as CEO will do much better than men as CEO’s. I feel like that might be the best way to get them involved into this entrepreneurship movement is to get them as CEO’s actually. Yeah I don’t know where I was going but yeah.
Tim: Do you think we are all going to see more women in entrepreneurship? More women starting companies here in Japan in the years to come?
Hiro: I think in general yeah because—
Tim: Well listen guys. Let’s give our panel a huge hand.
And thanks for coming out. And I want to thank all of you for coming out tonight I really appreciate it. It’s a joy to have you here I look forward to talking with you all over drinks. Thank you so much.