Disrupting Japan

Last month I spoke on a panel about the future of climate tech. I was joined by Emi Naganuma, the founder and General Partner of Apprecia Capital and Richard Youngman, the CEO Cleantech Group, with Michael Matsumura of Scrum Ventures moderating. Right now is both a challenging and an exciting time for climate tech innovatoin. It's a fascinating discussion, and I think you'll enjoy it. Leave a comment   Transcript Welcome to Disrupting Japan, straight talk from Japan's most innovative founders and VCs. I'm Tim Romero, and thanks for joining me. I've got another quick in-between episode for you today. It's a great conversation about deep tech startups and the future of energy. I was part of a panel discussion organized by Scrum Ventures at the Sakura Deeptech Shibuya Conference. It was moderated by Michael Matsumura of Scrum Ventures, and I was joined on stage by Emi Naganuma, the founder and general partner at Apprecia Capital, and by Richard Youngman, the CEO of the Cleantech Group. We talk about the best way to raise venture funding as a deep tech startup, how enterprises and startups can better collaborate the important gaps we see in the green tech ecosystem and the somewhat controversial future of using ammonia and hydrogen as alternative fuels. So, let's get right to the panel.   Discussion Michael: Thank you much for our panelists. Maybe I'll just kick it off. Maybe you could start with Richard. Could you talk a bit about like what you're seeing globally in terms of where the dollars are flowing now? Has that changed like in the last like six months, one year from what you're seeing? From your perspective? Richard: It hasn't changed radically yet, but it made it. So, I think if you go into Q1, clearly the deals in progress and so forth, some of which may have fallen apart, but some of which happen. I don't think the community in the US judging by our conference the year before was expecting the inflation reduction act to be sort of aggressively taken apart as it was. Meaning if something was already a deal was done and it was expected to continue. And so that's obviously created a lot of back backtrack there. But geographically, I would say we're still to see that. I guess the second comment might be in our 20 years and why really we're excited to be in this part of the world more and more is because we believe that innovation under this theme is coming from everywhere and should come from everywhere and needs to come from everywhere. This is not as Silicon Valley phenomenon. Silicon Valley has a role to play but so does everywhere else. And so I think long term we're expecting to see capital allocation change quite a lot. Michael: Great. Then maybe staying on that sort of the macro theme maybe I could go to Emi obviously like on a similar topic, but in terms of like your limited partners, like the discussions you're having with your investors, like has there been a change in tone? Is it like in different sectors you guys are interested in or the partners interested in? Could you maybe touch upon a bit about that? Emi: I think from the expectations from the investors, the LPs into the fund I see that they have shifted their interest into deep tech incredibly especially university or research driven. So, really deep tech and clean tech in terms of geography as well. I think a lot of attention has been in the US but now it, we do see more attention coming into Europe. We see US VCs also emerging into Europe. Before it was series B or series C that they came into. Now, early stage, I think from seed we kind of see some US VCs coming in and trying to getting into the deals. And I also see a shift of students coming in to study in Europe, but yes. Michael: And in terms of your LPs, are they mostly Japanese or are they a mix of like global LP bases that you have? Emi: We have Japanese corporates as LPs. Michael: Thank you. Then maybe Tim, to your perspective, maybe also as JIRA, like you make one third of it a pound in Japan. But like you obviously have global operations. You've got like IPP businesses across Asia and also US as well. From like your perspective, how's the changing sort of landscape impacting the way how JIRA Ventures makes investments right now as well? Tim: So, energy is a global market and I think that to your point, you have to be globally minded. And I think when the IRA passed in the US a few years ago, there was this tremendous movement of innovative companies from Europe to the US. We're starting to see that trend reverse, and a lot of them are going back to Europe, but even within the US, I think for example, my own companies have been enterprise software. And you can go to San Francisco and understand 80, 90% of what's going on in the world of enterprise software. You can have your finger on the pulse never leaving that area. Climate tech energy's not like that, there's a lot more going on globally, even in the US I think Boston is more innovative than San Francisco, but there's a lot going on in Europe and a lot going on in Australia. There's a lot of promising startups in Japan as well. So, these things shift. If innovation in the US slows down, there's a lot of other places that'll pick up the slack and it seems like they're already doing so. Michael: Great. Thank you. Then maybe just diving a little bit deeper into some specific technologies or themes maybe as well. I think Richard gave a good overview of the sort of the, maybe the booms and buses the wrong way to put it, but like some hot sectors and less hot sectors. Maybe we'll start with Emi again then. What are the sort of areas that you see as very attractive right now? Like where do you think you'll get good returns looking for like what excites you right now? Emi: In terms of return and of course impact, we look at it into two kind of segments. First is where there's a high environmental impact right now that exists. So the large sectors, and usually these aren't so many, it's construction, agriculture, energy, concrete, et cetera. And then we look at the other one that is where there aren't so much of an environmental footprint yet, but that industry will grow and we think that's really, really interesting. And Richard has already highlighted, but we think the AI infrastructure space is going to grow. So, we're looking highly into that. It is becoming a competitive space and also we look into space tech because that is really interesting as well, and it can provide solutions in climate tech that we haven't seen before and that could provide solutions that we couldn't even think of. Michael: Yeah, I like the impact perspective is really important. And personally, I always thought that the industrial decarbonization never attracted enough capital, like