Almost all startup accelerators are going bankrupt and going away.

Hiro Maeda, the founder of two of Japan’s most successful, and most different startup incubators explains both the brief past and precarious future of startup incubators and accelerators. We talk not only about the mechanics and challenges of what it takes to make an incubator successful, but Hiro has some practical advice on when founders should consider joining an accelerator and how they can avoid the 99% of them that provide no real value.

Hiro also explains why so many Japanese VCs today find investing in South East Asia more attractive than Japan, the forces behind Japan’s startup boom, and what the next ten years holds for Japanese startups.

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Show Notes for Startups

  • The motivation behind the founding of Open Network Labs Incubator
  • How to measure the success of an incubator
  • How Japanese VCs will be deploying capital in the next few years
  • The success of Beenos’s Inception Program and why they had to shut it down
  • Why public companies have trouble with startups
  • How to tell a good incubator from a bad one
  • Why most incubators provide no value
  • The coming shakeout in the incubator industry
  • What’s driving Japan’s startup boom
  • The future of Japanese entrepreneurship

Links from the Founder

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Transcript from Japan

Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs.

I am Tim Romero. Thanks for listening.

Today, we sit down with Hiro Maeda and talk about Start-Up Accelerators. Now, Hiro is the creator of both Digital Garages, Open Network Lab and the Beenos Inception Program. These are two of Japan’s best known Start-Up Acceleration Programs.

Their approaches are very, very different. Naturally, we talk about both the past and the future of Start-Up Acceleration in Japan, and the critical differences between the good ones and the bad ones.

What impressed me most about our conversation was Hiro’s commitment to running his Accelerators just like Start-Ups.

Now, we dive into the fundamental reasons behind the attraction that Japanese VCs now have for Southeast Asian Markets. As well as the reasons behind what we both see as the coming hard times for Start-Up Accelerators, and the coming good time for Japanese Start-Ups.

I will let Hiro explain all of that in his own words. Let’s get right to the interview.

Tim: I am sitting here with Hiro Maeda of Beenos formally. The man who found the Open Network Lab with Digital Garage. Today, we are going to talk a lot about Accelerators. Because you are a man that knows.

Hiro: . Thank you.

Tim: Thanks for sitting down with us.

Hiro: Thank you for having me.

Tim: Let’s get right into it. I am really interested in your experience and setting up and running the Digital Garage Open Network Lab Accelerator. Why don’t you tell us a bit about it, and what your goals were in starting that Accelerator?

Hiro: Yeah, so this was back in 2010. It was right after the Lehman Crisis. It happened in 2007, 2008, 2009 was no one was investing in start-ups in Japan. It was basically myself, Joey Ito, who is currently the Director of a MIT Media Labs, and also the Founder of Beenos, or the former Founder of Beenos Taru and then the CEO of Digital Garage.

We all kind of got together, and were discussing what can we do, right? Yeah.

Tim: Okay, let’s back up here for a second. How did all of these people end up in the room getting together? Because that is a pretty diverse group of people right there.

Hiro: Other than myself those three actually knew each other. They always wanted to do something, right. Digital Garage was just moving into a new office. They had some extra space. They actually started off with what can we do with this space?

Tim: Okay.

Hiro: I got pulled into the discussion, and then I was at the time really looking into Tech Stars and .

Tim: Right, right.

Hiro: The two Accelerators in the U.S. that were starting to do very well. I basically proposed that why don’t we just do this in Japan?

Tim: You are trying to replicate was was happening in San Francisco, and then well in Boulder.

Hiro: Yeah. Tech Stars.

Tim: Happening in the States.

Hiro: Mm-hmm.

Tim: You are putting this together. You were learning as you were going.

Hiro: Mm-hmm.

Tim: It has been up and running now for 5 years?

Hiro: Yeah, I think 5 years, yeah.

Tim: All right.

Hiro: Yeah, yeah.

