Japan's venture habitat
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Japan's venture habitat

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Mr. Allen Miner Lecture on 04/20/2010 at Stanford.

Mr. Allen Miner Lecture on 04/20/2010 at Stanford.

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  • 1. Creating Helping passionate Entrepreneurs build Global Ventures Successful global businesses The next challenge for Japan’s evolving venture habitat Allen Miner Chairman & CEO SunBridge Corp.
  • 2. Helping passionate entrepreneurs build successful global businesses Agenda Introducing SunBridge Japan’s Evolving Venture Habitat Concentration of Creativity Entrepreneurism Venture Ecosystem Improvements Venture Finance Competing Globally 2
  • 3. Introducing Helping passionate Entrepreneurs build SunBridge Successful global businesses
  • 4. Helping passionate entrepreneurs build successful global businesses SunBridge Founding Goals (2000) Create a Dynamic Venture Habitat that combines the best features of Silicon Valley and Japan to influence and improve Japan’s Venture Ecosystem, helping to create World-class Global Ventures, and World-class (top-quartile) investment returns
  • 5. Helping passionate entrepreneurs build successful global businesses SunBridge Venture Habitat Consultants VCs、Banks PR Firms Accountants Designers Lawyers Agencies Incubators Recruiters IT Vendors Alliance Universities Integrators NPOs ISPs Alliance Alliance Etc. End Users 150 Professionals $100M invested Established Established Technology Human Enterprise Services Venture Enterprise Capital Resource Sales & and Services Marketing Strategic Solutions Support Information exchange and collaboration Affiliated Venture Unrelated Affiliated Information exchange Venture Venture and collaboration
  • 6. Helping passionate entrepreneurs build successful global businesses
  • 7. Japan’s Helping passionate Entrepreneurs build Venture Habitat Successful global businesses Concentrated Creativity With strong creativity and power to innovate, Japanese inventions have changed the world, the way we work and the way we live while creating new industry sectors and employment.
  • 8. Helping passionate entrepreneurs build successful global businesses Tokyo and Osaka: leaders of the “Spiky World” #1 and #9: World’s largest metropolitan areas Fortune 500 Headquarters #1 Tokyo: 51 #8 Osaka: 7 Global patent leaders Leading per capita GDP
  • 9. Helping passionate entrepreneurs build successful global businesses Japan is an Innovation Superpower Leads the world in Patents Issued 2004 patents Japan: 342,726 vs. US: 167,183 9
  • 10. Helping passionate entrepreneurs build successful global businesses Patents in VC-favored Technologies 10
  • 11. Helping passionate entrepreneurs build successful global businesses Japan leads the world in R&D investment R&D share of GDP significantly leads US and Europe & growing faster R&D Intensity AAGR (%) R&D Intensity (R&D expenditure as a % of GDP) in 2004 and average annual growth rate (AAGR) of R&D Intensity (’99-’04) Japan R&D Investment: 3.3% and accelerating R&D Intensity (%) (Source: Eurostat, OECD) 11
  • 12. Helping passionate entrepreneurs build successful global businesses “Lifestyle IT” leaders Japanese introduced the world to most of its “Lifestyle IT” products • Lifestyle IT (non-computer computers) –Game consoles, digital cameras, car navigation, entertainment robots, mobile internet, IPTV, Mobile DTV, etc. • Key enabling technologies –LCD, Flash Memory, CCDs, magnetic and optical storage density and miniaturization, micromotors, IPv6 technologies, battery & fuel cell advances, mobile browsers, laser- scale hard disk servos, etc. • The result is an ever-richer technology ecosystem underpinning the success of numerous Japanese startups –Access, Index, Faith, Cybird, Shicoh, g- These are the kinds of products mode, Advanced Media, byD:sign, etc. (not enterprise-productivity tools) that are driving global IT innovation and growth today 12
  • 13. Japanese Helping passionate Entrepreneurs build Entrepreneurs Successful global businesses Contrary to popular myths, in Japan, as everywhere else, innovation is driven by individual ‘heroes’ – not by industry associations or government. Increasingly, these ‘heroes’ are innovating in entrepreneurial settings rather than corporate or government laboratories.
