The startup ecosystems in America and Europe are built around people like Ikuo, but men like him are still quite rare in Japan. After founding a series of successful (and a few less than successful) startups, Ikuo moved to the other side of the table and begin investing and mentoring.

Japanese venture capital firms are still dominated by bankers and MBAs, but the situation is starting to change as more and more successful Japanese entrepreneurs begin investing in the next generation of Japanese startups.

Show Notes

  • Who are the new Japanese angel investors, and why they are important
  • How Japanese attitudes towards failure are beginning to change
  • New hiring patterns for startup employees and founders in Japan
  • Why insiders are optimistic about the future of Japanese startups
  • Why venture capital funds should be run like startup ventures
  • Osaka’s unique startup challenges and solutions

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Transcript

Welcome to disrupting Japan straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for listening.

Today we sit down with Ikuo Hiraishi of Sunbridge Global Ventures and quite a few companies before that. Ikuo is a successful serial entrepreneur here in Tokyo whose begun investing and mentoring the next generation of Japanese startups. Now, people like Ikuo are commonplace all over Europe and America. In fact, really the entire startup ecosystem is based on people like this; however they are still relatively rare here in Japan so his insights are really quite interesting. Ikuo has recently published a book on the importance of failure and will talk a bit about the changing Japanese attitudes towards failure both among startups and society in general. We talk about the changing nature of startups in Japan, how the job market for startups has changed in Japan and some unique perspectives on what’s going on in Osaka. I hope you enjoy it.

Tim: So, Ikuo, I’m really glad to have you here.

Ikuo: Uh huh. My pleasure likewise.

Tim: Thank you. You are a bit of a very unusual creature in the Tokyo startup ecosystem in that you have been a very successful entrepreneur.

Ikuo: Thank you.

Tim: And you are now running Sunbridge Global Ventures as a VC.

Ikuo: Uh huh.

Tim: You were an early member Webcrew which IPO’d successfully.

Ikuo: Uh huh. Yeah.

Tim: You started Interscope.

Ikuo: Uh huh.

Tim: Which was acquired by Yahoo.

Ikuo: Yeah.

Tim: And you have had some other ventures as well that didn’t turn out quite as successfully.

Ikuo: Actually I screwed up.

Tim: Okay, well, lord knows I’ve done that. Let’s talk about your perspective as the Venture Capital seen here in Tokyo.

Ikuo: Uh huh.

Tim: Because I think you have a unique one in that you can really see it from both sides.

Ikuo: Uh huh.

Tim: What is the biggest difference between say VCs here in Japan and accelerators here in Japan and what we find in Silicon Valley or London or overseas.

Ikuo: I see, it’s a really good but difficult question. First of all, in general, VC is not really matured. Of course it was started from sometime in the 1970s, but at the time, the VC for example, Jafco, they were established as a subsidiary of the _____ company, so a subsidiary over a big corporation.

Tim: So were they mostly focused on late stage companies as industrial companies?

Ikuo: Right and also those people have not of course not being as entrepreneur so they have not understood what kind of people entrepreneurs are or what kind of organization seed or early stage setups are.

Tim: Back then, you were on the other side of the table, you were a startup looking for money.

Ikuo: Right, right.

Tim: So, what was it like? Did they just simply not understand the whole concept of small companies or were they just trying hard but applying the wrong tools, what was it like back then?

Ikuo: At the time, to be honest with you, I didn’t think anything about their financing from the Venture Capital because I was running my very small company only with myself capital so I was afraid to let somebody into my company as a shareholder so sometimes I would be kicked off, kicked out. At the time, there were lots of, not lots of, but anyway, angel investors.

Tim: Right.

Ikuo: Who, of course, had no knowledge about the internet. Recently, nowadays, there are lots of angel investors who have experienced or who succeeded his or her own setup so seed money with such experiences and also our network around the internet business so those aspects are really different, that is one of the most different things you know compared to around the year 2000 and thereafter 2010.

Tim: Well this this is a topic that that you have talked about a lot. The importance of having the startup community in Japan led by founders rather than VCs. Are there a lot of angel investors that are former that that got their money from their own startups that are coming at it from a founders’ perspective rather than a finance perspective?

Ikuo: Right, so before, we had angel investors who were rich families with doctors, lawyers or a family-owned small and medium enterprise or management owner so of course, they had no idea what internet was or is.

Tim: Right.

Ikuo: But now, as you just mentioned, there are lots of millionaires and you know some billionaires who made his or her setup successful, so they can invest in a quick decision.

Tim: Do you think that trend is going to continue?

Ikuo: Um, I think it’s going to be continued because their IPO market in Japan is now getting back and they are really positive and the Tokyo Stock Exchange Market opened their window to their newcomers.

Tim: So they relaxed their listing requirements.

