Japanese startups is hot right now, and more and more foreign money is flowing in.

But many Japanese VCs remain stubbornly outward-looking.

Today we sit down with Shri Dodani, who after a series of highly successful American startups, decided that Japan is the best place to invest right now, and co-founded of Global Hands-On VC, to make those investments.

We talk about the unique advantages startups have in Japan and why Japanese founders often have trouble leveraging those advantages.

It’s a great conversation, and I think you’ll enjoy it.

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Show Notes

  • The unique potential Shri first saw in the Japanese market
  • How Japanese buying patterns help Japanese startups
  • Japan’s transition from VC 1.0 to VC 2.0
  • Are Japanese startups really becoming more globally minded?
  • Why the large global VCs seem to have so little interest in Japan
  • How Japanese VCs and corporates are more supportive of startups than in other markets
  • Why it’s important to invest in  Japanese founders “with a bit of an attitude”
  • What’s holding Japanese founders back today
  • What actually stops Japanese founders from going global?
  • The importance of role models and for Japanese founders to mentor
  • The most promising startup sectors in Japan
  • How recent immigration tightening will affect innovation in both the US and Japan

Links from the Founder

Transcript

Welcome to Disrupting Japan, Straight Talk from Japan’s most innovative founders and VCs.

I’m Tim Romero and thanks for joining me.

Longtime listeners of Disrupting Japan know that I’m extremely bullish about Japanese startups. In fact, most of us on the ground here are pretty optimistic about the whole situation. And yet a surprising number of Japanese LPs and VCs seem to have little interest in investing in Japan preferring to focus on high profile San Francisco.

Today we sit down with Shri Dodani and we look into exactly why that is.

Now Shri is a successful American founder with multiple exits, totaling well over $1.5 billion. And when he transitioned from startup to VC and put his first fund together, he decided to focus exclusively on Japan in order to take advantage of what he thought Japanese and foreign VCs alike were overlooking.

Shri and I talk about Japan’s transition from VC 1.0 to VC 2.0, the aspects of the Japanese market that give it a unique advantage over Silicon Valley in some areas, the one thing that’s holding Japanese founders back the most and why it’s important to invest in founders who have a bit of an attitude.

But, you know, Shri tells that story much better than I can. So, let’s get right to the interview.

Interview

Tim: So, I’m sitting here with Shri Ddani of Global Hands-on VC, a serial entrepreneur and founder and managing partner at Global Hands-on VC. So, thanks for sitting down with me.

Shri: Thank you, Tim. It’s an honor.

Tim: I’m glad we’ve got a chance to talk because I think you really do have a different perspective on what’s going on in the Japanese market today. And just to give our listeners a bit of a background, so before moving into VC, you had a remarkable string of successes. As a founder, as an operator, you had six startups and six exits, including one that was a $550 million acquisition and IPO that was worth over a billion. I don’t want to dig too much into that because we could be here all day talking about it and it’d be a worthwhile conversation. But after being such a successful operator for so many different types of startups, why the move to VC?

Shri: A good question. So sometime I do one day even after became a VC, that should I continue doing my own companies because I’m good at that. Having done company in different field, you kind of get the nose for the technology. Obviously you have to be technical person, but beyond that, you get nose of different technology, how they relate to the actual product. And how do consumer or the industries benefit out of that? Most of the VCs come from financial world and what we can bring them uniquely is that we give them perspective from development perspective, but we can help the companies from a product development perspective as well.

Tim: I can completely understand the value add both to the other partners, to the investors, to the startups you’re investing in. But like on a personal level, it’s a really different job. So, why did you want to make that jump?

Shri: Service time, I’ve done several companies, as you noted, they’ve done in different industry. So as you want to get new challenge always right, because that’s what keeps you young. Secondly, I’ve invested in over 25 now 28 companies of my own money and equal number of companies as an advisor as well. So, I’ve made money as an individual investor, a good rate of return and it was an opportunity for me to work with Ken to sort of make it more formal.

Tim: So, this is something you were kind of building up to through personal investments and angel investments over time. And as someone who’s also done both VCs and founding startups, the ability to interact with lots of different ideas and ability to support a lot of different bets and interesting markets is exciting, but do you miss the ability to execute your own vision?