Tim: When you are running an Accelerator, how do you measure the success of the Accelerator? Is it the return of the Portfolio. It is the number of companies that are still in operation after 4 years? How do you measure success from the Accelerator point of view?

Hiro: As an Investor the closest way to measure success is return on capital and I guess mark-ups, right.

Tim: Right.

Hiro: I guess how much more valuable your Portfolio is. We are right now about roughly about 20 X mark-up. Our entire Portfolio is 20 X more valuable than it initially was.

Tim: All right.

Hiro: Which is pretty good. We will see how much of that becomes cash.

Tim: Right.

Hiro: I am hoping it will be somewhere above 10 X. That is one way to kind of measure success. I actually think the purpose of an Accelerator – I mean we do have fiduciary duties to make big returns. The other thing we have to do is increase the success rate of start-ups to get to the next phase, right.

The other thing we look at is actually how many of the companies that enter our incubator or accelerator are able to raise money from VCs?

Tim: Right.

Hiro: Right. I don’t know what the exact number is right now. At one point, we had 70 percent of the companies that go through our Accelerator were able to raise their next round. Whether is was $100,000 dollars or $500,000 dollars or a million dollars.

Tim: That’s pretty good. Listeners in San Francisco wouldn’t be particularly impressed with that number.

Hiro: Yeah.

Tim: Anyone who has been dealing with start-ups in Japan for the last 10-15 years knows that is extremely impressive.

Hiro: Yeah. We were proud of that. We were pretty proud about that.

Tim: Well, actually that brings up a good point. There seems to be a real Series A crunch in Japan right now. What do you think is behind that crunch? What’s the best way to solve it?

Hiro: To be honest there aren’t that many Series A Investors in Japan to begin with.

Tim: Right.

Hiro: There is only a handful you. What probably happened is we had more seed Accelerators emerge, more seed funded start-ups. Those seed funded start-ups are having a much harder time raising money.

Tim: Here is the dynamic I see. Let me know what you think. The nature of starting a company has changed. You can do it with much smaller teams. With much lower amounts of capital. The economics favor not only lots of people starting companies, but investors making lots of very small $10,000 dollar to $50,000 dollar bets. We had a whole emergence of pre-seed, early-stage financing come up.

Hiro: Yeah.

Tim: The people who have to step in next and set a price, and put in three-quarters of a million dollars. Seem to be the same people that were doing it 10-20 years ago.

Hiro: Mm-hmm, mm-hmm. That is the case. I mean yeah. I don’t see that many new funds being formed investing in the series A or B range. It is usually the same kind of people, the same brands, pretty much the same people, right.

Tim: It does seem that most new funds are focused on see, early stage, the strategy of lots of small bets.

Hiro: Mm-hmm, mm-hmm.

Tim: What about some of the larger funds now? The incubate funds. These are funds with hundreds of millions of dollars. There is not enough start-ups to invest in.

Hiro: Yeah.

Tim: You can’t invest that $10,000 dollars at a time.

Hiro: Yeah, yeah. I am not sure what their exact strategy is with raising $100 million dollar fund in Japan. My guess is they want to do more in emerging markets like Indonesia.

Tim: Yeah.

Hiro: The other is they want to be able to fund the full stack. They want to be able to fund the seed, the Series A, the Series B and C. They keep on doubling down on companies that are doing well in their Seed Portfolio.

Tim: A lot of Japanese investment is going to Southeast Asia now.

Hiro: Mm-hmm.

Tim: What’s the draw.

Hiro: Because like Indonesia, or the emerging markets are 5 years or less behind of what is going on in Japan. As an investor it is kind of predictable. Like what are the next things that are going to emerge. After the marketplace, it’s probably the payment. After the payment it is probably price comparison, after the price comparison it is probably some store front hosting, and after store front hosting, so on.

There is a lot of things that you can a lot of pattern recognition with emerging market.

Tim: Are you investing, well both you personally and Japanese investors as a whole?

Hiro: Hmm.

