Interview

Back to Contents of Issue: January 2000


Finance in the Third Millennium, according to ING Barings' Rike Wootten



Rike Wootten

The measure of a company is a lot like the measure of a man; the past combines with the present to give you the future. One such company, and man, is Rike Wootten. Like a growing number of influential foreign executives in this country, Rike decided on a career in Japan early on. Wootten first arrived in 1980 as an exchange student. He returned after graduation in 1982 and was hired by Merrill Lynch two years later. After spending 11 years with the company, Wootten joined ING Barings Securities Japan as the chief operating officer. He was promoted to branch manager in 1996, and in 1999, he was appointed to the board of governors of the Osaka Securities Exchange, becoming the first foreigner to hold such a post. During his career in Japan, Wootten has seen a lot of change in the way both foreign and Japanese startups operate, especially in the funds-raising department. As 1999 was drawing to a close, the native of Denver, Colorado, sat down with Thomas Caldwell to explain how entrepreneurs in high-tech industries in Japan will be turning their dreams into realities as the third millennium begins.

Most foreigners in Japan who have made it as far as you don't like to admit they taught English in the early days of their career.
Well, I did. And I think a lot of people who have been here for a long period of time started that way too. And I don't find anything wrong with it. After all, it was a great way to learn the language. I had a lot of free time at my disposal. And one of the things I had time to do was to watch Japanese movies. I would go to the local theater and get immersed in whatever was showing so I could learn the language.

You've come a long way. Many people say that the executive of the future will be someone similar to yourself: not just bilingual, but bicultural as well.
I understand the Japanese culture. I appreciate it and I can comfortably be immersed in it. Do I classify myself as being bicultural? I would say, probably on a definition, yes.

Right now, Japan is in its worst recession since 1945. Unem-ployment is at an all-time high and bankruptcies are common. From where you are sitting, what opportunities are being presented in Japan for the smaller, startup companies? Especially those in high-tech?
Well, I think you have to look realistically at the circumstances surrounding all Internet-related business in Japan. Forget about the recession of the past several years. There is probably more opportunity for companies that are starting up in the Internet business here in Japan right now than there have ever been. The traditional cycle of international business moves from the States, to Europe, to Japan. The Internet is changing that. If you are getting started in Japan, the infrastructure requirements for an Internet-based business are not going to be anywhere near as much as they traditionally would have been compared to, say, a manufacturing company. The same goes for distribution. The startup costs are much less. However, you still need to have a sizable investment to get into any kind of serious business here.

Is e-commerce going to be that big in Japan? Will it help the country pull out of the recession as so many industry people are predicting?
Clearly the Internet is changing the way everyone does business everywhere. If you are not involved in the Internet today, you will probably be in serious trouble in a couple of years. If you have a lot of brick and mortar, is that an asset or a liability? There are some Internet-based companies that have as few as 10 or 20 people and they are competing against you. So you have to ask yourself, what is the way to go about it? What is the best way to move forward? Is e-commerce going to catch on in Japan? Oh, yes. Ideas may take a little bit of time to catch on here, but once they do, they do like wildfire.

Getting capital from traditional sources, like banks, has always been difficult for new businesses. How do you do it properly?
One should always keep in mind that venture capital and stock market listings feed into each other. The hardest thing about venture capital is finding that first investor. Finding the second investor is easy, but getting that first one is always very difficult. The first investor is just that, first. People tend to quickly join in on something after somebody else has made the commitment. Entrepre-neurs need to prove to potential investors how well they are doing. They have to demonstrate they have something different, something others don't have. Why they're different, and why they're going to succeed.

The next thing you need is infrastructure. You can have the best product in the world. You can have an idea that will enable you to create the next Amazon.com. It is very easy to have an idea, but you have to have the infrastructure to make it work. What sort of human resource methods will you need? How are you going to manage finances? What legal matters have to be dealt with? How will you protect your trademarks? How do you implement the very basics needed for a solid infrastructure? All those questions have to be answered.

So, you have a great idea. You need a million dollars or two. You show yourself to a venture capitalist who then says, "OK, I'm going to give you the million dollars." The reason why a venture capitalist is going to be looking to make that investment is because they want to make a profit. They don't plan on being involved for the rest of their lives. What they plan on doing is helping the company become successful and then looking for something called an "exit strategy," when they actually are able to sell their investment to somebody for a profit. That's where you get into listing a company on an exchange or, in many cases, sell out to another company.

Is that sort of event indicative of the sorts of businesses we are talking about, or does it apply to all of them?
Very indicative of the high-technology industries. A lot of these people are looking to sell out long before it gets to the IPO stage.

