VC Report: Firms Look beyond the Clouds

Back to Contents of Issue: May 2002

by Sumie Kawakami

JAPAN'S ECONOMY MAY BE adrift, but venture capitalists seem to feel they may be heading for fairer winds. With the unemployment rate staying at historically high levels, "Japan cannot revive its economy without the emergence of new businesses," said NIF Ventures president and CEO Shinichi Horii as he spoke at the 2002 Asian Venture Forum/Japan (AVFJ) in Tokyo this March.

No one can deny that Japan's VC activity is far behind that of both the US and Europe. According to the semi governmental Venture Enterprise Center, VC firms invested a total of JPY230 billion in 2001, compared to JPY12.5 trillion in 2000. The year 2001 was by no means a good year for VCs, with Japan groping its way through the continued recession. Horii agrees that any current enthusiasm surrounding Japanese VCs is still "premature." Yet, he stated that the market "will post rapid growth starting from this year."

NIF Ventures, a venture capital arm of Daiwa Securities Group and the second largest Japanese venture capital company, went public on Jasdaq on March 12 "with the expectation that the venture market will grow significantly in the near future," Horii said. Although some may see Horii's optimism as just so much hype, his forward-looking sentiment was shared by other venture capital companies at AVFJ. The feeling is based on a series of reforms of the Commercial Code that make it easier for VC firms to get more involved in managing the firms they invest in. In other words, Japanese VCs are moving toward global standards, leading to more involvement in management, either by increasing investment in the early stages or by 'hands-on investment' (VCs taking board seats and getting more involved in management). "Most managers of venture firms are first-time-entrepreneurs, and most SMEs don't even have CFOs," said Soichi Kariyazono, founding partner of independent VC Apax Globis Partners & Co.

The lack of experienced managers in venture firms makes it important for VCs to be more involved in management. "Five years from now, there may be more qualified managers, but we plan to stay involved in management until then," he says.

Another element that may boost Japan's venture businesses is university-industry cooperation, a plan heavily subsidized by the government. The Hiranuma Plan (announced last year and named after the former education minister) is aimed at creating 1,000 university-originated venture firms within three years. A thousand venture firms require a thousand CEOs, so one problem is how universities can educate professors or students to become entrepreneurs. Ikkei Matsuda, managing director at Hokkaido Venture Capital, doesn't think Japan can achieve that target, but he feels changes are coming. As talks on privatizing national universities continue among politicians, professors are more aware of changes to come. He said that resources for venture CEOs or CFOs are definitely scarce, but that there are many potential CEOs and CFOs. "We may see a completely different picture in the next three to five years, but we will get involved in management by then," he says. Matsuda himself is a CFO of a newly created university-originated bio venture in which his company has a stake.

-- By Sumie Kawakami
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