Tim: Are they looking to invest in the Indonesian version of Uber? Are they looking for not copycat technology necessarily, but business models that have been proven elsewhere.

Hiro: Yeah. That is pretty much the main draw. The other one is predictable. The second is just the upside. The growth rate and population. The growth rate and GDP. Those metrics are like especially in Indonesia and India is phenomenal.

Tim: The demographics are fantastic.

Hiro: As an Investor you know your responsibility, or if you really want to be a good investor like you should shoot for the upside.

Tim: Right.

Hiro: The biggest upside possible, right. The logical conclusion you would get to is let’s enter a market that is growing, and growing fast.

Tim: When you are going to the Southeast Asian Markets.

Hiro: Mm-hmm.

Tim: What is the exit that you are looking for there? Is it a local IPO? Is it an acquisition by a more powerful global player with the same business model? How do you get out?

Hiro: There is going to be activities, but we can also expect IPOs. What is kind of happening. There is a lot more companies outside of New York that are being listed in New York on the New York Stock Exchange. The Ali Baba got listed in New York.

Probably the next Ali Baba will come from India, right. We may see like an Ali Baba equivalent coming from Indonesia. The local IPO Market is not that attractive. The New York Stock Exchange is attractive. We are seeing patterns where more and more companies are looking into becoming a Incorporated Company, so that they can get listed.

Then we also see roll-ups, right. We will probably see more MNA activities, a larger conglomerate basically buying companies, so that they can get market share in the emerging markets.

Tim: All right. Let’s talk about the other Accelerator you started. Which has a very different model. Beenos, it is very E-Commerce Company that is now pivoted to be primarily an investment, start-up Investment Firm.

Hiro: Yeah.

Tim: The Inception Program that you led. Why don’t you tell us a bit about that. Because you can explain it better than I can.

Hiro: Yeah. Beenos, they were originally called Net Prize. Which is E-Commerce from back in 1999. Got listed in 2004. Since 2004 they start building companies themselves, and at the same time investing in companies. Primarily in the E-Commerce ecosystem, right.

Tim: Right.

Hiro: We are actually seeing very good successes. Around like 2011-2012-ish it became interesting for Beenos to basically try to make it a process. It became kind of build more and more companies like that.

Tim: Okay.

Hiro: The Inception Program was actually part of that initiative to try to build the next Tenso, the next Brandier. It is a very different model from Accelerators. Accelerators you take 5 percent equity.

Tim: Exactly.

Hiro: The Inception Program is the total opposite. We would take anything from 10 to maybe 70 percent of the company, right. All of talent is in-house. We would try to build subsidiary companies basically.

Tim: I mean 70 percent is you know a lot of Founders would be outraged at the suggestion.

Hiro: Oh yeah, oh yeah.

Tim: When you are saying all of the talent is in-house.

Hiro: Mm-hmm.

Tim: The Founder would not necessarily be a Beenos employee.

Hiro: Right.

Tim: A Founder is from outside, and you match them up with design and engineering resources within Beenos.

Hiro: Mm-hmm. Exactly.

Tim: Seventy percent is a big chunk.

Hiro: Yeah.

Tim: What do you add? I want you to walk me through the process. If I am a new Founder and I am joining this program on the first day, what happens?

Hiro: To be honest it is not for everyone, right.

Tim: Right.

Hiro: It is not for everyone. Obviously, if you have the capabilities of building a set-up yourself, you should go for it. The Founders that we have been able to attract are more people who have a strong interest in building and operating companies, but don’t have either the inspiration or the idea that they want to work on basically. The have more of the passion for operating companies and building companies.

Tim: You are searching for more of MBA types?

Hiro: Yeah, I guess.

Tim: Who is he ideal Founder?

Hiro: The ones that perform well are like ex-consultants, actually like one headhunter is actually leading one of the companies we spun out. People who just like operation basically. Who like to optimize on operation, loves to work with people, loves to build organizations, and those kind of things. To be honest have a really strong conviction on the idea.