given the emission level. So that's always a sector that I've always liked. Then maybe, Tim, to your side, I think JIRA's had a big focus on looking at hydrogen and sort of ammonia and I know there's been talks about using ammonia in sort of coal fire power plants like coal fire, coal firing, and then looking at sort of gas turbines using hydrogen as well. And obviously as Richard highlighted earlier hydrogen's kind of lost a bit of steam lately. In terms of the investment cases right now, is it still a viable sector that we should be looking at? Does it still have a -- what's your perspective there? Tim: Well, I think it depends on your time horizon and your investment objectives. So, as a VC with a seven year fund, I think it's really hard to invest in hydrogen. As an energy utility or as a nation who needs to have a secure power grid, it is essential to continue investing in alternative fuels. Because in the long term, even if we get a very green grid, we shut down all the coal, we shut down all the gas plants, we get to Carbon zero eventually, the Germans have a wonderful word called Dunkelflaute. And it means when the sun's not shining and the wind's not blowing. And right now we've got batteries that'll do eight hour storage, no problem, maybe 12,24. There's some promising things that'll go to a hundred hours plus. But at some point, there's going to be a few weeks or a month where you've got the Dunkelflaute and you need to burn something. And that something could be fossil fuels or it could be ammonia or hydrogen that is made with excess energy when the sun is shining and the wind is blowing. So JIRA's plant, a Hekinan was the globally first successful test of a blended ammonia and coal firing, and it was 20% ammonia, 80% coal, and it was hugely successful. The engineers are saying we go to much higher ratios. So, in terms of a startup investment from a VC perspective, it's very hard to justify an investment like that. You're not going to see returns in five years or 10 years. But as a utility who's making 40 year investments and 80 year time horizon planning, it's essential. And so that's why alternative fuels be it hydrogen ammonia is really important in the midterm. I think storage is extremely exciting in all forms, whether that's lithium-ion batteries or zinc oxide batteries or these iron rust batteries or when I see EVs, basically it just looks like storage on wheels to me. So, I think that that's like, in terms of my investor brain, that's what I'm most excited about right now. Michael: Nice. Okay. I'd like to add the geothermal and maybe nuclear to that, but… Tim: No, absolutely agree. Absolutely agree. I mean, JIRA doesn't do nuclear, so JIRA doesn't have an official opinion on it, but I think it's pretty clear from all available analysis that there's no practical path to net zero without a lot of nuclear on the grid. Michael: Yeah. Thank you. Then Richard, maybe to you obviously Cleantech group, you guys research and you look at so many different companies across the world. What are the sort of most under the radar sort of technologies and sort of sectors that interests you or excites you right now?

Sandeep Casi is a Partner at Antler Japan, where he shapes startup innovation and supports early-stage ventures. In this insightful discussion, he reveals how foreign founders are transforming Japan's startup scene and overcoming barriers. He debunks the myth about Japanese founders' English skills and sheds light on the unique challenges of university spinouts. Sandeep also discusses the surprising success rates of Japanese startups compared to their global counterparts, driven by a bottom-up approach to entrepreneurship.

Progress is not only slower in Japan, it is often different. Looking at the numbers, it's clear that venture capital is even more male-dominated in Japan than it is in the West. Our guest today explains not only how that's changing, but how she's changing it. Sophie Meralli is a Partner at Shizen Capital and co-founder of Tokyo Women in VC. We sit down and dive deep into the keys to developing a creative, global mindset among Japanese founders and VCs, the role immigrants have to play in developing Japan's startup culture, and what really works in changing, not only minds, but actions related to the role of women in startups and venture capital. It's a great conversation, and I think you'll enjoy it. Show Notes The kind of startups Sophie and Shizen are looking for Why Japanese AI startups need to be especially careful The percentage of Japanese VCs are women, and how it's changed over the past 5 years Why more and more VC funds are being started by women in Japan What Women in VC does, and how you can get involved The main things holding back women in VC in Japan today The critical next steps for women in VC Is it easier for foreign women to defy gender stereotypes? Are Japanese women founders making faster progress than women VCs? What a “global mindset” really means for startups How to develop cultures of creativity and innovation Links from our Guest Everything you ever wanted to know about Tokyo Women in VC Tokyo Women in VC Job Board Tokyo Women in VC Research: The 7 Stats Shizen Capital Friend with Sophie on Facebook Follow her on Twitter @Soph_VC Info on rate of Japanese Passport holders Leave a comment Transcript Welcome to Disrupting Japan, Straight Talk from Japan's most innovative founders and VCs. Finance and venture capital in particular has always been male dominated, and in Japan, well, it's even more so, but things are changing here and not quite in the way you might expect. Today we sit down with Sophie Meralli, a partner at Shizen Capital, and co-founder of Tokyo Women in VC. And we have a frank discussion about what it's really like for female founders and venture capitalists here in Japan. And some of it is surprising. In some areas it seems that Japan is ahead of the west and in others, well, not so much. The conversation is at times both frustrating and hopeful. Sophie explains the one thing holding female VCs back more than any other, how things are changing for female founders and for male founders as well, and why so many new Japanese venture funds are being founded by women. But you know, Sophie tells that story much better than I can. So, let's get right to the interview.   