Ikuo: Yes.

Tim: Okay.

Ikuo: Lots of this is, who had no policy or philosophy and are gone, so that VCs now existing has some specific position or know how or track records, VCs were kind of screened out for the last 10 or 12 years. So the VCs now they have some kind, anyway, existing value.

Tim: So it is sort of the survival of the fittest.

Ikuo: Yeah, kind of like that.

Tim: With the VCs.

Ikuo: Yes.

Tim: Well, you know I think that people overseas will be pleasantly surprised and impressed at how good things are going in Japan for VC. Because I think overseas especially, people see press releases.

Ikuo: Uh huh.

Tim: Which is a lot of government initiatives and…

Ikuo: Like INCJ.

Tim: Yeah, some big announcements that lead sometimes lead to things and sometimes don’t.

Ikuo: Uh huh.

Tim: But actually you’re involved with what seems like a really one of the better and smarter government initiatives in Osaka, with Osaka City wanting to invest and create its own fund.

Ikuo: The purpose of the investment from the City of Osaka is not for the profit, of course. The economy in Osaka has reduced dramatically in the last 20 years because their structure of industrial things in Osaka…

Tim: Right.

Ikuo: Has not been changing, still can belong to their Panasonic or such electronic related…

Tim: So it is very manufacturing based economy?

Ikuo: Right, right, right. And also the other problem is the economy of Osaka is consistent with their kind of subcontract small and medium enterprises. On the top of that hierarchy is the Panasonic ____ 08:04 such as electricity related manufacturers and they have the subcontract and subsubcontract of those, you know, vertical hierarchy is the basic structure of the Osaka.

Tim: This is one thing that a lot of Westerners looking at the statistics in Japan will see thousands and thousands and thousands of small seemingly entrepreneurial companies but most of these companies have a single customer…

Ikuo: Yeah.

Tim: And they are supporting a large company supply chain.

Ikuo: Yeah, right, right.

Tim: So in a sense, they don’t really count as what we think as entrepreneurial companies.

Ikuo: No, no, no, it is just an SME anyway.

Tim: Right.

Ikuo: Not an “ME”, small…

Tim: Right.

Ikuo: Very, very small.

Tim: Not even a medium enterprise, a small enterprise.

Ikuo: And so that’s why their economical power has been reducing. You know, lots of manufacturing is going out from Japan to Southeast Asian countries because of labor costs.

Tim: Right.

Ikuo: So they need to be changing as their industrial structure.

Tim: Is it working? Are they making progress?

Ikuo: Just started so we need to look and see another 5 or 10 years, I think.

Tim: Okay, actually, let’s talk about kind of your personal experience when you were actually running companies.

Ikuo: Okay.

Tim. So one of the things you have said that I always thought was really interesting was you have learned more from your failures than your successes.

Ikuo: Yes.

Tim: What were some of your failures that you learned the most from?

Ikuo: Team is really important. The reason Webcrew and Interscope have achieved a somewhat successful result was both of the companies started as a team. If Webcrew, the game Webcrew started trying was their baseball, so they, I would say “we” didn’t have their nine positions; however, they had five positions. But during their vision, if the game I was trying to do was the football so we have only one or two positions out of their 11 positions. So we could not make any passive gain. So with the Webcrew Interscope, we started there as a team from the beginning.

Tim: So did you, why did that happen, was it something intentional or something you realized after you had already started that you didn’t have the right team together?

Ikuo: Good, good, good question. The people who are interested in being an entrepreneur are really active and their strong philosophy, kind of explicit way of thinking or attitude.

Tim: Okay.

Ikuo: Or criteria, so those guys, if those guys, you know, kind of form their team together.

Tim: Right.

Ikuo: Their energy to communicate each other to come in the same direction is really really high and difficult and there are lots of arguments and lots of energy is required.

Tim: So you found that the team was going and pulling in different directions.

Ikuo: Yes but we need to you know put it together to the same direction right.

Tim: Right.

Ikuo: So to make it happen, lots of energies are required, so that is really tough so I was so tired of kind of keeping the argument among the management.

Tim: Right. Was it a mistake that you had the wrong team or was it a mistake that you chose something that you were not really passionate about?

Ikuo: Both.

Tim: Both.

Ikuo: Yeah. So anyways I realised the game I was pursuing was too big and I was not capable, so I changed the business to run the company, but the business is a recruiting agency business for the startups, but as I anticipated, the things on the business are not really exciting at all for me so even though the dream vision is becoming kind of profitable, I couldn’t find any reason to keep running the company, so I shut down. That staff, of course, were really mad at me when I shut down the business, so the situation is more interesting than the trendy drama.

Tim: Yeah it always is. When you change from being an entrepreneur to becoming a VC, what do you miss most about not being an entrepreneur?

