TT-521 -- Medical investment is good business, ebiz news from Japan

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A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, June 14, 2009 Issue No. 521


- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
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Now that it's a given that Japan follows America in most
things commercial and financial, it is also a given that
whatever is going on commercially in the U.S. is also
going to have influence and effect on not just Japanese
companies doing business in the USA but also for those back
here in Japan as well. On the negative side, just look at
auto parts companies, for example, which have been hard hit
by the GM bankruptcy. Or, on the "Oh, I-just-got-it" side,
there are the mobile contents companies which are now
waking up to the fact that the number of Apple iPhone apps
sold have just passed the one billion mark and in so doing
are well on the way to eclipsing the entire Japanese 3G
apps market.

One area that we can see definitely being affected by
events in the U.S., in a positive way, is medical
technology -- both software and hardware rather than drugs
(which are perceived as being too high risk). U.S. health
tech companies are of course already very active in Japan,
and at the same time we are seeing Japanese medical
supplies and equipment companies reaching out to the U.S.
market to acquire expertise and global sales networks.
Firms like Fujifilm are applying their cash to acquiring
new technology which will be key to their future growth and
well being.

There are two reasons why we are bullish on the medical
sector at this current time in the economic cycle. Firstly
there is the fact that the Obama administration has singled
out medical spending as one of the keys to reinvigorating
the U.S. economy. Healthcare has of course always been a
Democrat passion, and Obama is not disappointing those who
are expecting big things. For example, his team has
allocated $21 billion to promote the use of interchangeable
electronic records for doctors nationwide, and has even put
into place fines for those who fail to comply.

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[...Article continues]

This use of carrot (government investment) and stick
(regulators) has meant that anyone remotely involved in the
medical industry, let alone the medical records business,
is suddenly becoming the focus of attention for investors
and deal makers. The U.S. venture capital headlines are
recently full of surges in early-stage investment into
medical technology firms, even as VC for other sectors
dwindles to record lows.

The second reason for us being bullish is a bit closer to
home. Our parent company, Japan Inc. Holdings and its
affiliate company LINC Media, have been investing in
foreign technology firms looking to enter Japan for some
time now. Both companies started with an investment 5 years
ago in a New Zealand telco software firm called OpenCloud.
Although slow to mature, in recent years this company has
started growing well and is now implementing legacy system
upgrades to major telcos all over the world. Other
investments have included an HR SaaS software company in
Australia, a Chinese PBX software company, a New Zealand
mobile game engine developer, and about 2 years ago a
medical systems company called Precept Health.

While our companies have been busy investing then helping
ALL of these investee companies enter the Japanese market,
they have seen the most action in the short term from the
health tech company -- Precept.

Precept Health was established in Auckland, New Zealand,
in 2006 by Tony Blomfield, an old hand in the NZ software
industry. Tony has the distinction of being one of the
original software architects for the world's leading
recreational marine devices company, NavMan. However, while
boats are a passion for Blomfield, his past and future
career have been more closely tied to medicine, writing
custom systems for hospitals all over New Zealand since the
early 1990's. His interest took a strong turn towards
Intensive Care systems after suffering a massive heart
attack and having a triple bypass operation in 2002.

Blomfield has built back office systems, HR scheduling
systems, financial systems, and various other components
needed to run a hospital. While this has paid the bills,
some years ago Blomfield realized that he needed to
distill the knowledge that he was applying over and over
for his medical clients, into a reconfigurable set of
software packages -- that today have become the backbone
applications for the Precept lineup of health software.
Tony is also an inveterate tinkerer, enjoying the melding
of hardware and software -- something that normally only
major medical equipment companies like GE and Philips do,
and which has allowed him to create some data acquisition
systems that are quite unique in the industry.

What Precept is especially good at, and where there are
very few competitors, is in Intensive Care Unit (ICU)
management, monitoring, and support. It was this solution
that created interest at a global health trade show in
Germany back in 2006, and subsequently drew leads from
hospitals and health organizations all over South East
Asia, Taiwan, Canada, and several European countries. As
he started fielding these inquiries, Blomfield came to
realize that he had something good on his hands and decided
to focus purely on ICU. He cast around looking for funding
to grow his business, but found out the hard way that New
Zealand is just too small a country in which to source
early-stage investments, so he either had to go abroad for
cash or give up and stick with contracting work.