Interview Tim: So we're sitting here with Sophie Meralli, a brand new partner at Shizen Capital. So, thanks for sitting down with me. Sophie: Thank you so much, Tim. It's a pleasure to be here. Tim: You're not new to VC, but you're new to Shizen. So, tell me a little bit about your new role, what kind of things you're looking for. Sophie: Yeah, sure. For me, it's kind of interesting because I was in early stage in Boston and then when I came back to Japan, I was with Eight Roads Ventures for about five and a half years looking more into growth stage startups in FinTech, Enterprise SaaS. And those are really the area that I think are super interesting to me in Japan where I see a lot of potential. And so at Shizen, given this is much more like early stage, there are tons of ideas for which there are already unicorns abroad, but in Japan, those haven't surfaced yet. And I'm really excited to either incubate new businesses or just be able to be a partner for very early stage startups in those sectors. Tim: Now, you mentioned your experience back at InSpark in Boston? Sophie: Yes. Tim: If I recall back then you were looking at AI startups and sort of the previous generation of AI startups. What's your take on the situation of AI startups here in Japan right now? Sophie: I think AI right now, industry is very, full of hype and very Agentic. Tim: For various meanings of that word. Sophie: Yes. Back in the days it was much more about machine learning and being very application driven. So, I invested, for example, in companies that help construction site being able to do inspection in a less manual way with drones and AI automation. And that enabled drop the time to do a survey from two months to 30 minutes. And that was really new at that time. We did that also for dentists. Tim: Yeah, I think that that kind of previous generation of AI was really use case focused. And there's still a lot, whether it's in like predictive maintenance, a lot of medical applications, do you see the same thing happening in the current crop AI startups, the LLM startups? Sophie: I still have to try to understand the business model and use cases. So, I'm trying to be a bit more, I wouldn't say skeptical because I'm very excited as well, but I think generative AI and it's to be taken with a grain of salt, and if you have a lot of average input, then you get average output too. So, what can really a big data set do is become average quality sometimes. So, I'm excited to learn more about the data that these startups are using and the exact use cases that they want to tackle, rather than trying to completely, fully automate jobs. I think we're still a bit far away from that, although I'm using cloud and ChatGPT every day myself. Tim: I'm the same way actually. I use ChatGTP, I use perplexity every single day, but I'm also a huge AI skeptic in terms of actually investing in the companies and whether they can live up to the hype. But actually one thing I really want to talk to you about, let's talk about women in VC. Both the organization and, well, the actual women who are in VC. So, you and Shino Furukawa founded Tokyo Women in VC a couple of years ago, back in 2020? Sophie: Yes, exactly. Tim: Tell me about the organization. What do you do? Why did you start it? Sophie: Sure. I would love to. Basically, when I was in Boston, there was an amazing women in VC community called Breaking 7% because there were only 7% decision makers that were women back in the days. And we met almost every month through dinners and exchange ideas. And it was more of a ask me anything kind of community where members come up with problems and they share it with each other. And that really helped me a lot to build my network because in the US, I knew almost like no one. And when I came back to Japan, it was 2020, it was COVID, it was very hard to network. And I felt that women were also a bit isolated. And so I discussed with a few women in VC, and Shino is a very dear friend of mine. She was actually pregnant at that time, so I felt a bit guilty to ask her to take on… Tim: More work. Sophie: My co-founder for this, but at the same time, I was like it must be her. And so she accepted and she was very enthusiastic about it. So, we launched a community in 2020 with about 30 members only. Tim: Well, and you were mentioning the 7% decision makers in the US, I would imagine that number is lower in Japan. Sophie: Yeah, so now in the US it's about 16%, 18% so a lot of progress in Japan. We are doing a survey every year since 2020. And back in 2020, the number of decision maker was about 3%, total VCs. Tim: So, what is a decision maker? Is it a partner? Sophie: Yeah. It's a partner or a GP basically someone who has a voice at the investment committee. And now in 2024, we have about 8.4% women decision makers. Tim: Well, I mean, it's low, but that's a lot of progress. In just five years. Sophie: Yes. And one interesting trend is that rather than being internally promoted, it comes a lot by launching your own fund because the fund cycles are so long, 10 years. So, there's promotion to partner or decision maker. Often when there's a new fund coming up and there's not a new fund every year, it's mostly every three, five years. So, a lot of women actually launch their own funds and that's how they become partner. Of course, there are some exceptions, which is a great sign for the ecosystem when women are also promoted internally. Tim: That is interesting. So, I mean, of course it makes sense that there'll be more women at the newer funds. Just because you don't have a whole lot of mobility in an existing fund. You just don't. But are there a lot of women raising their own funds now in Japan? Because it would seem to me that that's a lot harder than joining a fund. Sophie: I mean, so in terms of women launching their own fund, I wouldn't say that there are a lot, unfortunately, we need many more to do that, but it's growing and we're seeing a lot of women launching their own. And I think we are about 20 to 30 women who are decision maker right now in the industry. And by 2030, we want to double that to 60 or more. And we have another KPI, which is the total number of women investors, and that's now 17% of the industry. And we hope to bring that to 30% by 2030. Tim: The women who are decision makers. So, men in VC in Japan are overwhelmingly finance guys from good schools who worked at tier one companies before jumping to VC women fit the same profile, or is there more variation there? Sophie: I think a lot of women who launched their own firm come from the VC industry, or some of them finance industry as well. I see some who are actually in the startup space. Tim: So, similar profile as the male VCs, then? Sophie: Yes, I would say that there is not a trend that women have a different profile than male counterpart. That being said, when they launch their own fund, they tend to have a different lens. And I see a lot doing funds focused on women entrepreneurs or women's health or impact, ESG, but obviously there are also sectors like healthcare in general or B2B SaaS,  and we don't want to have only women VC investing in women founders.

