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Thank you to everyone who came to the PCC meetup March 16, 2007

Posted by fukumimi in Economy & Business, entrepreneurship, Japan, VC.

A big thank you to everyone who attended the PCC event on Wednesday.

The speaker was my colleague Rei Uno, who gave a talk about the Japanese VC scene and how to engage with Japanese VCs, including tips for writing a business plan which will be well received by Japanese VCs.

Another colleague and I who are regular punters at the Pink Cow decided to go along to see how he would fare, and we were pleasantly surprised at the turnout.

It is great that so many people are giving thought to doing their own thing, and I hope that the talk (and the mixer afterwards) was of some value to the attendees.

I ended up making an unscheduled appearance when Rei somehow got me involved in answering the questions from the floor in the Q&A session. I hope people weren’t too disappointed that they got my opinions on the questions posed rather than those of my colleague….

There were some pretty interesting questions being asked at the Q&A:

What is the difference between the Japanese and US VC models?

[Ans: If you look at the history of the Japanese VC model and the background of the major VC players, you soon realise that the traditional Japanese VC is something quite different from the US (SV) VC model. But things are changing as business practices and competition become more global. Japanese VC is changing, or at least diversifying, in the business models it employs.]

There seems to be a lack of Japanese VCs who really understand technology?

[Ans: Again, traditionally, that was indeed the case, with most of the major VC firms being affiliates (to one degree or another) of stock brokerages, commercial banks and goverment agencies, and the human resources at their disposal were limited, given the traditional lack of liquidity in the human resources market. But again this is changing, with VCs recruiting from industry (people like me), and with boutique VCs also springing up. Most of the top Japanese VC firms are large organisations, and as with any organisation, there are many different types of professionals within the organisation. The key is to find the right person to take your idea to. Stop thinking about the VC firm, and think about the individual VC.] [I thought about this question a bit more afterwards, and I think that the questioner may have some misconceptions about how we evaluate businesses. I wouldn’t say technology is not important, but I think many entrepreneurs overestimate the importance and superiority of their technology or technological skills, and the correlation between focus on technology and business success. I know that some entrepreneurs complain about the fact that VCs focus on issues which they feel to be peripheral, but we do that with justification. Our experience tells us, especially in Japan, that many businesses fail due to issues other than technology. Lack of financial planning, lack of sales/marketing ability, lack of corporate discipline in other areas, etc. It is our duty to point those out and inject some reality into many a technological daydream. The aim of a VC is to invest in a COMPANY, and help make that company successful so we can cash out and return money to our investors. I certainly only invest in businesses where their goals are aligned with ours.]

Don’t VCs stack the odds in their favour with preferred stock structures?

[Ans: That is indeed the US VC model, and although it does happen in Japan too, the reality of the Japanese VC model is that currently the vast majority are common stock investments. (certain investment heavy sectors are more likely to feature preferred structures) There are signs that preferred structures are on the increase, but it is still a small minority of deals which see such structures in place. I personally think that barring a severe downturn, there will be VCs willing to continue using an ordinary stock model, and it is up to the entrepreneur to decide which set of terms and which VCs they want to work with. After all, no one is forcing them to take our money. But this ordinary vs preferred issue has to be understood in context, such as the fact that historically structuring preferred stock was subject to various limitations which made it difficult in practice to use the structure effectively. The small average size of investments is also probably a factor which has prevented VCs pushing for preferred stock and the associated liquidation preference, as is the lack of much M&A activity.]

It was nice to meet several readers of my blog too. The entire Tokyo based readership of my blog was probably there, lol.

Anyway it was nice to see so many enthusiastic people, and it prompted me to think seriously about various initiatives I have been thinking about. Creating a venue for entrepreneurs to meet with each other and with investment professionals in a casual environment is something I’ve wondered out loud before, and the event just reinforced my feeling that Tokyo is ready for such an initiative.

In the meantime, I’m working on what I think will be another very interesting meetup (meetups?) in May. Stay tuned.

VC related event tomorrow March 14th March 13, 2007

Posted by fukumimi in Japan, VC.

Sorry for the short notice, but a colleague is giving an english language presentation on the Japanese VC scene tomorrow, if anyone is interested.

