Report No.30
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Japan Entrepreneur Report No. 30 April 2005
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- Miyauchi of ORIX says Japan must play ball
- Five years as a Tokyo venture capitalist
- So polite on the surface...
- Bits and bytes
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Miyauchi of ORIX says Japan must play ball
Marketing history does, it seems, repeat itself. Last year entrepreneurs
Mikitani Hiroshi and Son Masayoshi both bought baseball teams, naming
each after their Internet companies--moves that turned Rakuten and
Softbank into household names overnight, even among the computing-averse.
Brilliant as the baseball coups were, the two entrepreneurs had simply
borrowed a page from 70-year-old Miyauchi Yoshihiko's playbook.
Miyauchi, CEO of ORIX, Japan's most entrepreneurial financial services
firm, engineered a baseball team purchase 17 years ago, instantly
transforming ORIX's leasing company image into a mainstream financial
services brand.
ORIX deserved the breakthrough recognition. From its debut as an
equipment leasing firm in 1964 it refuted the "convoy" mentality of
finance sector colleagues who meekly took marching orders from the
Ministry of Finance. Miyauchi never assumed, or let ORIX employees assume,
that the government would come to their aid in a pinch.
"We're constantly driven by a sense of urgency and a keen understanding
that companies can and do go bankrupt," Miyauchi said in a 2004 interview
with the Nikkei Kinyu Shimbun. ORIX was the quintessential outsider in a
decidedly insider industry.
All the more stunning, then, that last year Miyauchi became head of the
government's Council for the Promotion of Regulatory Reform. Thankfully
Miyauchi pulls no punches clarifying the fuzzy reform rhetoric Japan's
bureaucracy typically issues.
"It all boils down to transitioning from a planned economy to a market
economy," he said in an interview with Nikkei Venture last month. "In a
planned economy, bureaucrats plan, orchestrate and distribute. In a
market economy, buyers choose."
Miyauchi says that consumers and businesses mistook Japan's post-WWII
democratic proclamation of "equal opportunity" for all to mean
"equivalent results." That interpretation, he says, somehow morphed into
the assumption that bureaucrats would provide everyone--consumers and
businesses alike--with "equivalent results." Banks, for example, could
lend to companies without worrying whether they would fail or not. That
in turn promoted indulgent co-dependence between the private sector and
the government, an unsustainable relationship in a global 21st century
economy, says Miyauchi.
It's easy to take potshots at Japan's bureaucracy, but few observers can
back criticisms with hands-on entrepreneurial experience as deep as
Miyauchi's, especially in a domestic service sector like finance,
traditionally rife with bureaucratic meddling. Despite compromises and
setbacks in the Koizumi cabinet's reform initiatives, Miyauchi's
appointment to the Council chair is a strong sign that Japan is serious
about restructuring.
And why shouldn't they be serious? There's a compelling impulse for the
reinvention of Japan. "Reform is inevitable," Miyauchi says. "Because
without it, Japan will collapse. It's that simple."
Miyauchi's pitching the ball. Now it's time for Japan, Inc., to step up
to the plate.
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Five years as a Tokyo venture capitalist
Once upon a time an innovative but cash-poor startup called Novell
offered a 21-year-old Berkeley computer programming student named Allen
Miner a part-time job compensated with stock rather than cash. Unsure
what receiving shares of stock in lieu of a salary meant, Miner opted
instead to take a $7.50 per hour position with software startup Lytron
Systems. Novell shares soared and Lytron went belly up a few years later.
Miner would no doubt make different choices now. He is the founder and
president of Tokyo-based venture capital firm SunBridge, and the first
foreigner to serve on the board of the Japan Venture Capital Association.
Here are excerpts from a chat with Allen earlier this month.
- You launched SunBridge at the worst possible time for a new venture
capital firm: weeks after the NASDAQ meltdown in 2000. Yet SunBridge
celebrated its fifth anniversary this month. How have things changed?
We started with just a handful of people in April of 2000, and no one
knew about us. Now we have nearly 100 people in a fully-staffed
incubation organization, and major Japanese corporations are asking us
for help with channel development and other services we offer to our
portfolio startups. We've had four IPOs, and two of our portfolio
companies--MACROMILL and G-Mode--made the 2004 Deloitte Touche Tohmatsu
Consulting Technology Fast 500 Asia Pacific Ranking. They're at slots
number 43 and 170, respectively.