Dai Watanabe, Co-founder and managing partner of Delight Ventures, dives into Japan's innovation landscape. With over 25 years of experience, he reflects on how American enterprise innovation outpaces startups and why Japan lost its mobile internet lead. Watanabe discusses the challenges of retaining talent and emphasizes the need for Japanese founders to embrace global opportunities. He also highlights the importance of collaboration between startups and enterprises in Japan's evolving tech ecosystem.

Fifteen years ago, University-run venture funds were all but illegal here in Japan, but today a higher percentage of major Japanese universities have VC funds than in the US or Europe. Today we sit down with Kei Furukawa, a partner at the University of Tokyo IPC, a $300M venture fund, and we talk about the unique role these funds play in Japan, how they drive innovation in rural areas, and why he has to talk professors out of becoming startup CEOs. It's a great conversation, and I think you'll enjoy it. Show Notes UTokyo IPC'a mission and investment strategy How the Japanese government is trying to accelerate university innovation Why the government plans to stop funding university VC funds The unique role of University funds in Japan How IPC is helping startups work with large enterprises Why Japanese CVCs are more founder-friendly than American VCs Why Japanese CVC investment increased during covid How to talk a professor out of being a startup CEO Can startup interaction reform Japan’s universities? The challenge in developing innovators outside of the major cities Which startup sectors are most promising in Japan How senpai culture is holding Japan back Links from our Guest Everything you ever wanted to know about UTokyo IPC IPCs 1st Round program Follow Kei on X @keisukefurukawa Friend him on Facebook Connect on LinkedIn Leave a comment Transcript Welcome to Disrupting Japan, Straight Talk from Japan's most innovative founders and VCs. I'm Tim Romero and thanks for joining me. University Venture Funds play a much larger role in the startup ecosystem and in startup finance in Japan than they do in the US or Europe. Japanese university funds also operate differently, and  fill a different niche than most of their Western counterparts. Their oversized impact is all the more amazing when you consider that 15 years ago, it was basically illegal for Japanese universities to invest directly in startups, but now they've become a driving force. Well, today we sit down with Kei Furukawa, a partner at the University of Tokyo IPC. A $300 million University fund, and we dive into how Japanese university VCs invest today and how that's going to be changing in the near future. Oh, and for our overseas listeners in this conversation at different times, Kei and I talk about the University of Tokyo and Todai and UTokyo. It's all the same place. It just goes by many names. So Kei and I talk about how you can get investment from IPC, even if you're not a University of Tokyo student or faculty. The single biggest challenge to getting university professors on board with what's required to commercialize their research and how the different investment strategies in Japan are leading to a different kind of startup enterprise collaboration than we see in the rest of the world. But, you know, Kei tells that story much better than I can. So, let's get right to the interview. Interview Tim: We're sitting here with Kei Furukawa, a partner at the UTokyo Innovation Platform or IPC. So, thanks for sitting down with me. Kei: Thank you for having me on. Tim: In the introduction, I gave a brief description of what IPC is and what you're doing, but could you explain a little bit more? So like, what's your thesis? What are you investing in? Kei: So, we are a university of Tokyo Innovation platform company. In short, we are called in Japanese Todai IPC. I think there's three major points in our activities. Number one, we are a hundred percent subsidy of the University of Tokyo, which until a few years ago, it was a pretty rare case because national universities were not allowed to have, let's say, investment companies or let's say companies itself under the organization. But we were created for a more government policy point, we are a hundred percent subsidy, which is pretty, I think, unique model around the world that there's a venture capital right under the organization of university. Point number two is our main activity is investment. So, we have three funds right now. Todai is about 400 million in USD. And we do direct investment into startups, and we actually also do fund funds. So, we actually invest into other venture capital funds. Tim: Well, actually, your three funds, it's really interesting, and I hope we have time to dive into each of them, because each of them kind of represents a different strategic importance for the university. Kei: That's very true. Okay, let's dive into the three funds right now. So, we have three funds IPC one fund, AOI one fund, and ASA fund that we're working on right now. So, the IPC one fund is a fund that we invest into other venture capital funds, and also