I’ll probably be sitting at the back with my beers smokes heckling the speaker and asking awkward questions at the Q&A. (if I don’t get dragged into helping my esteemed colleague out, that is)

It’s at the Pink Cow in Shibuya (on the Omotesando side), and admission is free, save for the drinks you should buy at the bar to keep the Pink Cow’s lovely owner happy.

Details below: (courtesy of CVP’s events calendar)

When Wednesday, March 14, 2007, 7 – 10pm
Where The Pink Cow, 1-3-18 Shibuya (www.thepinkcow.com)

A Getting Started Guide to Venture Capital (Pink Cow Conspiracy)
Rei Uno, Mitsubishi-UFJ Capital Co., LTD

The economy is booming. Is the entrepreneur in you pushing you to get up and run with your latest idea? Need some money to get started? Then it may be useful to have an insider’s guide to venture capital. The presentation will cover:

– What’s venture capital (VC)?
– VC equity finance versus Bank’s debt finance
– VC funding in Japan
– Major VC players in Japan
– How much is your company worth?
– How do you contact VCs
– How to get money from VCs
– Some checkpoints on your business plan

DATE: Wednesday 14th March
TIME: Open 7.00, Presentation 7.30-8.30, Networking 8.30 ’til late
COST: FREE entry, but please by a drink to support the venue. Delicious a la carte menu also available at reasonable prices/
VENUE: The Pink Cow, 1-3-18 Shibuya (www.thepinkcow.com)

More www.thepinkcow.com

Being a boozer (of sorts), I like evening events where I can drink something stronger than coffee, but I’ve been watching Saul Klein’s Open Coffee Club events picking up momentum and spreading globally, and have been wondering what kind of interest there might be for an informal meeting place for people related to the venture scene in Tokyo. I look forward to attending the London event on my next trip to the UK to pick up tips and to retain the flavour of the original efforts.

There are a whole bunch of business networking events and the like in Tokyo, but many which appear to be of rather dubious provenance, and I believe that getting attached to the wrong sort of people can kill an young company’s chances of success. I am also well aware of the Japanese VC industry’s weaknesses, and feel that sharing information is the best way to improve the situation for both venture businesses and investors alike, so a Tokyo version of the Open Coffee Club is something I’m going to look at doing with other people who share the same vision.

(I can vouch for the PCC/CVP events being legit, having attended in the past and knowing the people behind them)

On Worldwide VC Rankings February 28, 2007

Posted by fukumimi in Japan, VC.

The FT published a story (15th Feb) noting that the UK tops Euro VC deals, based on VC investment data for 2006.

Jason blogged about this, linking to a blog written by the people at Library House, the venture reseach company.

Library House’s blog noted that it missed signficant countries “such as South Korea, Japan, South Africa” citing their inability to find public data.

I thought I might help them out and point them to the source of Japanese data. The Venture Enterprise Center compiles the annual Japanese VC investment data. Unfortunately, the data is compiled by financial year (ending March), and it apparently takes them the better part of a year after the year close to compile the report. The latest report for the year ending March 2006, was made available on 5th February 2007. Should it really take this long to compile the report?

Anyhow, this is the best we have to work with. The report is here, but you’ll need to be able to read Japanese (and you probably need Japanese fonts for Acrobat installed too).

Given the promise to blog more about VC related issues this year, this seemed like a good an opportunity as any take some data out of the report and make it more widely available, and give the wider world a better idea of the VC scene in Japan. It is already the last day of February and I don’t think I’ve been doing many VC related topics. I think I’ll target once a month at the very minimum, and this is my February contribution. Having said that, I don’t have much time this evening so this is a teaser post outlining the headline numbers, with a promise to present more detailed analysis at a later date.

I’ll use the current Euro/Yen exchange rate rounded to an easy number (1Euro=160Yen, because I’m lazy) on all conversions to allow easier comparison with the Library House report statistics.

VC Investments by Japanese VC firms for FY2005 (April 2005-March 2006) totaled 234.5billion yen, which is 1.47 billion euro. That would put Japan below the UK but above Texas which was 4th on the list as far as investment sums were concerned.