- How about financial results?
Last week I looked through Venture Economics' data on "vintage 2000"
funds--in other words, venture capital funds that launched in the year
2000. The data show results for more than 200 U.S. and European funds.
SunBridge topped them all in terms of cash-on-cash returns. For our Japan
fund, we are now investing only our own capital; we are no longer
soliciting outside investor money.
- Several years ago you wrote a Japanese language book, I'm Betting on
Japan. Clearly you are still placing your bets on Japan, but how about
the rest of the world?
In our first five years we established a very successful Japan operation.
Over the next five years, our challenge is to produce similar results in
other markets, including my home country of the United States. Toward
this end we have launched a new North American fund called SunBridge
Partners that invests in early stage companies developing products based
on advanced computing, communications and manufacturing technologies.
I do worry a bit about the fact that Japanese companies invented
Internet-enabled mobile telephones and yet are being outsold
internationally by Samsung, and that Sharp invented the LCD television
but is being outstripped by Korean competitors. That said, in the
television sector our most recent investment is a Japanese startup going
after the flat-panel television space. Founder Iizuka Katsumi is a former
Dell Japan President who later started Akia Computers, a huge riches-to-
rags flameout story. He's paid off his debts and now has a flat-panel TV
company called byd:sign that's going to do $100 million of revenue in its
second year of operations. They do design in Japan and assembly in
southern China. This is the new model for Japanese technology
manufacturers: global operations from the very start, locating each
process in the most appropriate geographic market.
- Japan, though, will always be SunBridge's first home and your second
home, won't it?
SunBridge plans to be in Japan for a very long time. Over the last two
years we've helped a dozen leading U.S. technology firms enter the market
here. Our engagements ranged from establishing a joint venture to
conducting a large-scale consulting project to managing a "soup-to-nuts"
startup launch that involved everything from locating an office to hiring
staff and running marketing promotions.
Through SunBridge Solutions and Humetrix, we offer the two services high-
growth technology companies most request: channel development and
personnel acquisition. We're pleased to finally have in place the Japan
and U.S.-side infrastructure, experience and track record to offer very
effective market entry services for foreign technology companies. ___
Nagai (URL/mail) is in charge of market entry services. We want not only
to help Japanese startups get off the ground, but to help U.S. and other
foreign firms get their Japanese startups off the ground.
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So polite on the surface...
...But why is service so poor where it really matters--in hospitals,
banks and real estate brokerages? A new book smashes Japan's service myth
and explains how outsiders can lead the way meeting the real needs of
Japan's consumers. "Full of ideas for making money," says China Economic
Review. Free downloadable chapter at
<http://www.sayingyestojapan.com/sample/>.
Dave Baeckelandt of Chicago Pacific Capital Advisers found the first
error in my book, on page 22. Suga Hitoshi is the former CEO of Mitsui
Venture Capital, not Mitsubishi Venture Capital. Sincere apologies to Mr.
Suga, and thanks, Dave, for the sharp eyes and the gentle reminder. JER
first covered Mr. Suga's role in Tully's Coffee Japan's success in
"Coffee Breakthrough" (<http://www.japanentrepreneur.com/200407.html#3>).
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Bits and bytes
Jeff Kingston has written a terrific new book called Japan's Quiet
Transformation. In it he argues persuasively that Japan, Inc. the
economic machine is starting to shut down while Japan the civil society
is beginning to rise up. Read some key points in Jeff's International
Herald Tribune editorial at
<http://www.iht.com/articles/2005/03/31/opinion/edkingston.html>.
Speaking of fine new Japan-related books, Expressive Japanese shows how
native speakers use language to communicate feelings and emotions in ways
university language texts never did--and still don't. See
<http://www.rolomail.com/cgi-bin/sanadd.pl?88-0-136-xj> for a complete
description of this long-overdue book.
I'm looking forward to meeting more JER readers in St. Louis on April 27,
in Washington D.C. on May 3 and in Seattle on May 5. See
<http://www.sayingyestojapan.com/events/> for details.
Learn about Google's past, present and future from a guy who ought to
know: Google Japan President Murakami Norio. It all happens May 10 at the
Entrepreneur Association of Tokyo. See <www.ea-tokyo.com> for details.
Tim Clark
Senior Fellow (non-resident)
SunBridge Corp.
Voice (U.S.) 503.235.4419
Fax (U.S.) 503.235.4429
clark at sunbridge.com
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