Shri: Absolutely. Absolutely. I’d be lying if I said that I don’t, right? Because I think ultimately, we are wired to drive our own destiny, but all along the way I have an opportunity to be advisors and investors and one of the things you learn is that the way to scale your operation is to other smart people as well. So, the downside, I’m not driving it, but the upside is I’m learning tremendously more from much, much smarter people than I am.

Tim: You and Ken together established Global Hands-on what made you decide to join other partners rather than pulling in a fund of your own?

Shri: Ken was investor in my company that we eventually exited and Ken and I got along well and he was with INCJ after that fund. And as part of it INCJ, him and I have invested in two Japanese company. So we’ve been touch, we’ve been helping companies go global. And even from that perspective, it was a good thing for me. I can’t do Japanese company without Ken for sure, because I don’t speak Japanese. So you needed a partner in Japan. So, that’s one thing. Second thing, the challenge for me was Japan is, I’m trying to figure it out, that Japanese government, Japanese entrepreneur, everyone is doing fantastic job. They’re following all the textbook thing of how to do startups, how to invest in startup how to nurture the startup. For some reason they can’t break out in terms of the mass scale, a scalable global business. And I’m trying to understand why.

Tim: This is something that’s puzzled a lot of people, myself included. It’s an ongoing theme of Disrupting Japan. So that makes sense to operate in Japan. You definitely won a strong team, people with a track record and the team at Global Hands on, definitely is that. But taking a step back, I mean, why Japan in particular? There’s all kinds of things going on all over the world, so why focus on Japan?

Shri: Yeah, it’s a very good question, why Japan, especially for me, I could do something else in the US or anywhere else. In 2005, I put my first money into a fund in India. It was a small fund for $5 million. I wrote the first check it is now called Excel India. At that time, nobody wanted to invest until Google put last $1 million, the $11 million fund. And then we hit the flip card, the flip card changed the entire India story and they have massive investment, massive capital flow, a lot of startups, a lot of activity, energy and so forth. Japan, to me, because I’m a startup guy, feels like here’s a country that had a lot of capital, has a government behind it, and a lot of talent, engineering talent, a lot of core technology on a global basis. It should be right for a disruption from a startup point of view where you could create new startups and hopefully get a competitive advantage from an investment point of view as well, while others are not seeing the same opportunity. So, for me it was no different than me doing a startup looking at where are the opportunities, what can be disrupted? Where can you get unfair advantage before competition discovers that opportunity? That’s what interested me in Japan.

Tim: So let’s talk a bit about your history and connections to Japan.

Shri: So back when I was working for another startup, early eighties, I was responsible for Japan joint venture with SIE chemicals. So, I’ve been exposed then it was obviously in a different time as before the bubble. Since then, I’ve done my own startups, six of them, almost every one of them had either investor, customer or partner in Japan. The three things that they taught me all along, it’s very hard to get into Japanese customer because they’re very, very demanding and challenging, but in reverse order, you learn the most from them. They make your product better, they make your technology better, they make you work towards success.

Tim: Well, and Japanese customers also tend to be incredibly loyal.

Shri: Loyal as well.

Tim: Yeah. The upfront effort required in that long sales cycle is probably made up with mathematical identity, with lower churn rates and longer retention on the backend.

Shri: Absolutely. Absolutely. And since then, every one of them, there’s people still using those products even now, right?

Tim: So identifying Japan as an underappreciated opportunity really makes sense. But there’s a lot of early stage funds in Japan. So what were you trying to achieve with this one that was different?

Shri: Yeah, for me, Tim, we’re still learning. This is a third year of our operation. But everything I’ve seen to date, what I call VC 1.0, lots of VCs who get in early stage and then don’t do fall on investment versus what we wanted to change. That if you’re going to have unfair returns because returns are compatible in Japan as in the US. So my downside was protected because I can always match the return of existing guys by doing nothing other than just following the herd. However, I can improve the returns by doing something different by actually building the companies for the long haul.