Total number of deals was 2,834, which is more than double the number of deals done in California (1,367). The number of deals is broken down into principal investments(787) and fund investments(2,047). (But see below about overseas investments)

Historically, in Japan, it has not been uncommon for VC firms to make principal investments alongside fund investments (though not all firms do this – clearly there are potential conflict issues, and our firm no longer makes principal investments because of this), so there might be some overlap in the investments quoted above. Even if there was perfect overlap (with principal investments only ever occuring alongside fund investments – this certainly is not the case in reality) that would still mean 2,047 deals, assuming each VC fund was putting up only cash from one fund
at a time – again not a certainty by any means, but I don’t think the numbers would be impacted greatly and I don’t doubt that in terms of deal numbers, Japan is roughly on a par with the top 5 US states combined.

New investments accounted for approximately 80% of investment, with 20% being follow-on investments. A start contrast to the US scenario where new deals account for 25%(by sum) and 35%(by # of companies) according to the NVCA yearbook for 2006.

50% of invesments were made to companies within 5 years of founding, 20% made to companies within 2 years of founding.

IT related sectors accounted for 35%, bio/medical/healthcare for 18% (still down 5% from the previous year, but mainly due to the rise in  investment in other sectors), the 3rd most active sector was in consumer related goods and services.

Investment amounts showed little industry-to-industry variation, and the average was around JPY50million, or Euro310,000.

For new deals, overseas investments were 20% of the total by investment sum(total of JPY24B or Euro150M), but just 6.7% by number of deals(127). This translates to a larger deal size for overseas investments, which averaged JPY189M, or a little under Euro1.2M.

That leaves the domestic component – 1,781 new deals (for companies who responded to this survey), totalling JPY102B, or Euro0.6B.

Those are the headline numbers, more next month….

VC expansion into Second Life? February 2, 2007

Posted by fukumimi in VC.

Well, it was bound to happen.

Japanese VC firm GMO Venture Partners has used its announcement of a Second Life business plan competition (total prizemoney pool 500,000 Linden Dollars) to announce that it intends to create a Second Life fund which may include investments made in Linden Dollars.

There are legal issues to be worked out of course, and the investment being made in Linden Dollars seems to be more a gimmick than anything.

A Japanese enabled version of Second Life is imminent, and with publicity surrounding Second Life increasing, it will no doubt attract attention. The Japanese media is (as always) playing catchup to the US media on its hyping of the Second Life phenomenon. Even after the real (rather than accumulative number of signed up users) usage numbers appeared, the press continues to hype the bigger number. (I’m one of those users who signed up but haven’t logged in for months – to be fair I haven’t dabbled with it enough to pass judgement on the merits of Second Life, but there just wasn’t enough initial stickiness to compel me to return)

Japanese version of CoComment December 22, 2006

Posted by fukumimi in blogosphere, Internet, Japan, VC.

A:CEuro notes that CoComment has raised $1.5M from Netage Capital Partners, the Japanese VC which was one of the main investors in Mixi. $1.5M for a 40% stage seems very reasonable (heh, understatement) to me. I doubt you could drive such a bargain with a Japanese IT start-up these days.

(The value proposition here is that CoComment takes (at least a proportion of) pageviews away from the site that the comment was originally posted on, by scraping the content from the marked threads, and diverts eyeballs to the CoComment site which then can be monetized. Basically a blogosphere impression hijacking engine :-))

Netage launched a Japanese version of CoComment at the end of November (although much of the site is still unlocalised, which might hinder users).  It is part of Netage’s Saaf portal which gets nil points for originality, featuring Digg and del.icio.us feature ripoffs. (even in Japan there were companies like Hatena doing most of what Netage is doing here a long time ago)

The CoComment investment will probably be matched to the Trend Match advertising engine (or some other ad engine) to monetize pageviews I guess.

I’ve been using CoComment for a while and find it handy to track comments, especially if you are a Firefox user.

However, it will be interesting to see how the blogosphere dynamic evolves, NRI published a report on the state of the blogosphere in Japan (article here in Japanese) where they pointed out that of approx 10Million bloggers in Japan, only about 10% actively comment or trackback. I don’t think that there will be much change in the proportion of bloggers who actively link and comment, but I guess that such bloggers do spend much more time on their PCs, which may be a plus for advertisers. However, at the same time my gut feeling is that the more PC-centric a person’s lifestyle is, the less they actually click through CPC ad links. I certainly don’t click on many ads at all….