we do direct investment into startup into a more middle to later stage. ASA fund we invest into more early, let's say, seed round or very early stage funds. And we also do our car out spinouts from large corporations. And this is why we do it. I'll talk later. ASA is a complete fund of funds. It only does fund of funds which we are working together with the Tokyo Metropolitan Government. Tim: So, throughout the course in this interview, let's talk about each one of those individually. Because they're all really interesting to themselves, but focusing on IPC and the direct investments. So, what's your thesis? What kind of startups are you investing in? Kei: The thesis of startup investment for IPC fund and the AOI fund, there's a minor difference, but in general, we invest into startups that are utilizing research coming out from the university. So, that is the investment criteria that we have when we make investment into startups, that they're utilizing the research coming out from university in some way. It can be an IP from the university, or it can be like core research done together with the startup events and the university, which then we can call university related. And then there's other parts where it's like the professor comes in as an advisor. So, there's many ways we can form the way. Tim: Yeah, that's pretty broad. So, it's not necessarily just professors spinning out their research or students forming it. It could be founders with no particular connection to Todai who want to use the IP. Kei: That's exactly right. So, the most beautiful story will be that all startups are using the IP or research coming out from, let's say, just completely done in university. But one thing is that we want startups around the world to utilize the research coming from UTokyo not just the IP. So, we have actually about 10% of our portfolio is global companies. I don't know one about one third of the companies that we invest into is non UTokyo at day one, but we make that UTokyo connection in, let's say, academic or research way. And then they utilizing the UTokyo asset. And then we make investment, which is also a great way, I think, to enlarge the ecosystem around UTokyo. So we welcome other companies coming into UTokyo and utilizing the asset. Number two, if we restrict ourselves to just spin us from, we'll be restricting our investments. And the important thing is that we bring back return to the investors. So we broaden our, let's say, investment thesis so that we have a balanced portfolio in that way. Tim: Yeah. Are you focused on just the initial seed investment, or do you follow on the later stages? Kei: We are a follow on fund. So our fund size for IPC and ASA is both 200 million USD. So, we have a fairly big fund, and of course, it depends on the project itself, but we tend to do all our investments. Tim: So research at the University of Tokyo is really wide ranging. But for the IPC funds, is there a particular sector or a number of sectors that are particularly active, whether it's like healthcare or energy, or… Kei: About one third of our portfolio is healthcare, which is drug discovery, medical devices, and a bit of agritech. We do put a lot of power on biotech because it is important for humanity. We think it's important for investments. So, we do a lot of biotech. About 20 percentish goes into hardware including space, aerospace, materials, semiconductor and robotics. And about, let's say, one rest of the one third 40 percentish goes into AI and IT. We hardly do two consumer because we know in the market there's a lot of venture capitals that do two consumer kind of investment. And we do the more difficult AI and IT related between enterprise related startups in that sense. Tim: There are a huge number of foreign students here at the University of Tokyo. Are there a fair number of foreign founders in the fund? Kei: We have about 80 companies now, and I think we have about three or four companies that are non-Japanese founders of founding companies in Japan. Tim: Excellent. So you mentioned IPC started in 2016, and part of the motivation was the national government trying to get the national universities to be more active in supporting startups. At the time they did provide a lot of funds for that investment. So, who are your LPs? Is it all Todai money? Is it a little external money? Is it…? Kei: Good question. So most of the fund comes from Todai, but it comes from the government. For the first fund most of it comes from the government, but we have a little bit coming from major banks. For the second fund, about 60% comes from the government, but the rest comes from private sector. So that's financial institutions and enterprises. So half and half. Tim: So every fund is more and more private money. Kei: Yes. So, we have to go complete private most probably we are no longer yet, but for the next one, maybe we have to go more complete private on that. Tim: Well, I mean, that's a good trend. I think that was what the government was hoping for, right? Prime the pump and then let private money take it over. So, let's talk about university funds in Japan in general.

