Back to Contents of Issue: February 2000

A hot venture company working in a cool climate

by Noriko Takezaki

Japan's venture boom is happening-now. And numerous foreign VCs have washed ashore, looking to seed future's. Some of these latter-day Perrys are taking the approach that "we have plenty of money and lots of experience on the Net back home. So working with Japanese venture companies is likely a cinch." Well, the short answer is that things here are not so easy, and for the in-depth answer, take a look at the strategies of Apax Globis Partners & Co. (AGP), a VC jointly established by Apax Patricof, an international VC, and Globis, a Japan-based venture company that also runs an MBA night school.

AGP was established in Tokyo in March 1999, becoming the focal point of business for Apax Patricof in Japan. Alan Patricof, the head of Apax Patricof, is founder of New York-based Patricof & Co., widely known for its investments in Apple Computer, AOL, Office Depot, Fore-Systems, and Cellular Com-munications. Since 1981, the company has expanded its operations to other countries, setting up some 13 offices in the U.K., France, Germany, Spain, Israel, Ireland, Switzer-land, Italy, and Greece before establishing AGP in partnership with Globis in Japan. As it has in other countries, Apax Patricof selected a local partner in Japan; in this case, Globis, a young Japanese venture company headed by mid-30s CEO Yoshito Hori, who is also managing director of AGP.

"Local presence is necessary to attract Japanese companies, but local networking and global management know-how are also crucial," says Hori, who attended Harvard's business school and founded Globis after quitting one of Japan's blue chip trading firms, Sumitomo Corp. "One of Globis's strengths is our ability to network among Japan's business circles via our 4,000 MBA school graduates and 200-300 corporate training clients. We have been expanding our network among those people, and accumulating the necessary know-how to pass on globally recognized business management styles to our Japanese audience."

Within six months of launch, AGP had invested in three companies. One of them was the growth buyout of Pasona Tech, an engineer outsourcing company, to which AGP contributed ¥1.8 billion, acquiring a 51% share. Pasona Tech is headed for a 2001 IPO, just one of many that Japan's hot Net market will see in the coming 24 months. The other AGP investees are Works Applica-tions, an ERP vendor, and FISCO, a financial information service company, both of which sought middle-stage investment.

Hori is quite positive about the growth of venture companies in Japan. "The current venture company boom in Japan is not a temporary one, but will continue for a long time," he says. "This is because young people have adopted a drastically new outlook recently, and many of them attach far less importance to the conventional, established businesses that populated their parents' world. Until several years ago, Japan's best and brightest opted for careers in large corporations, following well-defined paths. Lately, they've started looking towards changing this country's business culture by themselves, and many have jumped into venture companies from comfortable positions in large corporations."

AGP is staffed with six investment professionals of whom only one is from Patricof's U.S. office. The remainder are local hires skimmed out of large financial corporations. Target companies for this team are mostly Net based, but also include telecommunications, software, media, education, retail, and health care firms.

Before making any investment, AGP usually spends one to two months with the company's management, gaining a feel for the company's detailed workings, including management practices, business strategies, and market approach. "This deepens our understanding of the company and in fact allows us to become a partner with the firm," says Hori. The cautious approach, however, also helps pad the landing against the collapse of the current Internet bubble economy, which, Hori thinks, may happen in the near future.

"It's difficult to balance fundamentals and market valuations now, because the prices of some of the Internet companies are way out of wack," warns Hori. "Therefore, AGP's investments are not predicated on current stock market prices, but on the intrinsic value of investee companies and their management team."

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