Posted by fukumimi in Energy, VC.
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A must read from Bob Metcalfe guest blogging on VCMike

via Paul Kedrosky’s blog (another one which should be on your reading list)

Lots and lots of good points.

Female VC bloggers (and international VC bloggers too) December 1, 2006

Posted by fukumimi in blogosphere, Language, VC.
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Matt Marshall at VentureBeat reckons you can count the number of female VC bloggers on one hand.
This list compiled by female VC blogger Christine Herron would suggest otherwise.

But coming (at last) to the point which triggered this post, as usual with all these lists, it is anglophone-centric (anglophone-specific?).

There is a VC bloggers list out there compiled by Jeffrey Stewart, which lists a total of 103 VC bloggers.

Kudos to Christine and Jeffrey for taking the time and making the effort to compile the lists, but the English language accounts for less than 40% of the blogosphere according to the latest Technorati data as of October 2006 (if anything, I would hypothesise that the shares for English and Japanese are over emphasised at the expense of other languages due to Technorati’s emphasis on these two languages – Technorati hails from California, and Japan is home to its only foreign outpost, although China is apparently in the works), and there are venture capitalists the world over.

(Of course, the VC industry is a heavily internationalised one, however there are healthy VC markets in many non-English speaking markets, and if VCs are blogging to raise their profile with potential investees, it is often more advantageous to blog in the local language)

With regards to female Japanese bloggers, my colleague blogs here (she is the Chairperson of the selection committee of the Japanese chapter of the E&Y Entrepreneur of the Year thingie), and an ex-colleague who moved to another VC firm also has a blog here (she doesn’t blog much since her move, maybe there is a stricter policy regarding these things at her new firm. There are moves to tighten up blogging policies here too, which I personally feel would be counterproductive…), for starters. I think there are probably at least half a dozen Japanese VCs who blog regularly, and more if you count those who post their thoughts on Mixi or some other “closed” SNS.

[Mental note: Compile a list of Japanese VC bloggers…]

Cleantech investment and competition for resources November 27, 2006

Posted by fukumimi in Economy & Business, Energy, VC.
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With the recent trend of so-called “cleantech” investments in bioethanol and solar, I have yet to see much discussion within the VC community addressing the resource scarcity issues that both these technologies seem to face, so I’m thinking aloud to see if anyone will chime in to discuss the perceived issues.

Brad Feld posted an interesting quote from some guy (the CEO) at Tyson Foods, who blamed bioethanol production for pushing up feed prices.  Much of the bioethanol production in the US is currently based on corn, and bioethanol competes with livestock feed. Increased food production costs are eventually passed on to the consumer. Even in the US, it isn’t like everyone has enough food to go around. More than 10% of the US lives below the official poverty line, that’s more than 30 million people. (National Poverty Center link) It isn’t like the poverty line is set at some inflated value by raving left wing communists either (see definitions at the NPC site).

I am all for sustainable energy, but it seems to me that corn based bioethanol has serious ethical issues, even before we get to the net energy debate.

Proponents of bioethanol then point to cellulosic bioethanol as the end goal, claiming that this would eliminate direct competition with food production.

However, you can’t avoid competition for prime arable land or water resources (the latter is an issue which gets far too little attention IMO, and an obvious cause of future armed conflicts – and more than a billion fellow humans – that is one in every six people – don’t have access to safe drinking water, and water management issues are getting more and more serious by the year in many areas).

There is also the real possibility that corn ethanol producers may not necessarily be the ones who will devise (or hold the rights to) a commercially viable cellulosic ethanol process, although to be fair, the ethanol conversion process is likely to be fairly similar technologically than not. Also, viable feedstock production for cellulosic bioethanol production may not eventually be located in the areas where corn bioethanol plants are being built and an energy density calculation would likely indicate that conversion should take place near the site of feedstock production.

Regarding solar power, there has been a flurry of interest in alternative materials to replace silicon (which in its favour is abundant, and as long as the production sites are located close to cheap, less ecologically unfriendly methods of electricity generation (like hydroelectric) are not too bad – which is why silicon production in Norway seems to be such a good idea compared to say producing it in Japan) given the silicon supply issue. CIS/CIGS technologies are being touted as a silicon competitor.