Do such strategies make traditional Japanese financial sources uncomfortable?
The concept of venture capital in Japan is something that is still relatively new. A lot of people here have some great ideas. I have heard that something like 1,500 Internet-related companies are being started up every day throughout the world. And a lot of those companies are either here in Japan, or are looking to be here in Japan. But, the infrastructure has to be there.

Look at the Nasdaq Japan Club. The whole idea was to bring in the companies that have the potential of being listed, and put them together with people who can help them-information services companies, human resource firms, etc. Basically, a support network.

There are also incubators that can aid in the process. What they do is provide people who have a great idea the basic infrastructure to get going. That way, the people who have the great ideas can work on what they do best, then go to the next stage.

You spoke about the need for an exit strategy for venture capitalists. Is this where the new Mothers exchange comes in?
Correct. One of the main purposes of Mothers will be to provide an exit strategy for venture capitalists in Japan. Mothers is an acronym for "Market of the High-growth and Emerging Stocks." The exchange is focused on startups. When you say "startup," you are talking about a company that has enough critical mass and information to be presented as a credible entity that an investor is going to want to invest in. You are not talking about a couple of million dollars, you're talking about tens of millions of dollars. Unlike other exchanges, Mothers doesn't require a history of profits. It requires quarterly reporting and a full disclosure of what is going on, but no profits. In the past, you needed a long history before you could be listed. The concept of success is not the same in Japan as it is elsewhere. In the States you can find many companies that have never been profitable but are considered very successful, all because of market capitalization.

Venture capitalists here no longer have to wait as long ten or fifteen years for a listing in order to get their money out. Mothers can offer these people a very early exit strategy. The company can build itself up to a critical mass and be publicly traded much sooner. Venture capitalists who have been reluctant to come to Japan in a large way because the exit strategies have been limited may now find the country more attractive.

Some executives at foreign companies here tell me that one of the problems with having a Japanese subsidiary is that it often makes too much money -so much so that headquarters wants to keep it wholly owned so the profits can be applied directly to the parent company's bottom line. Thus, many companies don't want to list their subsidiaries here. Do you see this changing or, perhaps, so you see more companies raising money here as opposed to spending?
That raises an interesting point. A lot of companies came over here in the 1980s intent on increasing their investor base to include more Japanese. To achieve that goal, one of the things they did was get themselves listed on the foreign section of the Tokyo Stock Exchange. I think the general feeling is that while the Tokyo Stock Exchange has allowed some companies better access to the local investor base here, it was not as successful as people were hoping it would be. Many of those same companies that were listed on the Tokyo Stock Exchange have started to de-list. I think you will find that today you've got less than half of the companies that became listed during that period. Now, Mothers is a brand-new concept for Japan. It is a completely new exchange. As I understand, there will be something like 20 or 30 companies that will be listing over the course of the next year.

Do you think this new exchange will be a success?
One of the problems with a new stock exchange is getting investors interested. Be it Mothers, Nasdaq, or [the] Osaka [exchange], the key is to attract the interest of the securities companies, because it's necessary to make sure the exchange has enough liquidity to function. In other words, there needs to be (sufficient) buyers and sellers to be able to go out and make the stock attractive.

Let's say, for example, you are a big American fund manager. If you go into an exchange that has got very little liquidity, you probably are not going to be able to buy a lot of the stocks that have growth potential. One of the biggest challenges Mothers has facing it is getting enough liquidity and interest to sell it to the investor community.

ING Barings Securities has a history that goes back more than 100 years in Japan. The company comes across as old and traditional. It doesn't seem to fit the high-tech blue-jeans-and-tee-shirt crowd. Not so much East meets West, but uptown vs. downtown.
Even though we have a long history and tradition, we are very active with something we call the "Third Millennium." It's pretty much what you are talking about: new companies that are coming into their own and have tremendous promise for the future. We did something called the Third Millennium Conference in New York this past September. We had more than 1,100 companies and 300 investment firms together for three days. The sole reason for it was to introduce these small startup companies to people who would find them interesting.

I would imagine you get to see a lot of what companies do right. As far as high-tech startups are concerned, what is it they often do that is wrong?
What you have to be particularly careful of is that here in Japan, like anywhere else, people tend to copy a very good idea. Often, they may have more resources than you. One of the most important things to do here is to be as quick as you can to market. If you have a good idea or concept, establish yourself as soon as possible. As far as how to do that, very much depends on the industry. But speed applies to everyone. In Japan, there is always someone better financed than you are.

ING Barings Securities Japan
The New Otani Garden Court, 24F
4-1 Kioi-Cho, Chiyoda-ku
Tokyo 102-0094
Tel. +813-5210-1500
Fax. +813-5210-1279

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