Luckily for us, in 2007, Blomfield took a trade mission
trip to Japan with New Zealand's trade promotion
organization NZTE, to see if he could garner any interest
from Japanese companies. Most of the Japanese domestic
companies he met were unable to understand the value that
Precept was creating, but as we watched his pitch a few
times over, we realized that his technology addressed a
huge gap in the market -- which was to connect legacy
equipment in 3rd world hospitals with more modern systems,
without having to upgrade the whole lot at once in order
to get best-of-class ICU services. With Precept's software,
this became possible, and most importantly at a modest

So while the domestic health equipment companies didn't get
it, as we started talking behind the scenes with more
internationalized Japanese companies we discovered an
interesting thing, that sometimes Japanese companies
(especially the larger more strategic thinking ones) will
look at an investment in a foreign technology firm so long
as the sales will also be outside Japan. I.e., those
potential investors want to have an international platform
upon which to grow their foreign revenues.

The idea of "triangulating" with a Japanese technology
investor so that that Precept gives them a platform
elsewhere in Asia on which to grow new revenue on also
appealed to Blomfield, especially since his first serious
foreign opportunity happened to be in Malaysia -- a
country that Japanese technology companies have long been
interested in. As a result of this meeting of minds, Japan
Inc. Holdings made its investment and also agreed to
approach Japanese investors when the time was right.

Precept's win of a major hospital upgrade in Malaysia
started attracting attention from other quarters as well,
and the company was approached by a certain major global
software company to form an alliance for that company's
hospital back office solution in late 2008. This has led to
a number of new deal opportunities for the company.
Further, as news spread of the Malaysia win, other
hospital-centric S.I. companies in other countries started
contacting Precept for strategic relationships as well. It
seems that the ICU software marketplace is relatively
small, it is well funded but looking for ways to cut
costs, and news travels fast.

On the back of such fast-moving developments, Precept
successfully closed its first formal round of investment
last week -- which of course made the Japan Inc. Holdings
investors happy. While none of Precept's near-term business
is planned to be conducted in Japan, none-the-less all the
investors in the round were Japan-based. This has given the
Precept some measure of confidence that its triangulation
strategy is working, and thanks to having Japanese-based
investors on board, the company has gained a newfound aura
of credibility.

The objective for Precept now, is to wrap up several more
deals by the end of the year, proving to investors that it
has growth momentum, and to go find a lead investor from
either the U.S. or Australia -- both places where are there
are people with medical investment experience. However,
while the lead investors may come from these western
markets, it will be the Japanese investors who will play a
critical role in setting a future fully-priced valuation
and further business momentum.

Why? Well, because Japanese investors not only set their
investment pricing according to the forecast IPO or trade
sale value of the company, but ALSO because of the
perceived value they will gain in cash flow by partnering
with Precept in the Asian markets. That is to say: Japanese
companies can make excellent strategic investors for
foreign firms with desirable intellectual property. They
will pay more, so long as you let them come along for the


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+++ NEWS

- Virtual trading co nets JPY2.3bn valuation
- Company to start assisting foreigners relocating to Japan
- Cookpad to IPO in July
- Big WiMax roll-out due in July

-> Virtual trading co nets JPY2.3bn valuation

Jubilee Lab, a virtual stock trading site that allows users
to experience the thrill and strategies of stock trading
without the risk, was the recipient of SBI Securities
largesse last week when SBI-S invested JPY160m at a
valuation of JPY2.3bn. The valuation is in recognition of
the substantial revenues and profits the company generates
from its 80,000 users. ***Ed: Looks like a great marketing
platform for SBI-S, to us.** (Source: TT commentary from, Jun 13, 2009)