Tim: Let’s dig into that. What it takes to build a company for the long haul. What concrete things were you trying to get the portfolio companies to do? Or what kind of startups were you targeting that were built for the long haul that other startups in Japan weren’t?

Shri: There are lots of good businesses, they make money. However, the venture business are slightly different. They need growth. So let’s start with the kind of companies we look for. There are three categories that I’m interested in Japan. One is the core technology that they do better than anybody else. Second is that for domestic market consumption, the market is big enough that you could copy some idea that’s worked elsewhere. And the third category is companies that have the knowhow, the expertise, but are not going global, that we can actually see the global opportunity that they may or may not see, or the other investors may not see that we can now help them build long term. That’s an example of a company. Let’s say we build a company, they’re seeing immediate opportunity in Japan, but we see much bigger opportunity. So we kind of guide, we also kind of work with the fellow investors to show them that it’s not time to exit, let’s build a company.

Tim: So that mentoring the strategic guidance with a global focus is really what you’re differentiating on.

Shri: That’s one thing. But if you look at our portfolio right now, I would say about 40% of the company focus on domestic application, which may or may not have a global opportunity, but may have in Southeast Asia market opportunity, but not necessarily global. Then we have a semiconductor company called Edge Cortex, which is uniquely, again in Japan. There are no other AI silicon companies that can take on Nvidia. That company, had it not been for us, would’ve not even thought about competing with Nvidia. We are not afraid to compete with Nvidia.

Tim: So, I think there’s this general awareness, general consensus in Japan that Japanese startups need to go global. They be need to be more globally minded. Have you seen a change in behavior or a change in attitudes over the last four years since you’ve started the fund?

Shri: Yeah, so first of all, we see a lot of startups which have either one or two members, which are not necessarily Japanese. So that’s one thing different than the past. Second, the talent pool is, besides the language, smart PhD guys who are doing core research, they’re as good as anybody else in anywhere in the world. So when we come along, it resonates with them. It resonates with us that wow, somebody finally understands us.

Tim: You’re reaching to the converted here. I absolutely agree with you. But when you’re setting up global hands-on, and I mean you identified, I think I could say correctly identified Japan, it’s an undervalued, underappreciated startup market. They’re fantastic technology here, highly skilled workforce, but it’s not getting the traction I should why four years is a long time in startup years. So I agree your thesis is correct both today and four years ago. But when I look at most of the global VCs, very few of them are in Japan. I mean, Japan is a great place to raise money. But very few are making investments and when they do, they’re not leading right? They’re putting a toe in the water. Is it that the rest of the VC community doesn’t see these advantages in Japan? Or is there something else that’s preventing this vision from being realized?

Shri: I can’t speak for them, but many of them in the US probably feel there are plenty of opportunity domestically. And why should I work hard when I can make money easily, which is the VC business is that way. The second thing is Japan is a market that demands a lot out of you, but ultimately they reward you for a very, very long time. Most VCs by design don’t have a long game. Just to give you my own company that Ken had invested in me when we started in 2014 competitors, then the bubble bus, the capital investment from the customers went from 40 billion down to $40 million. At the end of the day, there were only two survive. We obviously made good money and we had 85% market share. Now, if it was run by a traditional American VC and American entrepreneur, they would’ve been just say, okay, let’s give up like the 12 other guys did. That rarely happens in Japan. No matter how difficult the market is, the companies get funded somehow in some shape or form, they continue because sometimes you are early to the market. That’s a given strength of Japanese startup that they can endure the pain.

Tim: That’s a really interesting point and I think that is true and not just in the startup ecosystem, but the entire economy in general, things are much less transactional, much more long-term relationship based.

Shri: And it’s hard work. You work with entrepreneurs, you keep at it, keep at it, it eventually we all come to the same conclusion and we play the same game.

Tim: In your work with Japanese founders, do you find Japanese founders to be coachable?

Shri: Most of them are actually one of the thing that I like about it, when the Japanese entrepreneurs have attitude, I love that because part of the challenge for the Japan startup ecosystem is compliance is a good thing. But at the same time, startup is all about having some slight attitude. That I am better, I can win, I can do better than that.

