Ikkei Matsuda

Back to Contents of Issue: May 2001

The managing director of Hokkaido Venture Capital is a supplier of ideas, funding, and caffeine to "Sapporo Valley."

by Chiaki Kitada

Ikkei MatsudaSapporo, the capital city of Hokkaido, has become a hotspot for technology startups. Last April saw the opening of a new Sapporo-based stock exchange for ventures, called Ambitious, even as other local exchanges in the country were closing down. Hudson Soft, a local game developer with over 400 employees, listed on Nasdaq Japan last December, followed this March by Open Loop, a cutting-edge IT security company (and one of the "Five Hot Startups" in our September 2000 issue).

The city's IT history dates back to the 1970s, when the microcomputer lab at Hokkaido University created an early version of the Basic operating system. More innovation followed, and the area eventually attracted the attention of Sharp, NEC, Sony, Fujitsu, and Softbank. These days, a community of tech ventures has developed around the north exit of the Sapporo JR station, attracted by the cheap rent and convenient location.

Flanked by Hokkaido University and the local government administration offices, the area has been dubbed "Sapporo Valley" (see "Besides Bit Valley," page 20, September 2000). It is also home to the Sapporo Biz Cafe, a convenient place for local entrepreneurs and investors to discuss business ideas and investment plans over noodles or a cup of coffee. This local hangout was created in June 2000 with the specific goal of facilitating networking among tech talent, in hopes of boosting the number of local startups going public.

On the second floor of the Sapporo Biz Cafe is the office of Ikkei Matsuda, a founder of the cafe and managing director of Hokkaido Venture Capital. HVC operates a unique, region-specific fund that only invests in companies headquartered in Hokkaido or run by a Hokkaido native (its first investment was in Open Loop). Both the firm and the cafe are backed by the local business community: nearby companies help run the cafe's networking system (it has its own LAN), and local investors and a government-affiliated organization contributed to the firm's ¥860 million fund.

Matsuda built his career as an international corporate finance expert at Yamaichi Securities, then a leading securities company. He left the firm before its notorious bankruptcy, moved to Hokkaido (where his wife grew up), and transformed himself from a corporate warrior to a community developer.

Senior Editor Chiaki Kitada interviewed Matsuda at an IT business event in Tokyo.

What did you do as a corporate finance expert at Yamaichi Securities?
I was in charge of emerging markets such as Turkey, South Africa, and Eastern and Southern Europe. I was a typical "flying around the world" kind of businessman -- the job took me to 22 countries. I dreamed of opening up a South African branch of Yamaichi Securities, because I saw plenty of business opportunities there. In addition, the country produces good wine, and part of my dream was to own a vineyard in Cape Town.

How did you end up in Hokkaido?
My wife was born and raised in Hokkaido, and after I left Yamaichi and returned from a sabbatical year in London, she wanted to get away from Tokyo. So we moved to Hokkaido in 1997. I landed a job at the Hokkaido New Business Conference and served as a consultant to over 100 local venture companies. That enabled me to build a network among local businessmen, attorneys, accountants, et cetera. But after a while, I wanted to become my own boss, because I felt limited working for an organization.

What made you decide to start a venture capital firm?
Japan used to have a good support system for venture business. It was banks' role to nurture entrepreneurs. Unfor-tunately, since the strength of financial institutions declined after the bubble collapsed, banks are no longer major players in the game.

I thought of opening a new bank, but regulations are too tight. I have experience in building securities companies, but it's hard to make a profit. So I decided to found a venture capital firm, because what VCs do is loan and invest money.

What other companies besides Open Loop did you invest in with the current fund?
We invested in Raccoon, an e-commerce operator that hosts an online overstock market for retailers, selling consumer products such as home electronics or apparel. Although the company is located in Tokyo, the president's hometown is Sapporo, so it meets the fund's requirement.

Another company is GeneticLab, a biotechnology venture company founded by a Hokkaido University professor last year. I'll be a CFO of the company. The level of biotech research at the University is quite high, and the business looks promising.

Our plan is to generate two more funds this year, one targeting biotech and the other IT content. We invest in early-stage startups, because that way we can shape the business together.