(sketch by Kaori Rei)Today we are going to sit down with an old friend. It was over seven years ago when I first had Tim Rowe on the podcast, and we mapped out what we saw as the future of startup innovation in Japan. In today's short episode, we talk about what we got right. what surprised us, and what we think is next for Japanese startup innovation. It's a great conversation, and I think you'll enjoy it. Leave a comment   Transcript Welcome to Disrupting Japan, straight talk from Japan's most innovative founders and VCs. I'm Tim Romero, and thanks for joining me. I'd like to share a special short in between episode with you. Last month I had a fireside chat with Tim Rowe, the founder and CEO of the Cambridge Innovation Center at the Global Venture Cafe's anniversary celebration in Tokyo. And I thought I would share it with you just as it happened.  I first had Tim on the show about eight years ago, just before CIC opened their Big Tokyo collaboration space. This time Tim and I talk about the changes to the Japanese startup ecosystem since then, what we are likely to see in the future, and we also discuss what might be a new model for startup ecosystems. As startups have become more and more accepted and more and more common. The old community playbook may not be as effective as it once was. But Tim tells that story much better than I can. So, let's get right to the interview. Interview Romero: All right, Tim, it is great to be sitting down with you again. And as a bit of background for the audience. You and I back in 2017, we were sitting down over coffee in Tokyo and you were telling me about your plans to open Venture Cafe and CIC and I remember asking you like, how the hell are you going to fill 6,000 square meters of co-working space in Tokyo? And here we are. Venture Cafe is one of the driving forces in the startup ecosystem. CIC is over capacity. I have never been so delighted to have my doubts proven wrong, so congratulations on that. Rowe: Thank you, Tim. Glad to be here. Romero: Before we dig in, you've got ties to Japan. You've been working with Japan for a long time, so can you tell us a little bit about what was your involvement in Japan in the 90s and forward? Rowe: Okay, so a bit of background. I'm from Cambridge, Massachusetts. My father was a professor at Harvard. My mother was a professor at MIT, so I'm one of those kids. And I was fortunate to be exposed a bit to the world. My grandmother had spent about a decade in Asia in the 1920s. And she used to teach me kanji when I was little. And so I didn't know much about Asia, but I thought this was really interesting. And I learned later that my great-grandfather arrived in Yokohama in 1919. He was then acting Surgeon General for the United States. And he was on a world trip to kind of build connections and relationships. So, we go back a little ways in Asia. My father, when I was in high school, did something that I think all the parents in the room should do. He said, look you should learn a little bit about the rest of the world. And he said, if you learn Japanese, I'll give you an opportunity to work in my company's Tokyo office for the summer. And I said, okay, deal. And I started studying Japanese. I didn't know the language at all, but it seemed like a cool opportunity. By the way, a generation later, I made the same offer to my oldest child. Actually, I made the offer to all my children, but my oldest child took me up and he came and worked in Tokyo also when he was 16. Kihara-san, I understand that you did something similar. You were in school in Chicago and in Amsterdam when you were young. And clearly your English reflects that experience. I think all of us should have this opportunity to go out of our usual comfort zone and work in another country and learn about other cultures. But that's my background. So, I did a year at Dosha University later as an exchange student from Amherst College. And then I was fortunate to get a job at Mitsubishi Research Institute Mitsubishi Soko for about four years after college. So, I've had time now and then in Japan. Romero: Alright, well, things have changed a lot, both from the 90s when you were first here and in the past seven years or so with the Venture Cafe and CIC experience. So, before we get into the future of Japan, what sticks out as some of the most significant changes you've seen in the startup ecosystem over the last, say seven years? Rowe: Japan as a country, and many of Japanese institutions have really gotten serious about startups I would say the last decade. I think the first wave was a lot of the Japanese corporations starting to really embrace working with startups. Before that it was almost impossible to work with a Japanese company as a startup. If you remember back 15, 20 years doing business in Japan is typically about your experience, your reputation as a business. And startups kind of by definition have none. And there was an awakening to the fact that, well, that's true. Startups are new and don't have this experience. They can also move faster and be agile and sometimes introduce new technologies that the larger companies have trouble introducing. We see this story in the automotive industry where Honda and General Motors and others could make an electric car, but they could never quite figure out how to make a market for electric cars. And then it took a startup Tesla to come in and say, okay, we're going to really seriously make a market. And that happened and later others followed. So, there's this recognition that I think emerged that startups can do things that companies, 10,000 times their size can't. And that's exciting. And so the doors started to open. More recently, I think the Japanese government started to really lean in and say, how can we support? What can we do? How can we support this part of the economy? Hey Michael, how are you? We have an expert in the room. Michael Cusumano, professor at MIT who has been writing and teaching about this for decades longer than I have. So, later you should get a chance to hear from him on this. But, so that started to happen, but I really need to say here, Tim, that there's a history before all this that I don't want us to forget. If you go back to Japan in the post-war era, Japan was one of the most productive startup economies in the world. And if you look at the results of that today, all you need to do is look at the percentage of the Russell 2000, most successful companies in the world that are from Japan. And you'll see that that percentage is roughly tied with the United States when you adjust for population. And all of those successful big companies were startups. These were companies like Sony and Honda and so forth. So, I just need to baseline this. There isn't some difference really, in terms of Japan's potential or capability to build world-leading startups than the United States. Yes, there's a difference in where we are today. Yes, there's a difference today in the amount of venture capital that's flowing. Those are all true, but there isn't some sort of fundamental reason why Japan shouldn't be producing startups of the same size and impact as the ones coming out of the United States or the UK or other leading innovation