Which is fine until one realises that these thin film technologies will be major consumers of indium, an element although not scarce (it is about as abundant as silver), faces supply issues as well. Indium consumption is currently also dominated by the flat panel display industry, which is also the reason for the silicon shortage. So, if we go either the silicon route or the thin film route, there are likely to be cost issues as production of photovoltaics ramps up and volumes start to compete in earnest with flat panel displays. The future indium shortage is an issue being taken very seriously by Japanese indium producers and consumers, who are accelerating recycling efforts, but if CIS/CIGS production takes off, indium prices will most likely follow.

In both instances, whilst I agree with the basic idea of more sustainable energy, I feel there is a need to promote more efficient energy usage to much greater effect. Which basically means getting rid of the SUV, for starters. How many times a year does the car get fully loaded? Once? Twice? Never? And forget about getting that 103V Plasma TV, which consumes a virtually criminal 1.5kW of power.

Get a small car and rent a people carrier for the odd occasion where you really need that capacity, and if you really “need” a big TV, go the projection route – just looking at the infrastructure build-out requirements associated with big monolithic flat panel displays vs slimmer than ever RPTV (size for size, RPTVs are now only about double the depth, less than 30cm deep and we’ll see newer models at CES this year which will probably feature average depths approaching flat panel technologies) and comparative electricity consumption requirements should be enough to convince people that big glass/semiconductor sandwhich sheets are really not a very eco-friendly purchase.

Of course, the cited weaknesses in the currently dominant technologies in both areas are actually also opportunities for new entrants and the people who will fund them. The bioethanol issue is most likely going to produce huge value for someone in the biotech or agribusiness industries, and in the solar business we’ll probably see some winners from the electronic materials sector.

There is plenty of technical innovation required in both areas, and in that respect it is right that these energy related businesses are attracting VC money.

Japanese VC bloggers August 9, 2006

Posted by fukumimi in Japan, Overseas, VC.

Last week I was in London and met with fellow VC blogger Jason Ball, and we got on the topic of VC bloggers in Europe and Japan, specifically the apparent lack of them (at least as far as blogging in English is concerned).

In that spirit….

I found a new blog written by another London based VC, Shantanu Bhagwat of Amadeus, who I also happened to meet last week. Shantanu didn’t tell me the name of his blog, but mentioned he had started one, so I dug around and found his blog so I thought I’ll out him here. Shantanu is originally from India, and has spent time in Japan as well.

Japanese (self-professed) VC bloggers are few and far between. There are a few VC bloggers who blog in Japanese, maybe a dozen or so blogs on the first couple of pages for this search for “venture capitalist” in Japanese.

As for English language VC blogs, I am embarassed to say that this blog is the first blog that appears when Googling for a combination of Japan/Japanese and Venture Capitalist/VC (for japanese+venture+capitalist, Joi Ito’s blog is the top entry, does Joi count as a VC? anyway for the other combinations my blog seems to be the solitary blog on the first page of results)….

It’s a pity because I think everyone will win from a more diversified discussion on-line. If there are any VC lurkers reading this, please join us on-line. It would be great to have different VC perspectives from various locales represented on-line.

PS Jason and I were in complete agreement that Peter Rip, the MD at Leapfrog Ventures, is posting some absolutely cracking content recently.

SBI creates India fund August 9, 2006

Posted by fukumimi in Japan, Overseas, VC.
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SBI Holdings has announced it is creating a $100M fund in partnership with SBI Capital Markets Ltd, a wholly owned subsidiary of the State Bank of India, to invest in Indian venture businesses.
SBI Holdings are a leading Japanese venture capital player, with current investments of more than $1B at book value spread over a number of funds. Its VC investments are primarily managed through its Softbank Investment Corporation subsidiary.

Softbank Investment Corporation set up an identically sized ($100M) fund focussing on China in 2005, together with Temasek, the Singaporean government’s investment vehicle.

SBI Holding and its subsidiaries also make overseas investments through some of its other funds as well.

SBI Holdings was in the news just last week, when Softbank Corporation sold off its 26.7% stake in SBI Holdings. 19.2% of the shares was reportedly snapped up by Goldman Sachs Japan.

The move has been widely expected, SBI Holdings and Softbank Corporation have been heading in different directions and there have been persistent rumours that the respective CEOs have not been on good terms in recent years, and Softbank needs money to finance the operations of its expensive Vodafone purchase.