  • 14. Helping passionate entrepreneurs build successful global businesses World laggard in new business formation Consistently ranks near bottom of annual GEM Entrepreneurial Activity study (出典: : Global Entrepreneurship Monitor, 2002: www.gemconsortium.org) (TEA=that percent of the labor force that is either actively involved in starting a new venture or the owner/manager of a business that is less than 42 months old) 14
  • 15. Helping passionate entrepreneurs build successful global businesses Highly entrepreneurial at times In times of great change many new companies are formed Founding year of Japanese Public Com panies (com piled in 1998) 300 250 1/3 (599) w ere formed in the 1948-53 GHQ 200 era of dramatic social change and economic 150 recov ery 100 50 0 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 15
  • 16. Helping passionate entrepreneurs build successful global businesses World-class Japanese Entrepeneurs Winners of Nikkei’s annual Entrepreneur Awards Tempstaff Fast Retailing Plus Japan’s second largest Inexpensive casual-wear Office Furniture and temporary staff agency manufacturing and retail Supplies Manufacturer Founded: 1973. Founded: 1963 Founded: 1948. 2006 Employees: 2,016 2006 Employees: 3,990 2006 Employees: 4,264 2006 Turnover: 2,129 2006 Turnover: 4,488 2006 Turnover: private 2007 Mkt. Cap: 1,028 2007 Mkt. Cap: 9,048 2007 Mkt. Cap: private Yoshiko Shinohara - 2007 Winner Tadashi Yanai - 2004 Winner Yoshihisa Imaizumi – 2001 Winner Nidec Culture Convenience Club Park 24 World leader in brushless Tsutaya Media Rental Chain, Automated Parking Lot micro-sized DC motors Online media Mgt. 20,000+ stalls Founded: 1973. Age 29 Founded: 1982. Founded: 1971. Age 33 2007 Employees: 80,026 2006 Employees: 3,078 2006 Employees: 638 2007 Turnover: 6,296 2006 Turnover: 2,283 2006 Turnover: 653 2007 Mkt. Cap: 10,264 2007 Mkt. Cap: 1,219 2007 Mkt. Cap: 2,323 Shigenobu Nagamori - 2006 Winner Muneaki Masuda - 2003 Winner Kiyoshi Nishikawa – 2000 Winner SoftBank Pia H.I.S. Group Software Distribtution to Ticket retailing and event Discount travel & tourism Internet Zaibatsu information publishing 70 international branches Founded: 1980. Age 23 Founded: 1972. Age 22 Founded: 1980. Age 29 2006 Employees: 17,075 2006 Employees: 308 2006 Employees: 4,328 2006 Turnover: 11,086 2006 Turnover: 961 2006 Turnover: 3,289 2007 Mkt. Cap: 27,188 2007 Mkt. Cap: 182 2007 Mkt. Cap: 1,267 Masayoshi Son – 2005 Winner Hiroshi Yanai - 2002 Winner Hideo Sawada - 1999 Winner 16
  • 17. Japanese Venture Ecosystem Helping passionate Entrepreneurs build Improvements Successful global businesses How to create more world-class entrepreneurs? From the mid-1990s MITI officials began to have serious concerns about the lack of high-potential technology startup activity in Japan and launched a 10-year initiative to study Silicon Valley and replicate its features as much as possible.
  • 18. Helping passionate entrepreneurs build successful global businesses Dramatic changes in a short time From the perspective of entrepreneurs starting companies and the Venture firms backing them, Japan’s regulatory environment, capital markets, labor mobility and social attitudes have changed so dramatically in the past 6 or 7 years as to be nearly unrecognizable to someone who’s knowledge of Japan is rooted in the common sense of the 1980s bubble era or 1990s lost decade. Quicker exits 2000-04 Dramatic structural change on new markets. • Commercial code and IPO rule changes Better IRRs • Shift in domestic VC focus from very for VCs & LPs late stage to very early stage • University TLOs, spinouts encouraged New access to World-class R&D • Restructurings, Layoffs - end of lifetime Top 5 employment Waseda 65 Osaka 46 2004-6 Recovery Entre- Keio Kyoto 43 37 • Economy, Stock Mkt. preneurial Tokyo 33 • Emergence of Renaissance? “Serial Entrepreneurs” 2008-09 Collapse of IPO markets Over 20,000 1-yen companies Dramatic - J-Sox, Global Financial Crisis registered in first two years regulatory after regulation changes allowed them. changes
  • 19. Helping passionate entrepreneurs build successful global businesses Where High-Growth Companies Start Today Because of the world-famous examples of such companies as Oracle, Cisco, Google, and Salesforce.com, it is widely believed that Silicon Valley creates more high-growth companies than any other region in the world. Number of public By Country: companies formed after China 27 1997 which had sales US 22 greater than $50M in 2007 Japan 12 and three consecutive India 10 years of growth above 50% from 2005-2007. By Metro: Tokyo 10 (source: SunBridge analysis of Bloomberg Silicon Valley 6 data) Shanghai 4
  • 20. Venture Finance Helping passionate Entrepreneurs build in Japan Successful global businesses A shortage of private capital and low barrier to public offering led to exceptional VC returns while limiting the long-term growth potential of Japanese startups.