Tim: Yeah, that’s really true. There really is a sweet spot in there, isn’t there? So, the traditional Japanese model where it’s just these finance guys telling the founder what to do and the founder’s just supposed to roll over doesn’t work. Someone who doesn’t listen to input at all doesn’t work either. But yeah, you’re right there. It’s got to have someone who’s at least committed to their own vision.

Shri: Exactly. Our job is to say, look, we want you to dream big and use us to make sure your dream is fulfilled. And more importantly, we have to earn the respect. Anything the startup goes through, we have gone through multiple times in our lifetime.

Tim: I imagine that really is one of your strong points because the VC industry in Japan is so dominated by people with financial backgrounds and to have someone with operational experience say, no, when I was doing this, this is how it worked, this is what happened to me. Founders are much more likely to, to listen and respect that opinion.

Shri: That’s far more valuable than just a money from institution.

Tim: Yeah. In a sense, I don’t think large parts of the Japanese VC industry have still not really internalized that capital is not scarce anymore. They’re still operating on the model where, well, everyone needs to come to us and we’ll tell them what they should do, where they won’t get our money and the world’s changed. VC is global. There’s much more risk capital available in Japan. So, I think that founders are looking for that value add.

Shri: I mean, I can’t speak in general, but there are a lot of good VCs also good competitor building good companies. And they add value in their own way. But for the entrepreneur, what we commit to them, our first objective of is to the company because we can never win unless the entrepreneur wins. But if I don’t do right for them, there’s zero chance I’ll make money.

Tim: You’re someone who’s founded and run multiple successful startups. What’s holding Japanese founders back? What are the one or two most impactful things that they can change to make themselves more successful?

Shri: I like this Japanese entrepreneurs dream big. No doubt it’ll be challenged. The second thing I would like them to do is seek out the right guidance and advisors, not just investors to make the right call, even if we have to give them some options and so forth, that it can be helpful to you

Tim: On dreaming big, this is one of those things, like everyone talks about it, but I’m not sure everyone means the same thing when they say it. So what’s an example of like dreaming big versus not dreaming big for founders?

Shri: Good question. And one other thing I would like them to do is they have the attitude because something about having attitude pushes you to be better. So, an example of something dreaming big, let’s say you’re a successful company, you’re building $20, 30 million revenue in a domestic market. You have a potential chance to compete with the global competitors now that she could be happy, she could create $20, 30 million business and go public and so forth. But why stop there? You have a massive market in enabling Asia market.

Tim: I mean certainly there are a lot of Japanese founders or American founders too who just want to a lifestyle business. I mean, well 20 million’s not just a lifestyle business. You’re beyond that. But in the abstract, bigger is better. More sales is better than less sales. A global market is better than the Japanese market only. I mean, in the abstract, it seems so simple. What’s keeping Japanese founders from like mentally pulling that trigger and saying, yeah, I will take this step. Is there something that’s preventing them from making that jump?

Shri: I think culturally, there’s nobody there. The role models are the — all the former guys who have been successful. I don’t see them in the community of startups. They’re not approachable by the entrepreneur here, which if you look at you and I, we live in valley, you can still today call up with some of the most successful entrepreneur and try to get a meeting that there’s a good chance you’ll get a meeting.

Tim: That makes sense. So it’s, it’s not necessarily an intellectual or motivational problem with any individual. It’s just sort of the accepted cultural norm of this is how you exit a startup in Japan.

Shri: But there’s some good example. For example, I recently met Smartnews founder, CEO, he’s moved himself to Palo Alto.

Tim: Yeah. They were very aggressive, very early.

Shri: He’s aggressive. He is driven, he’s smart PhD, smart guy. So, they are there. Now my job is to encourage him to help other Japanese startup.

Tim: Yeah, I agree. The importance of role models can’t be overstated. It sets expectations of what’s possible.

Shri: Yeah. And one of the advantage in the Silicon Valley is you see others doing it. Let’s say you start a successful company and you succeeded to guy next door to you is doing third one. And now you say, why? Why am I not doing that sort of thing? So that will build time. It takes time. That’s why I’m more bullish on Japan because all of this thing take time and these guys are good at maniacally focused, methodically going at it and eventually they come out great company.