Tim: Okay. What is fascinating about this is you are describing someone who would not normally be considered an ideal Founder at all.

Hiro: Oh yeah, definitely.

Tim: You are saying something. It’s not, they don’t have a ridiculous conviction and their vision, and they are more flexible.

Hiro: Yeah, exactly. It’s the total opposite of what most would look for.

Tim: Right.

Hiro: Yeah. Basically, it’s total opposite. You know usually you want someone with conviction. You should get someone who would basically grow the company until the end, as big as they can.

Tim: Right.

Hiro: Then yeah.

Tim: In the Inception Program, what are the Founders bringing? What is Beenos providing? Is the Founder bringing the idea, and you guys are providing design, engineering skill? Its Beenos out there selling the products? Can you walk me through a case?

Hiro: Yeah. A typical case, we basically have kind of a list of thesis’s. Things that we think should be built or exist in Japan. We would already have Developers and Designers to kind of prototype the idea and validate the idea.

Then the Founders have come in kind actually at a later stage. Once the product is somewhat validated. They would come in to basically build the validated product into a company. A lot of these people who got brought into to spin out the company actually came in at a later phase.

Tim: It sounds like like a very similar model to Ideal Lab.

Hiro: Yeah, we were inspired by Ideal Lab.

Tim: Yeah.

Hiro: We actually visited, Bill Gross.

Tim: All right.

Hiro: He was very kind enough to share his knowledge. Yeah, we were very inspired by him.

Tim: How long have you guys been running Inception Programs? Still pretty new right?

Hiro: It’s very new. When was that? 2013 or something. We actually ran it for just a year. It’s not running anymore.

Tim: Oh, you shut it down.

Hiro: Yeah. We shut it down. We spun out two companies out of the program. Then decided to basically focus all of our resources on the companies that are doing very well.

Tim: Okay. Whey did you wind it down?

Hiro: It was very difficult. It was really difficult. I mean we have yet to see whether or not that is a successful program.

Tim: This is particularly interesting to me. I have seen so many companies attempt similar models.

Hiro: Mm-hmm.

Tim: Okay, Ideal Lab. They seem to have done pretty well with that. That’s Bill Gross. I think he would succeed with any model that you put in front of him. Rocket Internet has done reasonably well with it.

Hiro: Yeah.

Tim: What was the biggest challenge in that?

Hiro: Oh man. First of all, we have a lot of restrictions. One is capital restrictions, because we are a listed company. We have expectations on how much profit we make in the next quarter and those kind of things. The problem with running an incubator like program like as a Public Company is very difficult. Because you kind of become short-sided.

Tim: Okay, yeah. I can see that.

Hiro: When a lot of the valuable companies, they actually view things much long-term, right. They are not profitable for awhile. For us, we don’t have that choice.

Tim: Right.

Hiro: We have to be profitable quite quickly, right. That gives a lot of restrictions and limitations, is one thing. The other challenges are Cultural Fit, right. Basically, the company has been around for more than 15 years.

It is really hard to build a culture that is thriving on entrepreneurship, a risk-taking culture basically in a Corporation or in a Corporate like environment.

Tim: I could see that, yeah. Because I mean once you go public all of the incentives are aligned to maximize the profit for this quarter. Japanese companies maybe don’t feel the pressure as strongly as American Public Companies do, but the pressure certainly is there.

Hiro: Mm-hmm.

Tim: When times get rough. Like why are we spending this on these companies that may turn a profit in 5 years time?

Hiro: Yeah, exactly, exactly. Yeah, the reason why we went to that because there was so many restrictions and we didn’t see it as an ideal environment to be building companies is one thing. The other thing is because Beenos is now at a phase they have bigger opportunities. Like Tenso. Tenso and Brandier which is doing very, very well. Now, is the moment to be investing more in these two companies.

Tim: Okay.

Hiro: Yeah.