What needs do you hope to address in Hokkaido?
The reason we opened Biz Cafe was to boost the local economy, which hit bottom after the bankruptcy of Hokkaido Takushoku Bank in 1997. Since the bank was a lifeline for local companies, the local economy and financing became completely paralyzed when it went belly-up. This taught the local business community a lesson: you can't depend on the government. So they decided to work things out by themselves.

[Editor's note: Hokkaido is now bracing itself for another slap from the central government -- its current 10 percent of government public work projects, a keystone of the prefecture's construction industry, is expected to drop after the recent reorganization of ministries, in which the Hokkaido Development Agency merged into the Construction and Transport Ministry.]

Do the local government and business community cooperate?
Yes, we are not saying we don't need support from the administration -- we would be in trouble if they didn't give us any support. However, the administration seems to have the idea that they are the decision-makers, and the rest of us are the followers. But they've made bad policy decisions in the past, due to a lack of staff expertise. They should let us make decisions. It's true that without their support, we couldn't have set up Biz Cafe and Hokkaido VC, but we would never have been able to launch these projects if we had let them run the show.

What is your overall mission in Hokkaido?
Boosting the local economy. I'm committed to the mission. I've witnessed the transformation of South Africa, Turkey, and other countries, so I have a good sense as to what it takes for countries to change -- and Hokkaido is bigger than some of these countries. I'm interested not only in incubating startups, but also in transforming the whole community. I'd like to see more people who take responsibility for themselves.

A key factor in gaining competitiveness is whether we can accommodate people coming from other areas of Japan or other countries. When we opened Biz Cafe, I made it clear that the facility shouldn't be monopolized by Hokkaido-ites. I'm opposed to the close-mindedness you often find in local areas -- you can't grow much if you are not open to outsiders. Foreign workers were one reason England and Silicon Valley flourished. Interaction with different cultures is a crucial factor for innovation. I don't like to find people in Biz Cafe speaking only in Japanese -- I'd like to hear different languages and see different eye and skin colors.

What will happen to other parts of Japan?
If our attempt truly succeeds and many companies start flourishing, it will put pressure on people in other areas. Competition among regions will spark innovation. The IT community in Sapporo and in Fukuoka [in Kyushu] are taking the lead -- this is very important, because many local people had given up the idea of challenging Tokyo. But they don't want to fall behind other regions -- especially Hokkaido, which is considered one of the most under-industrialized areas in the country.

Hokkaido comprises 22 percent of Japan's land and 4 percent of its population and GDP. If you add Kyushu, the combined share goes up to 34 percent of land and 13 percent of GDP. We could form a substantial local market outside of Tokyo. Currently you have to go to Tokyo to complete the manufacturing process, but if you work directly with companies in Kyushu via the Internet, you could cut costs significantly.

Is Tokyo always in the back of your mind?
Well, I'm telling people in Sapporo they should wean themselves from Tokyo, since they have a tendency to blindly trust bureaucrats and big companies there. Looking back over the past 10 years, major securities companies and banks [headquartered in Tokyo] have been badly defeated and withdrawn their overseas operations. Still, many local businessmen think their deals will be successful, simply because a major company in Tokyo is in charge of their business. This is a big mistake. Blind trust towards big brand names will act as a mental barrier to their own growth. I've been trying to convince them we are better than those guys. It's local people who know their community best.

What do you think of Bit Valley?
The Valley has spread an image that people can run a business as long as they have ideas. [Many] entrepreneurs received investments before they had a full grasp of business models and e-commerce. Unfortunately, Valley cheerleaders such as VCs, the media, and venture supporters contributed to the downfall. Some people blame the young entrepreneurs, but it was their backers' fault, because they convinced them to take risks prematurely. You need to have a solid business plan.

Bit Valley serves as a negative model for us. We want to focus on solid technology.

Who is your role model?
Ryoma Sakamoto (a hero of the Meiji restoration) was my favorite during my high school years. But now I don't have any particular person to look up to. I'm kind of into Feng Shui now and its influence over me. I think every human being is born with some kind of task to pursue during this lifetime. As long as you can identify the one you're born with, you are on the right track.

I feel I'm on the right track. I'll do whatever destiny has in store for me.

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