Tim: You mentioned attitude a couple of times. So, what is the attitude you’re looking for in Japanese founders?

Shri: Well, it’s like any sports equally good competitors out there and you try to eke out one stroke on the swimming school or one 10th of a meter on a race, and everyone is equally good, but the attitude is the one that allows you to get the edge of one lap or one stroke or one 10th of a meter. That’s what gets you there.

Tim: So, just the persistence, the focus?

Shri: The persistence focus and having confident, not ego, but confident enough that I can do it and this somebody else could be good, doesn’t mean that I have to be bad. I’m equally good.

Tim: Okay. I would add one more thing to that, or maybe it’s a little different, but I go back and forth to Silicon Valley all the time, and one of the things I’m most impressed with is, I mean, as you mentioned, Japanese founders are just as knowledgeable. They’re just as strong in terms of raw execution as founders anywhere in the world. But one thing I’m always impressed with in San Francisco is this overwhelming sense of urgency, of do it now. If something needs to get done, okay, let’s get it done this afternoon. And in Japan, I still get this feeling like, wow, that’s important. Let’s talk about it tomorrow morning and put this in practice sometime next week.

Shri: So, I’m not sure it would cross-culturally or not, it works in the Silicon Valley, but in Japan it may work or may not work because culturally some people don’t work well in their pressure. So we have to respect that. But at the same time, there enough study done, that urgency creates more success because you are focused on getting things done, but at the same time not going to easily translate that to Japanese behavior because they have their own method of doing it.

Tim: What about Japanese VCs or are they part of the problem? Part of the solution?

Shri: What I call them is VC 1.0. So many of them are, but there are a lot of good examples of what we call VC 2.0 like us. I will give a shout out to like Beyond Next guys. They’re trying to do something smart. They’re trying to set up a new fund for a follow on investment. Up until now, most of the VCs don’t do follow on. You can’t build a massive company without any follow on capital.

Tim: Most of the VC’s returns come from the follow on. It doesn’t really make sense.

Shri: Most of these guys, and the whole model is they invest early and you let the other guys do that, but there is no other guy. You have to do it ourself because the global capital will only come when they know you can succeed. And my other thing for the late stage VCs in Japan is there’s a lot of capital, but you have to give me the company that’s ready for late stage. Well, there’s a gap between when I started versus I can get you to a late stage. Who’s going to fill the gap?

Tim: Doesn’t that kind of exist everywhere? I mean it’s like VC funding is this kind of barbell shape, right?

Shri: It is.

Tim: But I think it’s more human nature than market structure in that early stage seed stage. Well, pre-seed certainly you’re writing lots and lots of relatively small checks. So, you do a bit of due diligence, get a good feel for the founders. But the strategy is just lots of small checks. And when you’re writing 10 million, $20 million checks, okay, this is a company, they’ve got a track record, they’ve got sales, you can put them into spreadsheets, you can value them properly. But in the middle you’ve got startups that don’t have a track record that you’re still taking a huge risk but you’re writing big checks. And I think that’s a very rare skill that particular part of VC and that seems to happen in the US too, not just Japan.

Shri: Happens in the US as well. Yes. But at the same time, some companies indeed take capital and they don’t have the performance matrix to get to the late stage. So, people who are VC who are knowledgeable because no great company comes out unless you are creating something the world hasn’t seen yet. I would prefer to work with fellow VCs who have equal conviction of the technology investing in entrepreneurs we are investing in. I’d rather not invest even fine $8,000 when I don’t have a conviction on the company.

Tim: So, in concrete terms, what separates the 1.0 VCs from the 2.0 VCs in Japan?

Shri: The big difference is knowing what you’re investing in and having a conviction through thick and thin to make sure this company succeeds.

Tim: Do you think that VC partners coming from a startup operating or startup founding background are more likely to be able to make that conviction than partners coming from financial backgrounds?

Shri: I think they’re equally capable of doing it, but experience basis, does this thing return money? Which is what we saying, can this thing change the world? That’s the difference. Can this technology make something happen that world hasn’t seen?