Tim: Do you think if you can start it again from scratch with a private company. Do you think the model is viable, just the problems of trying to run inside a public company. Is the model itself just difficult to execute on.

Hiro: I think the model is viable.

Tim: Okay.

Hiro: The model is viable, but it is best to start from scratch. You need to be in an environment where you can basically build your own culture, right. It is hard to build in an established environment. You don’t want restrictions on like have a certain amount of profit by the next quarter.

Tim: Yeah.

Hiro: And those kind of things, right. Yeah, if I had to do it again I would probably do it as a private company.

Tim: One of the common complaints I have heard from people trying to execute this model is that it is very difficult to get follow on funding.

Hiro: Mm-hmm.

Tim: When you take your incubated company and you hatch them, and you try to raise a Series A, I have heard that the VCs will look and say wait, wait you guys have 70 percent and they have 30. No, we are not interested.

Hiro: Mm-hmm.

Tim: Did you run into that?

Hiro: Yeah, yeah, definitely, definitely. Yeah, so actually we had a huge adjustment on our equity stake, right. We first thought that we would start off by 70, but we had to actually put it down to somewhere between 20 and 30.

Tim: Okay.

Hiro: Yeah. I mean as VCs it is obvious. As VCs you want to invest in companies where the Founder is motivated enough to basically take it until the end, right.

Tim: Right. They feel like they own it.

Hiro: Yeah, they need to have ownership. They need to feel like it is their company, right. The only way the 70 percent model would work I feel is when the company that owns 70 percent is willing to keep on funding this company.

Tim: The Rocket Internet Model.

Hiro: Yeah, basically.

Tim: Yeah.

Hiro: The Rocket Internet, I think they have a pretty good and interesting model. They area willing to fund in themselves.

Tim: Sure.

Hiro: Although, I guess the holding company is fund raising from elsewhere, yeah.

Tim: Let’s talk about Accelerators in general. You mentioned earlier for a lot of reasons there has been this real boom and spread of Accelerators all over Japan.

Hiro: Mm-hmm.

Tim: There is a couple of dozen of them in Tokyo.

Hiro: Mm-hmm.

Tim: What kind of Founders should consider joining an Accelerator? What kind of Founders are better off taking a run at it themselves?

Hiro: I think I highly recommend Accelerators to a lot of the Founders. Especially in Japan. The reason why is because the support system in Japan is not as good as Silicone Valley obviously, but like it is very hard to get Advisors who can help you basically go through the process of validating your idea, building a product, and fund raising. Because of the lacking of the support system, it is probably best to go to an Accelerator.

Tim: You were talking about support systems. Does that include kind of the social support?

Hiro: Mm-hmm.

Tim: A lot of the Founders I have talked to you know their friends and family were not particularly supportive of their decision. Does that play a big part of in it as well?

Hiro: Yeah, I think so. It is lonely to be an entrepreneur, right.

Tim: Yeah.

Hiro: One, is you have a community, or a small community of people who are in at least the same Accelerator as you, who supports you and where you can kind of riff your ideas or your problems. The other is because a lot of these Accelerators are back by larger companies. It gives a little bit of validation.

If you worry about how your parents think of you, then it give a little bit of validation that you know some large corporation is backing you, right.

Tim: Okay, yeah, yeah.

Hiro: There is some of that aspect. Primarily, I feel the Start-Up Community in general it is not super helpful to newcomers, right. In Silicone Valley, I feel like everyone has this pay-it-forward kind of mentality.

Tim: Yeah.

Hiro: It is relatively easier to get a meeting with experienced entrepreneur. Where as in Japan it is a little bit more closed.

Tim: It is. It is starting to change, but it is.

Hiro: Yeah.

Tim: This is somethings else I found. Because Japan is very, the whole structure of the society is very strong, concept of inside and outside, right. Silicone Valley is very open. Everyone wants to work with Everybody. Are most of the Accelerators in Japan, are they run like a closed shop, or are they flexible about working with people from other Accelerators, or Mentors in one group willing to go talk with a different group? Is that sense of inside and outside still strong within the Accelerators.