-> Company to start assisting foreigners relocating to Japan

In light of the ongoing recession and cut-backs by Japanese
companies abroad, employee relocation specialist Relo
expects that its new subsidiary Relocation International
will be able to build up a secondary stream of income by
relocating foreigners moving to Japan, instead. The company
says that it will take care of all aspects of assisting
with visas, driver's licence, phones, housing, and other
aspects of establishing oneself after relocation. The price
tag per relocation? A cool JPY1MM. ***Ed: Seems like a
crowded sector with some already well recognized foreign
brand names in place -- we think Relo will have a tough time
charging at that price.** (Source: TT commentary from, Jun 13, 2009)

-> Cookpad to IPO in July

While generally speaking IPOs are almost non-existent in the
current market, some companies have such compelling
businesses that they will be popular at any time in the
economic cycle. One such company is Cookpad, Japan's
largest cooking recipe site, with 351m page views last
month, 6.8m unique visitors, and JPY1.81bn in annual sales
(net profit of JPY355m). The company will list on Mothers
on July 17. Users pay Cookpad JPY300/month to use the site
-- which, whether by mobile or web, is cheap enough that
if the content is good, the punters will just keep rolling
on in. ***Ed: Just a great business -- much the same as
fortune-telling sites.** (Source: TT commentary from, Jun 12, 2009)

-> Big WiMax roll-out due in July

WiMax, the next generation Wi-Fi technology that offers
30km of range and network user speeds of 40Mbps or more, is
about to take a big step forward, as Tokyo-based WiMax
company UQ Communications, starts to offer services to
Tokyo subscribers from July 1st. The company will have the
support of Intel Capital, which says it will invest
US$43m into the company this month. UQ will be competing
with DoCoMo, but at much higher speeds. (Source: TT
commentary from, Jun 8, 2009)

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to

=> In TT520 we delved into some of the reasons that
start-ups in Japan were so few, and investable start-ups
even fewer. A reader responds:

I enjoyed your lead article this month more than usual. I
teach entrepreneurship in China and try to help students
look at new innovations, especially new technology, and
evaluate them for commercial potential. What I have found
both in the US and in China is a willingness to take risk,
coupled with the availability of support systems (more in
the U.S.) to encourage start-ups.

What you have described are all good reasons why
entrepreneurship does not flourish in Japan. One young man
that worked with me when I was in Japan tried to buy a
fledgling division of a larger company a couple of years
ago. He tried for over a year to raise the capital needed
to buy the division and set up a new company. The market
was excellent for the product, but the foreign owner of the
division would not help him finance it and he could not
raise the capital by himself in Japan. That potentially
profitable business has died as a result.

In contrast, earlier today I received an email from one of
my students in China. He and some other students were part
of my class last September. I taught them how to prepare a
feasibility study and a business plan. When I was back in
Hefei in March, I met with them again and they presented
their own business plan to me. We talked about
implementation, which they started working on immediately.
They reported to me today that their first batch of product
has been sold out and they have been contacted by local and
national media to do stories on them. PR coverage will help
them tremendously...

Clearly, the attitude and training venture businesspeople
can receive is just different in China.

One area that you only partially mention is the ability of
many new start ups in the U.S. to get angel funding.
Angels in the U.S. fund about 10x the number of companies
that VCs do. These are usually very early stage companies,
the kind you mention as being in the greatest need but
which have the hardest time raising money. Here in Utah
there are now 7 angel groups that pool money around
promising start ups.

It is no accident that Utah is listed as among the most
promising entrepreneurial areas in the U.S. Maybe one of
the reasons for a lack of angels in Japan is that there
have not been that many people who've started businesses
then had a big exit that provides them the funds to invest
again. People stuck in big companies earning set wages
creates a constricting cycle. When they retire they do not
have the mindset, nor the funds, to become angels. I think
until that cycle can be broken, by people like Alan Miner
at Sunbridge, then it will be hard to get start-up funding.

I agree with you that the government needs to step into
the breech and promote these start-ups and then when the
big exits come, the exiting entrepreneurs will begin to
create groups of angels that can perpetuate the cycle in a
different direction.

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