Tim: We’ve talked a fair amount about the challenges, what needs to be fixed. What do you think are some of the core or even unique strengths of Japanese founders now?

Shri: I think they have far more endurance than even American entrepreneurs. They have no problem staying with it, staying with it, staying with it. Second, the ecosystem is still there. It just takes them time and ability to network is probably one of the thing that American entrepreneurs have advantage to the naturally network. Technology wise, knowledge wise, education wise, I would say they’re probably better. They to probably improve on their marketing. So, my understanding, most of them tend to be strong in the product and technology and the ability to go through this some tough times.

Tim: I think the Japanese ecosystem as a whole is better suited for going through tough times. If you look at the growth in venture capital investment in Japan over the last 15 years, it’s this steady 20% year over year growth. Whereas if you look at in the US you’ll have one year it will double, then it’ll drop 40%, then it’ll be up 80% the next year. Having founders that can persist is really valuable because the capital is still there. It’s not like the tide suddenly goes out. So, that naturally will lead to a different kind of ecosystem.

Shri: Yeah. As we know from published data, IRRs are compatible between US and Japan. So people can return money. Now the question is are you building good businesses or great businesses? So great businesses take time and they need an ecosystem to help them do that. In terms of the rest of the ecosystem, I think Japan has the most amount of incubators in the world. Every perfect has an incubator.

Tim: I haven’t seen numbers, but that would not surprise me at all.

Shri: They have enough capital to go around, they have a low cost of capital from banks. So everything is there. You just have to come up with the right idea and go build it. And they have the ability to do that. And that’s why I’m excited about there’ll be more entrepreneurs wanting to do this.

Tim: Well, yeah. And especially in Japan, loans for growth to stage capital is readily available in Japan which is a fantastic option for founders. So, if you had to name like one or two sectors that all of this is going to benefit, what are you most excited about in Japan right now?

Shri: One example, I’m really keen on looking at quantum computing. Globally, there’s US, obviously there’s China but Japan for some whatever reason is quite focused on quantum computing and they probably have over invested and probably will read the rewards as in when it happens.

Tim: That makes sense because that really is that intersection of those various factors you mentioned about it, it’s long-term capital intensive requires a huge amount of persistence among the founding team to see it through. It requires a deeply technical workforce. So yeah, that makes sense of like a uniquely strong area for Japanese startup.

Shri: And, and the government behind it also. So that would help as well. And the globally, no more than maybe five, six countries are there now. The only thing unknown about it when the market will happen.

Tim: So we were talking before about the importance of going global and having a global mindset, but in the past six months, the past year immigration’s become a bit of a hot button issue both in the US and in Japan. But immigration historically has been this incredibly important part of innovation. And I’m wondering how you see this playing out.

Shri: Fortunate thing about it is that because of COVID and because of lots of other region, remote communication and remote office is prevalent everywhere, there are a few jobs where you need collaboration across the table, but most of that could be still done remotely. You can have a lab in Timbuktu and you can have lab in Tokyo.

Tim: But do you think that’s true in the, the early stage as well? I mean it certainly makes sense as startups scale up. You can outsource and locate certain functions in different places, but when you’re still a small team trying to figure things out, don’t you have to get everyone in the same room?

Shri: At least my experiences, no matter what technology worldwide, they’re less than handful of people know how to do that technology. You’d be very lucky that you have all of them located in your backyard. And it’s happened like Toronto for AI take off and Silicon Valley took off for the silicon and then subsequently a lot of other technologies. So you could have pockets like that and like for example, in Kyoto, you could have key talent and are built on IPSL that could form the bunch of starters out of that. But at the end of the day, the core technology is known by like 20, 30 people in the world. If you’re doing core technology, if you’re doing product development, again, 20% of the workforce is the key to the product and 80% of our support system to make the product happen.

Tim: I think it’s absolutely true when you start to scale up. But whether you’re looking at the dotcom boom or cloud computing or smartphones in San Francisco or AI in San Francisco now, or hardware in China, or even taking it out of economic terms and looking at these port cities like Venice or Cordova or New Orleans. That cluster of like-minded people trying to solve the same problem in the same physical space that allows for serendipity seems to be a requirement for genuine innovation.