Hiro: Yeah. I feel like the sense of inside/outside is pretty strong. I don’t see much collaboration amongst the Accelerators themselves. I see a lot of overlap with Mentors, right. Mentors are coming out with different Accelerators. The Accelerators themselves, I guess there is a little bit of clannish kind of mentality.

Tim: Yeah.

Hiro: They are multiple clans and they are really not working with each other.

Tim: Instinctively, I am thinking oh that is not good. That has got to change. Is that actually causing any damage, or is that kind of just the way that it is? It’s fine.

Hiro: From the entrepreneurs perspective I feel like it doesn’t make a big difference. As long as, you know they have access to a Mentor Network, right.

Tim: Yeah.

Hiro: Since a lot of the network mentors, especially the local mentors, they overlap. Yeah, so I feel like there is no big difference in terms of access.

Tim: Okay. The companies that graduate from an Accelerator. Do they stay in touch? Do they consider themselves like alumni as it were?

Hiro: Hmm.

Tim: What is the experience like post Accelerator?

Hiro: Yeah. There is definitely a strong bond between especially from the same class. Even between different classes of Accelerators. They interact with each other quite frequently.

Tim: That is good.

Hiro: Yeah.

Tim: The complaint I hear most now when speaking to new Founders is the difficulty they have in networking for staff, networking with other Founders, networking with other Engineers. The fact that the graduates the Accelerators are continuing on. They are making their own community and growing it. Is well, really the only way that problem is going to get solved.

Hiro: Mm-hmm.

Tim: I am glad to hear that is happening.

Hiro: Definitely.

Tim: There are so many Accelerators in Japan. Knows how many in the U.S. now.

Hiro: Mm-hmm.

Tim: From a Founders point of view, how can they tell a good Accelerator from a bad one?

Hiro: I think it is very obvious to be honest. You talk to a few Founders. Then ask them which one do you think is the best Accelerator, and they will point you into one direction, right.

Tim: Well, that comes to a very short list of names.

Hiro: Yeah.

Tim:   Usually. Either in the States or here in Japan.

Hiro: Mm-hmm. Yeah, I feel like there is only like one or two really good Accelerators, right. Yeah.

Tim: Of the other probably 30-plus Accelerators operating in Tokyo right now.   You think the majority of them are not providing real value.

Hiro: Yeah, I would say so. The majority of them are started kind of off of either trying to get on the trend, or they are starting it because I don’t know their CEO thinks they feel like they have to do an Accelerator. A lot of these Accelerators are corporate-ran, right.

Tim: Yeah.

Hiro: They are  corporate-ran. For the majority of the Accelerators it is not ran by the right people. They are all kind of salary men starting these Accelerators. They are doing it just because either their boss tells them to do it, or because it is a trend.

Tim: One of the things that I think you really got right at Open Network Lab is Venture Capitalists and Corporate Guys kind of running it. You made sure from the very beginning that there was a steady flow of entrepreneurial expertise involved and coming through.

Hiro: Yeah.

Tim: I find that most of the Incubators here don’t really have that.

Hiro: Mm-hmm. Yeah, it was almost accidental to be honest. Like, it was because I was clueless you know. The only people I can seek for help are people who have done it before, right. Who have built companies before, and those kind of things. I really relied on mentorship and mentors. Mostly because I had no idea what I was doing. Now, I have little bit better idea.

Tim: Well, you know not knowing what you are getting into is both a blessing and a curse.

Hiro: Yeah, definitely.

Tim: It lets you achieve so much more, and it makes you work so much harder.

Hiro: Yeah.

Tim: Than you ever would have otherwise.

Hiro: Yeah. I mean yeah, the program did involve a lot. I feel like now it is a much better program than it was you know 4 or 5 years ago.