countries. So, the importance of this is that sometimes people think, well, maybe this is cultural. Maybe there's something about the Japanese culture where it doesn't produce as many startups. No, that's BS I won't say the full word because I'm in a public venue here. But that's BS, there's absolutely no cultural barrier here. There are structural barriers, there are differences. And I was pleased that Kihara-san talked about tax policy. We have policies in the United States, for instance, that make it very attractive to invest in startups. We have policies for our pension funds that make it very attractive for them to invest in venture funds. These policies are not necessarily followed equally everywhere. I know the UK, for instance, doesn't have that same policy, which has made it harder to get venture capital funds out of the pension and similar kinds of institutions. Those are policy changes, the policies, and they can be changed. And so I think what we're seeing now in Japan is this sort of openness to really rethink the structural drivers of innovation and how to move things forward. Romero: I agree. I think probably one of the most significant changes is the willingness of large enterprises to interact with startups. In the dotcom era, it was next to impossible. You get pushed down through four layers of subcontractors, and now almost every large organization to Japan has a team that's dedicated to working with startups. But looking back, and I agree, cultural explanations are kind of hand wavy. So structurally, I mean, is there anything you can particular that you point to and say, ah, that was the triggering event, this was the most important policy, social change, anything that set the wheels in motion? Or do you think it was more of a gradual change of people realizing the opportunities that working with startups presented? Rowe: Japan has a history of embracing things that have high level support. There's a little bit of follow the leader kind of behavior. People say Japan is not a risk taking country, but that's not true at all. Again, if you go back to World War II and look at Japan, there were a lot of risks taken. And if you look at modern, say, extreme sports, you have Japanese contestants that are just as capable as others, and they're taking extreme risks. But what Japan culture, this is a cultural piece. There tends to be a sort of a need for kind of a stamp of approval from someone that it's cool to take these risks. So when the Prime Minister's office launched its startup awards when METI and the cabinet office backed the J startup initiative, which you're probably familiar with that said,

Today we are going to break down some startup stereotypes. I sit down with Kunio Hara, co-founder and CEO of Beatrust and break apart the stereotypes of the uncreative Japanese enterprise and the young startup founder, and Kunio explains how Beatrust is already teaching old dogs new tricks. It's a great conversation, and I think you'll enjoy it. Show Notes How Japanese enterprises are different from their US large counterparts Things to know when starting a company in your late 50s Why older founders lead to more successful outcomes Challenges in breaking the age-hierarchy in Japan Can software actually make people collaborate? What it takes to get Japanese firms to innovate and collaborate freely Does Japan's management style have to change or can innovation happen within it? Why American companies will also soon have to change their work styles What new founders need to keep their eyes on when starting a startup Links from our Guest Everything you ever wanted to know about Beatrust Follow Beatrust on X @jp_beatrust Beatrust on Note Get in touch with Beatrust Connect with Kunio on LinkedIn Friend him on Facebook Leave a comment Transcript Welcome to Disrupting Japan, Straight Talk from Japan's most innovative founders and VCs. I'm Tim Romero, and thanks for joining me. I didn't really realize what this episode was about until I finished the editing. Oh, don't worry. I'll be introducing you to an innovative founder in just a minute, and we'll dive deep into their business and their market. But this episode is really about stereotypes, how much truth they really have and why they stay with us, and what we can do to change both the perceptions and the realities that underlie them. Today we sit down with Kunio Hara, co-founder and CEO of Beatrust, a startup that's focused on getting Japanese enterprises to break from their hierarchical structures and let their employees collaborate. Listeners who have spent time in Japan know that this is not an easy task, but as we explore this subject, it becomes clear that both the reality and the solutions are not as straightforward as the stereotype suggest. We also explore the stereotype of the young Rebel startup founder, and man that is a pervasive one. In 2007, a 22-year-old, Mark Zuckerberg famously declared that quote, young people are just smarter. Paul Graham explained in 2013 that investors tend to be skeptical of any founder who is over 32 years old. However, if you take the time to look at the real world results, the data actually show that older founders are much more likely to have a large value exit than younger founders. Kunio started Beatrust in his late fifties, and we talk about the positives and the negatives associated with that. But, you know, Kunio tells that story much better than I can. So let's get right to the interview. Interview Tim: So, I'm sitting here with Kunio Hara, the co-founder and CEO of Beatrust, who is modernizing corporate collaboration and culture in Japan. So, thanks for sitting down with me. Kunio: Yeah, thank you, Tim. Long time no see. Tim: Yeah, it has been a while since you're at Google. So Beatrust is focused on helping employees collaborate. This is important. Everyone agrees it's important. But it's hard. So what is Beatrust doing differently in this space? Kunio: We call our service talent collaboration tools because we try to define the new space and compare with other HR tech, especially talent management. What we do is mainly to help large organizations drive and facilitate more autonomous collaboration like cross functions. Tim: Okay. Yeah, that's challenging and in a bit, I want to dive deep into exactly how you do that. But before that, tell me about your customers. So, who's using Beatrust? Kunio: Obviously, large enterprise customers. They want to transform the culture to more innovative oriented, but our uniqueness about the product is we don't always go to one specific divisions. We go to a lot of different organizations such as R&D, Sales or maybe even new business development, because they really need to facilitate those autonomous collaboration across different functions. Tim: Okay. Yeah. Now this is something you and I have talked about before. I mean, we first met back when we were at Google, and you and Masato Kume left Google to start Beatrust in 2020. So why? What was your vision? Kunio: So, when I was at Google, I led a couple interesting projects. One is Olympics and the other one is startups. And the last one is more like DX support for Japanese enterprise. And for the last project, we had a lot of meetings with Japanese