What the Bit Valley Bubble Meant

Anonymous panelists from the accounting, securities, and consulting fields theorize on the matter.

The administrator of this BBS, media artist Hiroyuki Nishimura, writes the "second-most fully read" newsletter in Japan, as ranked by recent research from Vagabond. He wrote a few months ago: "Well, I'm in the Internet industry, and somehow I can still make a living. That could mean the Net bubble is still alive. But, hmm ... where did all the heat and money go?" To satisfy his curiosity, he invited readers to a real-life panel discussion in Harajuku on the Net bubble and Bit Valley.

The panel members, who requested anonymity, were:

• Mr. Accounting: An accountant who knows a lot about tech startups in Japan.

• Mr. Securities: Works in a famous Japanese securities company, helping venture companies go public.

• Mr. Consulting: A consultant in an investment company.

So when did the Net bubble begin?

Mr. Accounting: Probably around the time Nasdaq Japan and Mothers came out, and when companies in the red and without profits started to go public.

Mr. Securities: I think Japan wanted to mimic the Net bubble in the US. There are many companies that have no profits listed in the small cap market on Nasdaq US. Japan didn't have this kind of model, but now people tend to think stocks of companies in the red tend to go up.

Many stock prices have gone up because people didn't know what the companies were doing, but what about the stocks that went up even when people "knew" what the companies actually do: Hikari Tsushin, for example. [The firm made a huge number of false cellphone service contracts and crashed spectacularly.]

Mr. Securities: That's probably because some people were saying Hikari or Softbank were like funds to invest on the Internet. So when they wanted to hedge their bets they bought Hikari or Softbank.

Mr. Accounting: And there was a securities company that released an analyst's report saying that Hikari Tsushin's model is great -- it sells a keitai, and not only does it get a commission for that, but also a commission for phone calls the users make. So once it sells a phone, it keeps getting commissions and becomes profitable forever, the report said.

Mr. Securities: I guess securities companies think that if there's demand for the stock, there's no problem. They let the market decide. If there are people who want the stock, they can sell it.

Are there many investors who don't read the company prospectus?

Mr. Accounting: Sure. Actually, there is no prospectus sent out to investors. Investors just get applications for bids.

So how do they decide which company to invest in? Company image?

All: Probably, yes.

Mr. Securities: IPO stocks used to make profits no matter what, so everyone tends to buy whatever stocks they find. If the Nikkei writes an article that makes it a bit more attractive, then more people want to buy those.

So what happens if the Nikkei says a biotech bubble is coming? Do people start creating biotech ventures and others start investing in them?

Mr. Securities: That's questionable. What's good about IT is that there isn't too much technology needed. But with biotech, a real estate agent around the corner can't just start up a bio venture the next day.

Mr. Accounting: The Internet came from universities, and students thought it was great and started doing something with HTML, which wasn't too technical. Those students started it before established companies did it. It was that easy. But regular students can't beat the knowledge and technology of professional institutions when it comes to biotech.

So, the Net was good because it was easy.

Mr. Securities: It was also important that it looked difficult to some people.

Mr. Consulting: Right. Some people think using a word processor and programming are the same thing, and say, "Oh, that guy is using a computer!"

The image of venture companies has changed with this Internet boom, I guess.

Mr. Consulting: Yes. When I was running my own business some time ago, the image of venture companies was that they were small, lonely, gloomy, and kind of miserable. And that entrepreneurs had an intense feeling towards what they did and insisted on doing it their own way even if they went bankrupt because of it. But now, people in venture companies try to follow the direction of the market, and don't stick too much to their original intentions.

Mr. Accounting: Some ventures now say their purpose is an MBO. I guess nobody thought about it before this venture boom -- if somebody wants to buy the business, then they just sell it and run away.

Mr. Consulting: Right. Before all this happened, venture companies stayed ventures for their whole life. There was no buyout or exit.

Mr. Consulting: The word "venture" is also becoming like a brand name now. Before, when you said your company was small, people around you thought it would go bankrupt soon. When I was doing it, I didn't really want to say I was running a venture company.

So was all the attention surrounding Bit Valley good or bad?

Mr. Accounting: Venture companies never got attention before, so it was good in that sense. Matsuyama-san [Taiga Matsuyama, founder and director of the Bit Valley Association] did a good job, I think.

Mr. Securities: I agree. Also, money started to flow into venture companies. Now it's slowed down a bit, but if the situation gets better, the money will start to move again. Ventures were never the target of investors before, but now they've got "citizenship." This will probably go down as an historical shift.

Mr. Consulting: I definitely think it was good. People in the venture business now know that they can get VC money. This is a good thing.