Tim: With so many Incubators, I think this is true in Japan and the U.S. It is just a matter of scale. Do you see a shakeout coming in the market? There are not that many viable start-ups coming out. There are so many Incubators throwing little bits of money at them.

Hiro: Yeah.

Tim: Pull out your crystal ball, what do you see happening to Accelerators in the next 5 to 10 years?

Hiro: What is going to happen is probably 99 percent of the Accelerators are going to either shut down, or be almost nonexistent, or inoperable. The best entrepreneurs would go to and try to get into the best Accelerators, right.

Tim: Right.

Hiro: There is only maybe 1 or 2 really good Accelerators. There aren’t enough entrepreneurs that can basically fill in 30 different Accelerators, right. They are probably going to enter the top Accelerators out of the 30. The rest of them would probably seize operation in some way.

Tim: See, that is going on right now.

Hiro: Yeah. Right now is the moment.

Tim: We are still seeing new Accelerators opened up all of the time. What do you think is going to be the trigger that is going to get most of these Accelerators out of business?

Hiro: It is hard to say. I mean obviously if there is any correction in the public market since a lot of these companies are ran by Public List Companies. There would be some response to that. I feel like we will continue to see more Accelerators because people still feel like there is opportunity. I actually do think there is still opportunity to build a really, really good Accelerator in Japan.

Tim: Well, okay. You have built two of them so far. Do you have plans for another?

Hiro: No comment on that.

Tim: Come on, come on. You are thinking about it?

Hiro: Probably not an Accelerator format.

Tim: Okay.

Hiro: Not an Incubator format either. Yeah. I do feel that there is still, I feel like the number one spot is still fillable.

Tim: Okay. I’ll look forward to that one. Let me ask you a few like really big Japan questions, right. What do you think is really driving this start-up boom in Japan now? Do you think it is something that is permanent, or do you think it is going to be a fad kind of like it was around 2000?

Hiro: It is definitely very different from the 2000 bubble or boom.

Tim: Yeah.

Hiro: Because I mean we know much more about building, especially internet companies, right.

Tim: Sure.

Hiro: People are still kind of scarred from that experience. Everyone is still relatively conservative funding those kind of things.

Tim: I have noticed that. Japanese Investors, they are conservative. They might miss out on some of the big deals, but they tend to place more sensible bets.

Hiro: Exactly right. Because of that I feel like –.

Tim: At lease in their domestic investments. Some of the stuff they invest in the States is another matter.

Hiro: Yeah. Different story. We probably won’t see anything like a bust going on. That is probably the biggest difference. I do feel like we are going to see steady growth in the number of start-ups being built. Steady growth of Venture Capital funding. Things are changing, right. Things are really changing. The Sony’s, or the larger companies are not becoming such an attractive choice for career, right.

Tim: No.

Hiro: Right. Back then you know it was all about you know picking one company and spending 30 years there, right. Now, it is becoming less like that.

Tim: It’s not really an option anymore.

Hiro: Yeah, right.

Tim: The whole lifetime employment thing is a thing of the past.

Hiro: Exactly. The idea of stability is kind of fading away I feel like in the culture, very slowly, very, very slowly. I feel like we are going to see more and more people looking into alternative options. Entrepreneurship is becoming a viable option, or almost I am going to say stable, but –.

Tim: Yeah.

Hiro: It is an option that is actually you know realistic and we will probably see more growth.

Tim: Do you see it becoming more socially acceptable? I mean in our circles obviously entrepreneurship is very socially acceptable. In broader Japanese society do you see it becoming a normal career choice?

Hiro: Maybe in 20 years.

Tim: Yeah.

Hiro: Maybe in 20 years. We still have so much potential. Like Japan, like I am a little bit disappointed we are not growing faster in terms of just the number of start-ups and the number of Venture Capital funding.

Like we have such great infrastructure. It is such a great environment. I mean mean the public market it’s pretty good.

Tim: Yeah.