Ikuo: I don’t think I have anything I have missed since I took the different side of the table from the entrepreneur to the investor because I have not identified myself as an investor or venture capitalist. If I am a wealthy person to invest in or to invest from my pocket money, I would say I’m an investor. Right now, I have invested in several setups from money I raised as a fund.

Tim: So Sunbridge is still very much like a startup then.

Ikuo: Yeah we are…

Tim: You still have investors that you have answer to.

Ikuo: And we are struggling, you know we are not a big fund so we cannot make our company run with only their money management fee from the fund.

Tim: Right.

Ikuo: So we need to raise other money to keep running so this is really kind of a really early stage of the setup.

Tim: And when you are talking about raising other money…

Ikuo: Revenue.

Tim: You mean revenue, not raising new funds, what sort of services are you offering to raise the revenue.

Ikuo: Okay, one of the revenues we now have is the fee from running the incubation center at the Osaka.

Tim: Oh right.

Ikuo: This is another big part for me. If I were wealthy enough to invest from my pocket money personally, I definitely would define myself as an investor. But for now, I have invested into the setups from the money I raised as a fund. That is not an investor.

Tim: That makes sense.

Ikuo: Because this is an investor business.

Tim: Right, right.

Ikuo: But I am not an investor.

Tim: Right because you have your investors. you still have to find customers and new revenue sources so it is very much running a VC as a startup.

Ikuo: Yeah, right.

Tim: Are there any other funds in Japan that you know of that are operating the way kind of you do where it really is a startup philosophy where it is not just taking their management fee that are actually trying to go out and sell things, they have customers?

Ikuo: I think East Ventures which is operated by their ex-CTO of NetAge and ex-director of _____, so I think both of them are from the entrepreneur side. So, I think their philosophy has kind of helped entrepreneurs to grow the business and to work together with the entrepreneurs to make something new and innovative happen. So before, first internet bubble or lots of IPOs or M&A exit happened, there were not really many VCs or accelerators backed by the entrepreneur.

Tim: Right.

Ikuo: But most of the VCs are subsidiary of the huge financial related companies right. But after, lots of entrepreneurs met success as IPO or M&A, they became an investor site, so that’s kind of the basic phenomena happening in the Silicone Valley, but it just started in Japan, I think.

Tim: So we are just starting to get a true group of angel investors now.

Ikuo: Right, right, right. For example, a famous guy, we called him _____, now he is working for the Yahoo. Anyway, he exited his company to Yahoo and then he utilized his money to invest in lots of setups.

Tim: What is the most important trend right now for…

Ikuo: In Japan, one of the trends in terms of their setups or such innovation ecosystem is professional management who are familiar with their IT related industries. So for example, we have hired management in the kind of ordinary business or conventional business. It is not a good example, but the one who used to be a CEO at the McDonalds and before McDonald’s, he used to be the CEO at the Apple Computer, Japan, right.

Tim: Right.

Ikuo: So he is acting as a professional management, hired management, right and also recently…

Tim: So by professional management, you just mean people who have management experience who can take the company to the next level.

Ikuo: Yes.

Tim: It’s important that this management talent is available to startups but on the other side are Japanese founders becoming more willing to turn over their company to professionals to run.

Ikuo: But, I think that that phenomena or their way of thinking or their value has been changing I think.

Tim: Okay.

Ikuo: And I think if Japan could have a lot more successful entrepreneurs who are willing to be their angel investors or who are willing to be more kind of free situation to do lots of things, not to stick with their own company so that he or she can help lots of people.

Tim: Also, I think that person also becomes a role model…

Ikuo: Yeah, right.

Tim: For the new entrepreneurs who will say, okay now it is time to step aside…

Ikuo: Right, right, right.

Tim: And let a professional take over and they can move into angel investing and help the next generation.

Ikuo: Yes, that is going to bring lots of seed money to the young entrepreneurs, right so money can kind of make a cycle.

Tim: I think that is a wonderful optimistic note. Is there any other topics that you want to talk about?

Ikuo: Yes.

Tim: Okay.

Ikuo: Let me tell you why I started to talk about the failure.

Tim: Okay.

Ikuo: That is in Japan, if entrepreneurs get a loan from the bank, banks require entrepreneurs to be kind of, I don’t know the English term, but can guarantee that loan.

Tim: Yeah, a guarantor.

Ikuo: Right.

Tim: Yeah.

Ikuo: In addition to the company. So if the company fails, the entrepreneur must fail. That’s why. Anyway becoming entrepreneurs equal to their taking such a big risk.
Tim: Right, so that’s why people always like to say it’s a cultural thing, but isn’t that just very natural considering that historically most startups have been small family operations who were financed by loans, but now there is more and more equity financially.

