Joi's Diary

Back to Contents of Issue: February 2000

What the Government Should Be Focused on Is Deregulation to Allow New Businesses to Operate Freely

by Joichi Ito

Joichi Ito is the founder and CEO of Neoteny (, an IT investment and operating company. He has created numerous Internet companies, including PSINet Japan, Digital Garage, and Infoseek Japan. In 2000, he was ranked among the "50 Stars of Asia" by Business Week and commemorated by the MPT for supporting the advancement of IT.

December felt like incubator month for me. I'm in the process of restructuring my business development company into a more scalable incubator. It appears that everyone is thinking about the same thing. Idea Labs announced their IPO and I have talked to several incubators recently, and it appears that the VCs are also interested in anything incubator-related. At the monthly Net Vision meeting, I spoke with Yoshito Hori from Globis, Kiyoshi Nishikawa of NetAge, and Satoshi Koike of NetYear about how to collaborate between incubators to build a venture community network.

November 29 was the Mothers launch party. There were quite a few people, and the CEOs of more than a dozen firms registering to IPO on Mothers were called onto stage to be introduced. The scary thing was, I knew most of them. In fact, the whole party was a bunch of familiar faces. The current network of entrepreneurs here is a small group of people. I think that the gating factor for Japanese Internet ventures is not the market, or the availability of capital, but the availability of entrepreneurs.

On December 2, Taiga Matsuyama of the Bit Valley Association asked me to make a few comments at the Bit Valley meeting. It was the first one I had attended, and there were over a thousand people - lots of young entrepreneur wannabes and prowling VCs. It looked like sharks at a tuna convention (a wry but accurate metaphor originally coined by Michael Backes). I think the reason why everyone is starting Net incubators is that somebody has to manage the interaction between the sharks and the tuna, or else someone's going to get eaten. In my remarks, I said there are now great opportunities to raise capital and build a company of substantial value, but that the focus should be on where one will be after the venture bubble goes away. Anyone who builds a real company in the next few years will prosper; anyone who thinks that an IPO on Mothers is the sole goal is sadly mistaken. Many of us will have our companies valued on a multiple of revenues. Later, investors will start asking about earnings. The key is to be ready to restructure the company as the capital markets change. Use the bubble to build value.

A few days later, at the Net Vision meeting, Tetsuya Isozaki from NetYear made a very interesting comment. He said the current Internet bubble in Japan was a mere $20 billion. In comparison, the real estate bubble that brought the Japanese economy down in the late '80s was worth several trillion dollars. The real estate market, however, operates in a tightly interconnected fashion, whereby any drop in values instantly echoes nationwide (and it did!). In contrast, in Internet space, any one auction site, for example, that goes out of business will not cause the others to do likewise. Isozaki calls this "foam" rather than a big bubble. He suggests that any possible negative impact on the economy from an individual "bubble" bursting was very small compared to previous bubbles.

Also this month, I attended an interesting meeting where a government agency lined up Masayoshi Son, George Hara, myself, and various other outspoken venture people and started talking to us about its plans to set up a fund to give money to VCs. Son took the lead in beating them up, with George and I lending support. Our point? It's no longer necessary for the government to be handing out money to venture businesses; there's enough capital around. What the government should be focused on is deregulation to allow these new businesses to operate freely.

The National Land Agency study group on culture in Tokyo has been focusing on what sort of digital cultures exist in the city. Obviously, Bit Valley and Shibuya form one cluster, but there are other clusters, including Aoyama/Omotesando and Akihabara. I believe there is no single "town" in Tokyo specifically suited for the Internet venture community. For instance, the trading companies and government agencies built Otemachi to suit their specific business and social needs. Anyway, I pointed out to Fumio Nanjo, a curator and city planner, that Internet companies were communities with very different needs, like low cost office space, space to network and socialize, and restaurants where staff can have productive meetings. He thought it would be interesting to talk to one of the local municipal governments about hosting our community and designing itself to our needs. This is the opposite of previous development projects - like Odaiba, the big land reclamation project in Tokyo Bay once touted as a "teleport" -- where the design is based on some individual bureaucrat's whim, without any input from the future inhabitants. Anyway, I may make this my next big project.

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