Hiro: It’s pretty good, right. I am surprised we are one-tenth of the Venture Capital Spending of the U.S. Because our population is like a third, right of the U.S.

Tim: Right.

Hiro: We can do 2 X or 3 X more. There is still more potential in Japan. I feel we will get there. It might take 20 years until we get there.

Tim: I hope it doesn’t take that long. We are going to talk about the Venture Capital Investment. Do you think it is primarily the problem the supply side? There is just not enough good companies to invest in yet?

Hiro: It’s both. You know, not enough entrepreneurs that are looking to start companies, and not enough Ventura Capitalists that are looking to fund these companies. It’s both. Yeah.

Tim: Okay, all right. For the young Japanese entrepreneurs who are starting companies now. What is the most common mistake you see them making?

Hiro: It could be because it is kind of engraved in our DNA or culture, but they look for perfection.

Tim: Okay.

Hiro: Yeah. They look for a perfect product, or a perfect solution. It has to be at least like built in the way initially planned until they launch it or have some customer use it. When they could have probably tested a lot of it before that. Like a lot faster.

Tim: Right. The idea of a minimum viable product it is hard for some people to accept at first.

Hiro: Yeah. I think yeah actually the MVP is probably the hardest part of teaching in Japan. I mean it is starting become– People are starting to get use to it, but like initially when I was running the Accelerator like a lot of my work was trying to redefine MVP for them, right.

Tim: Right.

Hiro: You actually can do this using some line chat, or something like those kind of things. You don’t even have to build a product to even provide your MVP to your customers. Yeah, it is basically they feel like they need to build something. They feel like it has to have all of the specs that they initially planned and those kind of things. Especially for first time entrepreneurs I see that as a big pitfall.

Tim: They need to let go of the need for perfection.

Hiro: Exactly.

Tim: Well, before we wrap up let me ask you if there was one thing you could change. If I gave you a magic wand, right. There is one thing you can change about Japanese Culture or Society or Legal System or anything at all to make things better for Entrepreneurs, what would it be?

Hiro: To be honest, I wouldn’t change a thing.

Tim: Really.

Hiro: Because I do feel we have potential. We can probably become 3X better than where we are in every metric.

Tim: You think everything is kind of on the right path?

Hiro: I feel like we are on the right path. We just need like some agent that would accelerate things, right. Either it is a person, yeah most likely a person, right.

Tim: Yeah.

Hiro: It is probably my job to do that. No, I really wouldn’t change a thing. Like even if the supply of Venture Capital increases by 2X. Is that really going to change anything? Maybe a little bit, right.

Tim: Yeah, it needs to have the supply of the start-ups to increase along with it.

Hiro: Right, and those kinds of things. Yeah, I wouldn’t change a thing.

Tim: That’s awesome. No, I think that Japan is on the right path is a wonderfully optimistic note to end on.

Hiro: Yeah.

Tim: I think that is great. Listen, thanks so much for sitting down with me.

Hiro: Yeah, thanks.

Tim: It’s fantastic.

Hiro: It was fun.

 

 

We are back. Now, Hiro left us with a bit of a cliffhanger at the end regarding on what he plans on doing next. Reading between the lines it is not to hard to see that he has something big planned. Knowing him something very different. In fact, by the time this show airs he might have already made that announcement.

Now, what fascinated me most about Hiro’s story was his willingness not only to admit that he did not know what he was doing early on, but to embrace it. To embrace your own ignorance and incompetence and then scramble like crazy to improve and to keep improving even when you knew you were the best at this point. The willingness to bit off more than you can chew and then chew like hell.

If you have got an experience with or an opinion about Start-Up Accelerators in Japan or elsewhere come on over to DisruptingJapan.com/show025 and let us know what you think.

When you drop by you will find all of the links and sites that Hiro and I talked about and much, much more in the Resources Section of the post.

Most of all thanks for listening. Thank you for letting people interested in Japanese Start-Ups know about the show. I am Tim Romero, and thanks for listening to Disrupting Japan.