Creating Global Ventures: The Next Challenge For Japan's Evolving Venture Habitat

Creating
Helping passionate
Entrepreneurs build
Global Ventures
Successful global businesses
The next challenge for

Japan’s evolving venture habitat
Allen Miner
Chairman & CEO
SunBridge Corp.
Helping passionate entrepreneurs
build successful global businesses
Agenda
 Introducing SunBridge
 Japan’s Evolving Venture Habitat
 Concentration of Creativity
 Entrepreneurism
 Venture Ecosystem Improvements
 Venture Finance
 Competing Globally
2
Introducing
Helping passionate
Entrepreneurs build
SunBridge
SunBridge Founding Goals (2000)
 Create a Dynamic Venture Habitat that comb

ines the best features of Silicon Valley and J
apan
 to influence and improve Japan’s Venture Ec
osystem, helping to create
 World-class Global Ventures, and

 World-class (top-quartile) investment returns
SunBridge Venture Habitat

Consultants VCs 、 Banks
PR Firms 　 Accountants
Designers Lawyers
Agencies Incubators Recruiters
IT Vendors Alliance Universities
Integrators NPOs
Alliance Alliance Etc.
ISPs
End Users
150 Professionals
$100M invested
Established Established
Technology
Enterprise Services Venture Human Enterprise
Capital Resource
Sales & and Services
Marketing Strategic
Solutions Support
Information exchange
and collaboration Affiliated
Venture
Unrelated
Affiliated Information exchange Venture
Venture and collaboration
Japan’s
Helping passionate
Entrepreneurs build
Venture Habitat
Concentrated Creativity
With strong creativity and power to innovate,
Japanese inventions have changed the
world, the way we work and the way we live
while creating new industry sectors and
employment.
Tokyo and Osaka: leaders of the “Spiky World”
 #1 and #9: World’s largest metropolit

an areas
 Fortune 500 Headquarters
#1 Tokyo: 51
#8 Osaka: 7
 Global patent leaders
 Leading per capita GDP
Japan is an Innovation Superpower

Leads the world in Patents Issued
2004 patents
Japan: 342,726
vs. US: 167,183
9
Patents in VC-favored Technologies
10
Japan leads the world in R&D investment

R&D share of GDP significantly leads US and Europe & growing faster
R&D Intensity
AAGR (%) R&D Intensity (R&D expenditure as a % of GDP)
in 2004 and average annual growth rate (AAGR)
of R&D Intensity (’99-’04)
Japan R&D
Investment:
3.3% and
accelerating
R&D Intensity (%)

(Source: Eurostat, OECD)
11
“Lifestyle IT” leaders

Japanese introduced the world to most of its “Lifestyle IT” products
• Lifestyle IT (non-computer computers)

–Game consoles, digital cameras, car navigation,
entertainment robots, mobile internet, IPTV,
Mobile DTV, etc.
• Key enabling technologies

–LCD, Flash Memory, CCDs, magnetic and optical
storage density and miniaturization, micromotors,
IPv6 technologies, battery & fuel cell advances,
mobile browsers, laser-scale hard disk servos, etc.
• The result is an ever-richer technology

ecosystem underpinning the success of
numerous Japanese startups
–Access, Index, Faith, Cybird, Shicoh, g-mode,
Advanced Media, byD:sign, etc. These are the kinds of products
(not enterprise-productivity tools)
that are driving global IT innovation
and growth today
12
Japanese Entrepreneur
Helping passionate
Entrepreneurs build
s
Contrary to popular myths, in Japan, as everywhere

else, innovation is driven by individual ‘heroes’ – not
by industry associations or government.
Increasingly, these ‘heroes’ are innovating in
entrepreneurial settings rather than corporate or
government laboratories.
World laggard in new business formation

Consistently ranks near bottom of annual GEM Entrepreneurial Activity study
( 出典： : Global Entrepreneurship Monitor, 2002: www.gemconsortium.org)

(TEA=that percent of the labor force that is either actively involved in starting a new
venture or the owner/manager of a business that is less than 42 months old)
14
Highly entrepreneurial at times

In times of great change many new companies are formed
Founding year of Japanese Public Com panies

(com piled in 1998)
300
250 1/3 (599) w ere formed

in the 1948-53 GHQ
200 era of dramatic social
change and economic
150 recov ery
100
50
0
1900
1920
1930
1940
1960
1980
1990
1880
1890
1910
1950
1970
15
World-class Japanese Entrepeneurs

