Global Themes

On Globalization & Venture Capital

The Pink Cow Conspiracy…

…now, if that did not grab your attention, I dont know what will!

I chanced upon this great post by friend and fellow VC-blogger Shin on Japanese VCs and the entrepreneurial/VC environment in Japan.  The post was prompted by an event organised by The Pink Cow (a cuter version of Open CoffeeClub – check it out!).

pinkcowtoplogo.jpg   Shin included some Q&A from the event in his post – which I think are very interesting and worth reproducing here for anyone who is interested in Venture Capital in Japan and the general VC ecosystem:

Q: 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.]

Q: 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.]

Q: 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.]

Shin also mentions in his post that he has been thinking “seriously about…creating a venue for entrepreneurs to meet with each other and with investment professionals in a casual environment“. Perhaps Tokyo is ready for an Open Coffee Club?!

…which reminds me that I finally managed to cross an important “To-Do” off my list last week: went to the Open CoffeeClub meeting at Waterstones (24th)…more on that later.

May 30th, 2007 Posted by | Entrepreneurship, Japan, Venture Capital in Asia | 5 comments

5 Comments »

  1. Shantanu,

    I actually dropped in on the OCC event when I was in London in early May. The enthusiasm and energy was wonderful. It’ll be interesting to see if we can get the same kind of vibe at events in Tokyo….

    There are some meetups in Tokyo, but the domestic crowd ones I’ve been to haven’t exactly been very interesting. The english language scene has events which are closer to the vibe of US/UK events. There’s the PCC which is monthly, and another one focussed on “Web 2.0” stuff called Tokyo2point0, the first meetup being next week.

    But to date most such events are structured around a talk or a presentation. Back in the crazy Japanese Dot Com bubble days, there used to be “parties” where people gathered and chatted, but that was short lived, and mostly style over substance.

    Tokyo is ready for an open coffee club I think, but there are some unresolved issues I’m thinking through…..

    Comment by shin | May 31, 2007

  2. Shantanu – I read your blog anyway but hasn’t there been a purple cow (Seth Godin I think) before the pink ‘un? 🙂

    I am looking forward to all this action just as soon as I move to London.

    Comment by Shefaly | May 31, 2007

  3. No, actually the Pink Cow has been around since before the Purple one….. 🙂

    The name is taken from the venue, a lounge/bar in Tokyo popular with the ex-pat crowd.

    Comment by shin | June 1, 2007

  4. It seems to me that both places the VCs models are tired of the grind — the relentless parade of me-too companies and legions of PR people and VCs trying to get their attention, and the hellish treadmill they’re on producing content day after day, night after night.

    VCs can only do that for so long before they get burned out — and it seems both parts of world (VCs in Japan and here in USA) have reached that point.

    I believe that they should examine their successes and lessons learnt with even greater care and move to new business model and venues by setting right expectations to all parties they deal with – from investors to ideas to founding businesses to reaching to some exit encompassing global forces as well (some times) ….

    Comment by Loken | June 4, 2007

  5. Loken,
    Good points…you will find my latest post interesting!

    Comment by Shantanu Bhagwat | June 4, 2007

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