I think is that is our good thing to be happening. I don’t know culturally or structurally but their guarantee for the loan of the company is kind of your normal case and that’s a really big risk and if the company failed, the entrepreneurs who guaranteed that loan, needed to be kind of bankrupt. So, if that case happened…

Tim: Even bankruptcy in Japan is very different than it is in US and Europe. It is much harder to declare bankruptcy in Japan and come out clean and free than it is in the US. So, it seems that loans and failures can follow you around for a lifetime in Japan.

Ikuo: So that’s why it’s a really big risk. But, the problem is, people who experience such a tragedy, usually don’t come out to their society or market. So no one cared to listen to what’s going to be happening when I fail. Young guys are scared about what’s going on if I fail. I know some people who one failed and bankrupt and now they are running their own company.

Tim: That is, yeah, that is a message that needs to get out more I think. Looking at the startups that you are working with, do most of the young Japanese entrepreneurs view that failure as like a natural steppingstone or do most of young entrepreneurs still view that as a shameful tragic thing?

Ikuo: Their concept for failure is you know slowly going to be changing, but I think the general case where most of the people still think of the latter case of kind of shame or of course, disappointed right.

Tim: Well everybody is disappointed because you have put a lot of effort into it, but it’s not shameful.

Ikuo: But the problem is, it is really hard to get back onto the truck.

Tim: Ah, yeah.

Ikuo: But if the entrepreneurs who failed are working in the Internet related business, so there would be lots of opportunities to be hired by the successful company and who evaluates his failure. However, if there is more a conventional business…

Tim: Actually, so let me drill down on that, cause I didn’t know this, so are companies like internet companies like Rock10 or DNA are they willing or are they interested in hiring engineers entrepreneurs whose first startup didn’t work out.

Ikuo: If entrepreneurs who failed, I mean even if entrepreneurs failed, but there is someone who is going to hire them, so that is the kind of safety net, right.

Tim: Right, it is not as risky.

Ikuo: Right as long as they don’t guarantee the loan.

Tim: Right.

Ikuo: Right.

Tim: Exactly.

Ikuo: I don’t know how many people like him are existing at this moment in Japan, but we need more a lot more _____, a lot more _____, a lot more _____.

Tim: But the fact that they do exist, means that younger people can look at them as role models and we will have more of them.

Ikuo: Let me get back to your original question, what I have missed from the changing of the side…

Tim: Right.

Ikuo: So as I told you, I have not anything I missed. I got an interview about two years ago about the same question: how it is feeling about the changes your role from the entrepreneur to the investor, I said I don’t think I’m an investor, just told the exact same thing to you. So I don’t identify myself as an investor.

Tim: Right.

Ikuo: Also, the expression he said to me is how you support entrepreneurs or in Japanese “shien”, means support. It’s about what I said to him, is I don’t like that expression. I don’t think I support entrepreneurs.

Tim: What do you do?

Ikuo: I mean I kind of work together with entrepreneurs to make what he or she wants to happen, I would also like to happen.

Tim: So it’s not support like coaching or?

Ikuo: Kind of like you know mentoring. So for me, I am kind of a virtual experience of their setting their new company or business.

Tim: Right.

Ikuo: So of course you know …

Tim: But you get to do it many times with different stripes.

Ikuo: Right, right, but to establish a company is easy, but the two main setups of growth will continue to manage, it is really difficult and tough, so we cannot do lots of tons of setups, but if I can put small money to the talented entrepreneurs, I can feel like establishing a new business or innovation together with such entrepreneurs so that is fun for me.

Tim: And they can do all of the hard work.

Ikuo: Yeah.

Tim: This is an amazing time to be involved with startups in Japan. I think there is this general sense that things are really changing, people are trying to figure out what the right equation for Japan is.

Ikuo: Right, right.

Tim: It is going to be different from Silicon Valley.

Ikuo: So we don’t have to copy Silicon Valley of the sick about in a week to so even though we tried so we don’t have to copy the Silicon Valley and we can, even though we tried. We need to create an old-style of the innovation and entrepreneurship.

Tim: Excellent. Well listen, thanks for sitting down and talking to us.

Ikuo: My pleasure. Your question under your theme, remember to me, what was my purpose and why I screwed up, so I should have written those things to my second book.

Tim: Alright, there you go.

Ikuo: So I think you know I published my second book about the failure.

Tim: Right.

Ikuo: But I forgot to mention that point, but maybe next time.

Okay, we’re back. Listen if you want to see the links and resources that Ikuo and I talked about during the interview or if you want to get in touch with him on social media, check out the links and resources section on the website. You can find this post at disruptingjapan.com/show004 and as always, a complete text of the show will be the first comment on the post. So join in the conversation with disruptingjapan.com, leave a comment and if you want to get in touch with us you can do it at [email protected].

This is Disrupting Japan. I’m Tim Romero and thanks for joining us.