  • 21. Helping passionate entrepreneurs build successful global businesses IPO lead-time truncated after 2000 Quicker exits on new markets. Better IRRs for VCs & LPs
  • 22. Helping passionate entrepreneurs build successful global businesses Japanese VC Investments by Company Age Shift from pre-IPO to earlier stage investing. Over 50% of investments now in companies under 5 years old a latot era serugiF mount invested 100M units) 1996-2001 are percentages ni( 100% 11 90% 23 285 185 244 113 29 35 11 80% 39 7 111 69 101 36 70% 16 60% 21 14 194 141 199 125 17 50% 20 40% 21 14 15 59 30% 54 659 467 596 261 20% 32 25 27 10% 1 2 2 3 1 19 13 10 13 0% 1996 1997 1998 2000 2001 2002 2003 2004 2005 Age (in years) of company at time of investment 0 <5 5 to 10 10 to 15 >15 Source: VEC Annual Surveys 22
  • 23. Helping passionate entrepreneurs build successful global businesses Comparing VC Investments Globally Japan’s VC industry may be significantly underfunded 104.8 100 US ($1B) 90 VC as % of 80 2004 GDP__ EU (€1B) 70 US 0.17% EU 0.10% JP (Y100B) 53.6 60 JP 0.04% 45.5 40.8 50 32.7 31.6 40 27.2 21.7 21.6 20.9 21.0 18.8 18.9 30 14.6 12.6 11.0 20 8.8 7.9 7.2 4.1 3.7 3.5 2.6 2.8 2.4 2.3 2.2 1.8 2.0 2.0 1.5 1.6 1.7 1.5 1.2 1.1 10 0.8 0 1991 1992 1993 1994 1995 1996 9997 1998 1999 2000 2001 2002 2003 2004 2005 23
  • 24. Helping passionate entrepreneurs build successful global businesses Japanese VC industry spreads risk Many small investments across large portfolios (出典: : Global Entrepreneurship Monitor, 2001: www.gemconsortium.org) 24
  • 25. Helping passionate entrepreneurs build successful global businesses Macro financial factors supporting potentially high VC returns in Japan US Trend of Annual Venture Capital )B1$( SU )B1$( SU Shortage of Capital vs Size of Opportunity Returns Investments 104.8 50 53.6 VC/GDP ratio < ¼ that of US. 40.8 )B1 ( UE € VC as % of Peaked 40 2004 GDP )B001( PJ )B001( PJ )B001( PJ No Overhang in Japan Here US 0.17 “US VC is still about 3 times overfunded” 30 21.6 21.7 20.9 21.0 % (Ray Lane, at Stanford Summit, 4/6/05) 18.9 EU 14.6 20 12.3 0.10 Very Few megafunds exist in Japan 11.0 11.0 9.8 8.8 % 8.5 8.4 7.9 10 Venture Economics fund benchmark data shows a 5.0 JP 4.1 3.7 3.4 2.8 2.4 2.4 2.3 1.9 2.0 2.0 1.5 1.6 1.7 1.5 1.2 0.8 0.04 0 % precipitous drop-off in IRR performance as funds 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 年 grow larger than $250M 3 33 3 4 44 4 5 55 5 6 66 6 7 77 7 8 88 8 9 99 9 0 00 0 1 11 1 2 22 2 3 33 3 4 44 4 5 55 5 9 9 9 9 9 9 (Sources: NVCA, EVCA, VEC) 9 0 0 0 0 0 0 Buyers Market = Attractive deal valuations Fewer me-too startups = Higher probability of success Better capital efficiency = Less dilution Attractive IPO exit market (UNTIL J-SOX!!!) Stable = No need to force companies thru a window Reasonable = Less (wasteful) regulatory overhead Continued acceptance of young emerging cos. Median Revenues of about US$20M, profits of $1-2M at IPO on Mothers and Hercules Side-effect: Underdeveloped M&A exit market Result: Better environment for high VC returns! 25
  • 26. Helping passionate entrepreneurs build successful global businesses SunBridge Investment Performance Former executives of Oracle, Sybase, SAS, Adobe, Fuji Xerox, Recruit, Accenture and IBM Japan providing strategic guidance and a full range of business development services to Japanese, American, Asian and European entrepreneurs striving to grow successful technology businesses in Japan. Top Quartile Vintage 2000 VC Funds (IRR) . $100M invested. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% • 45 Japanese and 12 US companies SunBridge Average Top Quartile 8.45% 3.9x net to date 49.50% • Information Technologies and Internet. Top Quartile Vintage 2001 VC Funds (IRR) • Seed & startup in Japan. Early expansion in US. 0% 2% 4% 6% 8% 10% 12% Equitek 1.3x net to date 10.4% • Actively add significant strategic value beyond Average Top Quartile 8.1% capital Top Quartile Vintage 2002 VC Funds (IRR) • World-ranking IPO (7) and M&A exits SunBridge 2002 0% 5% 10% 15% 20% 25% 24.3% • Global top-quartile IRR Average Top Quartile 6.8% 1.3x net to date Top 20 2004 IPOs (US and Japan, by Initial Market Cap., $Ms) $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 Google IT Media SMIC DreamWorks Animation Cabela's Top 20 Venture-Backed Acquisitions 2001 to 2005 ($Ms) Salesforce.com $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 EyeTech Pharmaceuticals Bill Barrett Corp Skype, 3Q05 Antero Resources, 2Q05 $843 Shanda Interactive Entertainment Flarion, 3Q05 $805 NetPrice (#1 in Japan) Seisint, 3Q04 $775 Shicoh Engineering (#2 in Japan) Hotwire.com, 4Q03 $665 InPhonic VMWare, 1Q04 $625 Lipman Electronic Engineering VxTel, 1Q01 $550 Angiosyn, 2Q05 $527 Archipelago Holdings Shopzilla, 2Q05 $525 MCJ (#3 in Japan) Lynk Systems, 3Q04 $525 Kanbay International Interactive Search, 2Q04 $501 Atheros Communications ESP Pharma, 1Q05 $486 Macromill (#4 in Japan) Catena Networks, 2Q04 $466 Japan Airespace, 1Q05 $450 Fujipream (#5 in Japan) Amber Networks, 3Q01 $421 Shopping.com Viva Inc, 1Q05 $415 Dipping (#6 in Japan) LightLogic, 2Q01 $400 TradeWeb, 2Q04 $385 Brightmail, 2Q04 $370 Ocular Networks, 1Q02 $355 26
  • 27. Helping passionate entrepreneurs build successful global businesses How are we doing? (2010) A Dynamic Venture Habitat that borrows best practices from both Silicon Valley and Japan to influence and improve Japan’s Venture Ecosystem, helping to create ×World-class Global Ventures, and World-class (top-quartile) investment returns
  • 28. Helping passionate Entrepreneurs build Competing Globally Successful global businesses Japan continues to create many world- class entrepreneurs and multi-hundred- million dollar high-growth companies. Why don’t they expand internationally like they used to?
  • 29. Helping passionate entrepreneurs build successful global businesses “The Middle is Missing” 2004 get-acquainted meeting with METI’s newest “shinki sangyou tanto kachou” “Don’t japanese startups have a hard time raising seed capital?” Japan does not lack seed capital or exit opportunities. But private $10M+ “C round” (and D round?) to enable aggressive sales and product expansion is missing… Instead the entire Venture Ecosystem pushes Japanese entrepreneurs to go public as quickly as possible They raise cash that they can’t use for aggressive organic growth and often underperform expectations after their IPO. Japan needs a “chotto matte IPO” fund or two. 29
  • 30. Helping passionate entrepreneurs build successful global businesses The domestic opportunity is big enough? My most disappointing globalization war-story Globalization of Some Leading Japanese Internet Cos. Alexa WW Company Site Rank Revenue International Rakuten #73 $2.98B fr 2010 w/ Baidu CyberAgent #77 $938M fr 2008. neglig. Index Holdings mob. $724M 13% DeNA mob. $376M fr 2008. neglig. Mixi #96 $120M 3% 30
  • 31. Helping passionate entrepreneurs build successful global businesses China/Shanghai vs. US/Silicon Valley Emerging Economic Established Economic power = rapidly growing power = big established market opportunity market opportunity Biggest internet and Big internet and biggest mobile markets smartphone markets Current WW Focus of Gathering place of global attention & capital Tech talent & capital Cultural cousins Cultural opposites? Not a stepping stone for Highly connected global expansion worldwide (incl. China) Repeatedly creates “the next big thing” 31
  • 32. Helping passionate entrepreneurs build successful global businesses What Can I do about it? Since 2009: Shifted my emphasis from Bringing “Silicon Valley” to Japan to Bringing Japanese to Silicon Valley
  • 33. Helping passionate entrepreneurs build successful global businesses Launching soon at Plug & Play The most active, dynamic hub for startup activity and related industry interaction in Silicon Valley. Continuous flow of local VCs and international visitors that provides high-value networking opportunities Launch with 5 high-potential Japanese startups and a network of supporters Attract US VC expansion capital and world-caliber executive talent