Terrie's Take 631 -- Is Venture Capital Back in Vogue? ebiz news from Japan.

Mon Sep 26 00:24:51 JST 2011

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, September 25, 2011, Issue No. 631

+++ INDEX

- What's New -- Is Venture Capital Back in Vogue?
- News -- Diabetes doubles Alzheimer's rate
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback
- News Credits

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+++ WHAT'S NEW

At the end of August, the Nikkei carried an article stating
that Venture Capital (VC) in Japan was starting to pick up
again, citing the fact that the Japan Venture Capital
Association (JVCA) was reporting member companies investing
almost as much in Q1 this year as they did in Q3 of 2008,
just before the Lehman Shock. According to the JVCA, member
VCs invested JPY9.2bn into start-ups, compared to JPY9.4bn
in the 2008 Q3 period.

Actually, JPY9.2bn may be more than the last 3 years worth
of fiscal quarters, but it's still small potatoes compared
to other countries. In Q1 last year (2010), China saw 45
significant VC investments of US$579m, up 35% over 2009,
and India had 21 significant deals worth US259m over the
same period. We expect that both countries will be up at
least 30% or more on these numbers this year.

Furthermore, recent news items suggest that much of
Japanese VC firms' investments are not necessarily even
going into Japanese companies, but rather appear to be
overall figures. So we'd like more clarification on the
JVCA numbers before reporting that all is getting better.
Anecdotally, we're not seeing increased VC money on the
streets as yet, start-ups are finding it just as difficult
as it ever was to get funding. But we are seeing some
interesting trends emerge -- more on these a little later
in this article.

Whether venture capital is coming back or not is is a
critical question for Japan's non-manufacturing sector.
Because without some form of organized funding, very few
Japanese services start-ups (especially software and
Internet companies) can ever hope to emulate the success of
their overseas counterparts, who can spend much larger sums
to ensure top quality coding and execution of their
business plans.

The thinking here in Japan, until recently at least, has
been that starving start-ups of funds makes them fiscally
more responsible and prudent. But it is also a good way to
destroy their first-to-market advantage, as they struggle
to take on paying work to finance their future businesses.

As justification for believing the VC investment
environment is improving, the Nikkei August article goes on
to say that Globis Capital Partners, a leading VC, invested
more than JPY1bn into start-ups from April through
mid-August. Then there was SBI, which put JPY500m into a
single company, Smart Navi, an iPad-related software
company, also in August.

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[...Article continues]

Lastly they quote Mobile Internet Capital, which set up a new
investment fund in July, and which by August had already
raised JPY5.2bn from mostly institutional investors who are
putting small amounts of their vast capital into higher
risk investments. One of these institutions, responsible
for half of MIC's JPY5bn, was the Organization for Small &
Medium Enterprises and Regional Innovation organization
(SME Support, Japan), a government-related fund. SME
Support Japan has already invested or co-invested JPY9bn
this fiscal year and is expecting to increase that amount
to JPY20bn by year end.

Actually, JPY20bn for venture investments is a lot of cash
within the Japan VC sector. Indeed, it is almost as much
as all the private VC funds are investing together as a
whole. Therefore, if this SME Support Japan fund continues
to co-invest along the same lines as it did with MIC, then
we can expect an investment pattern that may start looking
like the government-backed venture investment funds of
other countries, such as New Zealand's Venture Investment
Fund (VIF). Last time we checked, NZ's VIF had put well
over US$100m into dollar-matching arrangements with five
approved private VCs throughout the country, and as a
result has enabled scores of innovative export-earning
companies to be established.

SME Support Japan seems to be taking the view with MIC that
it is better to be a fund-of-funds and to help out those
VCs with the knowledge and the connections that SME
Support Japan itself would be hard pressed to replicate.
So if it can continue the process, then it will surely
reinvigorate the sector and make it attractive to
independent investors again. In the past MIC has invested
JPY100m-JPY500m per target company, so we're
expecting  them to continue that level of activity.

If the government doesn't get involved in venture funding,
then we see local VC funding diving again. The reason is
simple: there are very few IPOs done in Japan these days,
especially compared to other Asian countries, and thus the
possibility of earning decent returns for the risks taken
will drive investors elsewhere. This would explain why so
many Japanese VCs are actively looking abroad for
opportunity, having largely accepted that the Japan market
is moribund. Softbank's stunning announcement last week of
a US$200m investment into Indian mobile advertising firm
InMobi, is but the tip of the iceberg in this regard.