executives. And the main theme of those meetings, how they can make more innovations simply. So, Japan lost 30 years for making innovations. And they go far behind US companies such as Google and Microsoft and Amazon, and they want to understand why they were not able to make innovation like those big US IT companies. I realized a couple things because Japanese organization they have a lot of good employees. Many good employees. And sometimes management vision is very good, but why other organization, they cannot make innovation. At that time I was reading Google so I try to understand what's the difference between US IT company like Google and Japanese traditional large enterprise. And then I found maybe two main causes. One is culture, because culture is the essence of the innovation. When I was Google we had about 120 thousand employees. But usually with that size organization become very structured. So, it's very hard to make collaboration those different functions. But Google has preserved good culture, very open communication style. Tim: So, is your goal kind of to bring a Google vibe or Google structure to corporate Japan? Kunio: Of course not. It's not easy to import that kind of culture from a US company to Japanese company, because Japanese company has also good culture. Hundred years, three years, very good culture. But for innovation perspective, maybe they're not so good fit anymore. So, that's why they have to adapt but not easy to transform. Tim: Well, actually that's one thing that's always fascinated me. Because I agree. What you're saying is almost common sense among people who study innovation. But when you look at Japanese companies in the sixties and seventies, they had the same hierarchy. The same rigid structure, but they were incredibly innovative. So, is it just the structure? Is there something else missing? Kunio: I think what the market demands really changing, maybe Japan is good at focusing one thing. So, they want to create some product in a very efficient way, good quality. That's the strength of our Japanese business used to be. But now they need to have more consolidated, more hybrid type business or hybrid type of product and services with technology. So in that case, they have to collaborate more and more across different function because they really need different expertise and skillset. Tim: That's really interesting. And I guess you're right, if you're looking back into like the sixties and seventies, it was definitely innovative, but the product cycles were much longer. These were products that were marketed and the fundamental product would continue for years or decades. And now, especially in the software age, life cycles are a couple of years at most. Kunio: You can imagine three years ago there was no generative AI in the market. So that speed at the Japanese organization was not able to adapt. Tim: Okay. Another thing I think that's very unique about the Beatrust story and your story in particular is that the image we have of founders is always some 20 something new college graduate. But that's not really true. And in your case, especially, I mean, you were a Google exec for about seven years, and you worked at Microsoft for three or four years before that. And you were in your late fifties when you started Beatrust, right? Kunio: Exactly, yes. Tim: So, what were some of the tradeoffs you considered when you were starting? Kunio: Yeah, I think the starting company doesn't matter any ages. And the seniority provides a lot of good things. Because you have no house, you have experience, you have connections. So, we should leverage those assets. But at the same time, senior people don't have more updated sense of the market. And I think I have energy, but of course, younger people have more energy they can really work for 24 hours. But it's kind of a combination. I was able to set up a company because I had a partner Kume San, he's much younger than me, it then can be good synergy. I think more and more Japanese senior people should aim at founding the new business because they have those expertise and background and relationship and young people don't have. So, that could be a good synergy. Tim: I think that's especially true when selling enterprise software. It's incredibly important to understand the problem you're trying to solve, and the people without those experiences won't be able to understand the customer's real problems. I think that kind of interaction is incredibly important for innovation, being able to communicate as peers despite age differences which is hard in Japan. Even back at Google for startups, one of the most common problems was we'd have a 35-year-old founder who had just hired a 55-year-old head of sales. And both sides really had trouble with the management structure, even when they really wanted it to work it was just so much against Japanese culture. And we set up kind of protocols and I worked with them to get them through it, and it worked out great in the end, but it's really challenging in Japan to get past these types of cultural box. Kunio: Yeah. So of course you know that depends on the personality. For senior people, usually they have their own idea, very structured, very solid.

Shota Nakagawa, the founder and CEO of Caster, shares insights into pioneering AI integration in Japan's workforce. He discusses how AI employees are addressing the country's labor shortage and why 90% of Caster's workforce consists of women. The conversation delves into Japan's unique approach to remote work, emphasizing flexibility and trust. Nakagawa also explores the skepticism surrounding AI in Japan and the potential for AI to manage critical tasks, all while providing a pathway for revitalizing rural areas.

Welcome to Disrupting Japan. Straight talk from Japan’s most innovative founders and VCs. I’m Tim Romero, and thanks for joining me. There is so much happening in Japan right now. Startups and innovation are beginning to reshape Japan with the same dynamism we saw during the post-war boom or the Meji-era re-opening. And I’ve been in the middle of this for a long time. I’m now a partner a JERA Ventures, but over the over 30 years that I’ve lived in Japan, I’ve started four startups here, worked at TEPCO Ventures, ran Google for Startups Japan, and, of course, I’ve been running the Disrupting Japan podcast for more than 10 years. Every episode, I sit down with friends, VCs, founders, and leaders who are shaping Japan’s startup ecosystem to give you an inside look at what’s really happening here in Japan. So, please subscribe and join me on this journey. I’m Tim Romero, and thanks for listening to Disrupting Japan.

Join Jumpei Yoshida, CFO of Kaminashi, a leader in SaaS solutions for frontline workers. He discusses Japan's obsession with paper and how it's slow to evolve. The conversation delves into the cultural barriers to digitization, particularly in blue-collar industries, and how foreign workers are spurring change. Jumpei shares insights on the unique sales cycles in Japan and offers advice for selling software to traditional businesses. This transformative journey is not just about technology; it's about reshaping workflows and trust in client relationships.