Shri: It certainly would help if you had the opportunity, but even if you don’t, for example, when you’re developing a code for any embedded product, the code is no longer sitting co-located. I could be sitting next to you, but I’m actually talking to the computer in Seattle if you wanted to chat with me. We are a real lifetime Slack channel. You can track me and we can respond. There is no lost opportunity.

Tim: Okay then you’re really living this philosophy. I mean you’re focused on Japan but you’re based in San Francisco.

Shri: Yeah, I don’t miss a beat at all. I mean, what I’ve miss out is a cultural aspect of living. Like when the other VCs are going to a club to discuss some deal, probably they’re not going to invite me there.

Tim: All right. Let’s see. Shri, before we wrap up, I want to pull out my crystal ball. I want to ask you to tell me what things are going to look like in Japan five years from now.

Shri: In terms of Japan, 5 is a very short period of time, right? But I can give my wishful thinking what could happen. When I go to my LPs they’re not discouraging me to invest in Japan. They’re actually encouraging me to invest in Japan. I’m hoping that’s one thing I can make them change because I have a lot of people who are discouraging me to invest in Japan, Japanese. Second thing I would like to do is a Japanese corporation take active role in supporting startup. They’re missing out. They go out to outside the Japan to get the technology, but then they should realize that equally good technology exists domestically and they can partake in that actually improve the R&D for themself and capital efficiency for themself. At the same time make this startup successful on a global basis as well.

Tim: It’s fantastic. Mr. Shri, thank you so much for sitting down with me.

Shri: Thanks. My pleasure.

Outtro

And we are back.

You know, I still don’t think I fully understand why so many Japanese investors are looking past the domestic market and focusing on overseas investments. I mean, sure on one hand it’s natural to invest everywhere. It would be shocking if large Japanese investors were not investing in US startups.

But there really does seem to be this unfortunate idea among large Japanese investors that innovation is something that happens outside Japan and needs to be imported.

The reluctance of many foreign VCs to invest in Japan? Well, that makes a bit more sense. So far there have been few high value exits here and unfortunately things do develop more slowly in Japan.

But as Shri and I discussed that difference is not necessarily bad. It has advantages and disadvantages. Success depends on being able to identify the advantages and then to leverage them.

One aspect of this slowness is the longer term, less transactional nature of business relationships here. Shri talked about Japanese investors and partners sticking by and funding their startups long term. And I found that to be true as well.

Even going as far back as the dotcom days when the dotcom bubble burst around my e-commerce startup, we had money in the bank and steady revenues. We expected that it would be hard to close new business. But what we didn’t expect was that many of our foreign customers started canceling business, “just to be safe”.

Our Japanese customers, on the other hand, Hitachi in particular, took a different approach. We let them know that we were struggling and they gave us extra business. Now they got an incredible deal on that extra business. But the point is that they were there for us.

Both startup and enterprise benefited Japanese startups and enterprises commonly form long-term non-exclusive alliances that would be unthinkably risky in transaction focused San Francisco.

Now, I’m not saying this is better, but it is different. And the key to driving innovation in any market is discovering what’s different and figuring out how to take advantage of that.

And this brings us back to Shri’s comments about the importance of Japanese role models. Things are different in Japan, success requires different strategies. The successful Japanese founders are the ones that are figuring out exactly what those strategies are.

And the more those successful Japanese founders tell their stories and share their knowledge with the next generation of founders, well the sooner we’ll see more Japanese founders Disrupting Japan.

 

 

If you want to talk more about what’s unique and important about Japan’s startup ecosystem, Shri and I would love to talk to you. So, come by disruptingjapan.com/show243 and let’s talk about it. And if you enjoy disrupting Japan, share a link online or just tell people about it. Disrupting Japan is free forever and letting people know about it is the absolute best way you can support the podcast.

But most of all, thanks for listening and thank you for letting people interested in Japanese startups and VC know about the show.

I’m Tim Romero and thanks for listening to Disrupting Japan.