With or without the government, there is another
interesting trend emerging, however. There have been a
number of announcements recently about VCs putting "micro
amounts" of JPY5m or a little more into numerous start ups
in a scatter-gun approach. The rationale for such small
investments is that they are offering more important
"value" to investees than just cash: instead they're
taking a holistic approach and offering incubator-style
rent, personnel, help with development and sales, and
management consulting training.

Actually, this is somewhat similar to the very successful
US-based Y Combinator incubator. The company has processed
over 300 start-ups since it began in 2005, and last year
it "graduated" another 63 firms. Y Combinator puts in as
little capital as US$10k-US$50k per company, and gets
2%-10% of the stock in return. The reason for this is that
start-ups don't really go to Y Combinator for cash, they
go for the networking, the credibility and because they know
that the relationship is temporary. It's working,
because just a couple of months ago a new and completely
separate US fund has offered a blanket US$150k in debt
funding to ALL the graduating companies from Y Combinator
-- testimony to the quality of the firms there.

This groupist approach, coupled with mentoring and
monitoring of the incubatees is successful in Silicon
Valley, but it could be ideal for Japan as well -- where
start-up management teams are typically very inexperienced
and short of knowledge on how to run a business. Actually,
we know of several VC funds/incubators already using this
approach here in Japan, including one fund out in Ikebukuro
which has around 40 companies either incubating or in the
process of moving out. The attraction for start-ups to this
Ikebukuro fund isn't the cash, it's the collegiate atmosphere
and the ability for the fund managers to accept mistakes
and learning on the job. Indeed, it's almost like going back
to a university setting.

The idea of scatter-gun investments, in small amounts, and
with the ability to mentor and influence these firms to
success, is highly attractive to existing VC players here
in Japan. One company that has already announced this
strategy is Movida Japan, headed by Taizo Son, Softbank
Masayoshi Son's younger brother. Movida plans to put just
JPY5m into as many as 1,000 early-stage companies and will
provide consulting and other services to help those new
firms grow.

Movida will soon have competition from another similar fund
to be co-invested in by NTT Investment Partners, Gree, NEC
Biglobe Capital, and MUFJ Capital. This new fund, which
doesn't appear to have a name as yet, is expecting to raise
around JPY2bn and wants to put in about JPY10m per start-up
-- giving it the potential of aggregating as many as 200
start-ups.

So maybe the Nikkei is right, and that with the advent of
SME Support Japan investments as well as the move to
incubator-style investments, the venture capital scene in
Japan could indeed be on the way to improvement.

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-----------------------------------------------------------

+++ NEWS

- Women in their 60's biggest spending travelers
- iRobot gets competition
- Taxes to go up after election year?
- Rakuten makes another major acquisition
- Diabetes significantly increases Alzheimer's later

-> Women in their 60's biggest spending travelers

The Japan Tourism Agency has issued the results of a survey
that says that 4.1m women in their 60's traveled
domestically in Q1 (Jan-Mar) this year, and spent JPY160bn
in doing so. 3.58m men in the same age bracket also
traveled regularly, spending around JPY120bn. In terms of
actual one-night spend, men in their 30's spent the most,
racking up bills of around JPY58,000. ***Ed: At that
amount, one would have to imagine that the single men were
either paying for their girlfriends as well, or they are
all driving Ferraris...** (Source: TT commentary from
e.nikkei.com, Sep 22, 2011)

http://e.nikkei.com/e/ac/tnks/Nni20110923D2309A20.htm

-> iRobot gets competition

Working couples and retired folks have one thing in common:
they have little time or interest in doing housework. As a
result, the Roomba robot vacuum cleaner made by US-based
iRobot is doing strong business in Japan, gaining about 2%
of the vacuum cleaner market by selling 150,000 units a
year. This has attracted the attention of Japanese
competitors, who are about to launch similar machines.
Toshiba and Bandai's CCP are two such firms. Apparently
both companies will compete on the fact that the Roomba's
sensors are somewhat primitive and the machine needs to run
around an apartment a number of times, bumping into walls
and furniture in order to change direction and clean a new
area. Both Toshiba and CCP will launch units with smarter
sensors and processing capability. (Source: TT commentary
from e.nikkei.com, Sep 22, 2011)

http://e.nikkei.com/e/ac/tnks/Nni20110923D22HH417.htm

-> Taxes to go up after election year?

Although the government tax panel normally gets to set
policy, the DPJ's own tax panel has intervened and made
sure that any earthquake recovery taxes won't hit voters
until 2013, not this year or next. Apparently the details
will be confirmed next week. Currently it looks like income
tax for working stiffs will go up, as will inheritance
taxes (non-working stiffs?), for at least 10 years. ***Ed:
You really have to wonder what this is all going to do to
the economy. Coupled with at least a 10% hike in consumer
tax at roughly the same time, we the tax payers will have
some tough times ahead.** (Source: TT commentary from
e.nikkei.com, Sep 23,
2011)

http://e.nikkei.com/e/ac/tnks/Nni20110922D2209F02.htm

-> Rakuten makes another major acquisition

Building out its presence across the globe, Rakuten has
just bought out one of the UK's largest web retailers,
Play.com, for just JPY3bn (approx.). The UK is Europe's
largest e-commerce market, and this purchase brings Rakuten
closer to becoming the Number Two e-commerce player in the
region, after Amazon.com. ***Ed: Why was Rakuten able to
buy Play.com for just 1/10th of their other Europe
acquisitions, even though it reportedly had sales last year
of around 500m pounds? According to the Guardian newspaper,
the company is based in Jersey and sales of DVDs have been
made legally without customers having to pay 20% VAT. That
tax loophole is going to be eliminated in March 2012 by the
UK government, so so Play.com is expected to take a big hit
as a result.** (Source: TT commentary from indiatimes.com,
Sep 21, 2011)

http://bit.ly/qQ0czf

-> Diabetes significantly increases Alzheimer's later

A new study conducted by researchers at Kyushu University
(Kyudai) in Fukuoka proves what doctors have suspected for
a while, that people with diabetes are at high risk of
contracting Alzheimer's disease later in life. A
1,000-person study of over-60's was able to link diabetes
sufferers earlier in life with those getting Alzheimers
later. The chances of Alzheimer's doubled within 15 years.
Indeed, the diabetics were also 1.75 times more likely to
develop any form of dementia. (Source: TT commentary from
foxnews.com, Sep 20, 2011)

http://fxn.ws/n83RiM

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

***------------------------****-------------------------***

+++ CANDIDATE ROUND UP/VACANCIES

=> BiOS, a Division of the LINC Media group, is actively
marketing the following positions for customers setting up
or expanding in Japan, as well as other employers of
bilinguals.

** HIGHLIGHTED POSITION

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experience providing maintenance/installation support of
network/unified communications system services to
international clients in the Minato-ku area. The candidate
will not only be responsible for providing technical
services but also analyzing customer feedback and applying
it to new services scopes in order to improve the quality
of the services, as well as providing occasional support to
internal engineers who are providing services outside Tokyo
area.

You will also be responsible for escalating technical
issues to appropriate departments when required..

Due to the technical nature and demanding work environment,
this position is suitable for someone with solid experience
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business-level communication skills in English and fluency
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Remuneration is JPY7m – JPY8.5m depending on your
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- Helpdesk Engr, global medical equipment co, JPY4M – JPY5M
- Service Delivery Manager, global IT co., JPY8M – JPY9.5M
- Field Engineer, BiOS, JPY4M – JPY5M
- Proj. Mngment Officer, global insur. co, JPY 9M – JPY13M
- Sales Team Account Manager, BiOS, JPY4M – JPY4.5M

Interested individuals may e-mail resumes to:
tomohiro.kimura at biosjp.com

** BiOS Job Mail

Every 2 weeks BiOS sends out a regular communication to its
job seeking candidates, called BiOS Job Mail. Every edition
carries a list of BiOS's current and most up-to-date
vacancies, with each entry featuring a short job
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please email kenji.sakota at biosjp.com.

Interested individuals may e-mail resumes to:
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-----------------------------------------------------------

***------------------------****-------------------------***

+++ UPCOMING EVENTS/ANNOUNCEMENTS

--------- Japan's Most Popular Leadership Training --------

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of the UK in the 1940's.

A published expert in the field of Action Learning is Dr.
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series of seminars for major Japanese corporations, and has
agreed to do a single presentation for foreign managers as
well. Hear how Action Learning can transform your work
force.

Title: "Impact of Action Learning: What difference are we
making in the world?
Speaker: Dr. Marquardt, President of World Institute for
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Date: October 27, 2011, 10:00-13:00(13:30)
Venue : Tokyo American Club (Tokyo, Japan)
Fee : JPY15,000 @(including lunch)
Contact : info at ldcjp.com
03-6809-1144 (English-Gledis Action Learning)
03-6680-2698(Japanese)

http://www.ldcjp.com/
http://www.ldcjp.com/seminar/20111027M.html
-----------------------------------------------------------
***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.

*** No comments this week.

***********************************************************
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+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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