Winners of Nikkei’s annual Entrepreneur Awards
Tempstaff Fast Retailing Plus
Japan’s second largest Inexpensive casual-wear Office Furniture and
temporary staff agency manufacturing and retail Supplies Manufacturer
Founded: 1973. Founded: 1963 Founded: 1948.
2006 Employees: 2,016 2006 Employees: 3,990 2006 Employees: 4,264
2006 Turnover: 2,129 2006 Turnover: 4,488 2006 Turnover: private
2007 Mkt. Cap: 1,028 2007 Mkt. Cap: 9,048 2007 Mkt. Cap: private
Yoshiko Shinohara - 2007 Winner Tadashi Yanai - 2004 Winner Yoshihisa Imaizumi – 2001 Winner
Nidec Culture Convenience Club Park 24

World leader in brushless Tsutaya Media Rental Chain, Automated Parking Lot
micro-sized DC motors Online media Mgt. 20,000+ stalls
Founded: 1973. Age 29 Founded: 1982. Founded: 1971. Age 33
2007 Employees: 80,026 2006 Employees: 3,078 2006 Employees: 638
2007 Turnover: 6,296 2006 Turnover: 2,283 2006 Turnover: 653
2007 Mkt. Cap: 10,264 2007 Mkt. Cap: 1,219 2007 Mkt. Cap: 2,323
Shigenobu Nagamori - 2006 Winner Muneaki Masuda - 2003 Winner Kiyoshi Nishikawa – 2000 Winner
SoftBank Pia H.I.S. Group

Software Distribtution to Ticket retailing and event Discount travel & tourism
Internet Zaibatsu information publishing 70 international branches
Founded: 1980. Age 23 Founded: 1972. Age 22 Founded: 1980. Age 29
2006 Employees: 4,328
2006 Employees: 17,075 2006 Employees: 308 2006 Turnover: 3,289
2006 Turnover: 11,086 2006 Turnover: 961 2007 Mkt. Cap: 1,267
2007 Mkt. Cap: 27,188
Masayoshi Son – 2005 Winner Hiroshi Yanai - 2002 Winner 182
2007 Mkt. Cap: Hideo Sawada - 1999 Winner
16
Japanese Venture
Ecosystem Improveme
Helping passionate
Entrepreneurs build
nts
How to create more world-class entrepreneurs?
From the mid-1990s MITI officials began to have

serious concerns about the lack of high-potential
technology startup activity in Japan and launched a
10-year initiative to study Silicon Valley and replicate
its features as much as possible.
Dramatic changes in a short time

From the perspective of entrepreneurs starting companies and the Venture firms backing them,
Japan’s regulatory environment, capital markets, labor mobility and social attitudes have
changed so dramatically in the past 6 or 7 years as to be nearly unrecognizable to someone who’s
knowledge of Japan is rooted in the common sense of the 1980s bubble era or 1990s lost decade.
Quicker exits
2000-04 Dramatic structural change on new markets.
• Commercial code and IPO rule changes Better IRRs
• Shift in domestic VC focus from very late for VCs & LPs
stage to very early stage
• University TLOs, spinouts encouraged New access to
• Restructurings, Layoffs World-class R&D
- end of lifetime
Top 5
employment Waseda
Osaka
65
46
2004-6 Recovery Keio 43
Entre- Kyoto 37
• Economy, Stock Mkt. preneurial
Tokyo 33
• Emergence of Renaissance?
“Serial Entrepreneurs”
2008-09 Collapse of IPO markets Over 20,000 1-yen companies Dramatic
- J-Sox, Global Financial Crisis registered in first two years after
regulatory
regulation changes allowed them.
changes
Where High-Growth Companies Start Today

Because of the world-famous examples of such companies as Oracle, Cisco, Google,
and Salesforce.com, it is widely believed that Silicon Valley creates more high-growth
companies than any other region in the world.
Number of public companies By Country:

formed after 1997 which had China 27
sales greater than $50M in US 22
2007 and three consecutive Japan 12
years of growth above 50% India 10
from 2005-2007.
By Metro:
(source: SunBridge analysis of Bloomberg data) Tokyo 10
Silicon Valley 6
Shanghai 4
Venture Finance
Helping passionate
Entrepreneurs build
in Japan
A shortage of private capital and low barrier

to public offering led to exceptional VC
returns while limiting the long-term growth
potential of Japanese startups.
Comparing VC Investments Globally

Japan’s VC industry may be significantly underfunded
104.8
100
90 US ($1B)
VC as % of
80 2004 GDP__ EU (€1B)
70 US 0.17%
EU 0.10% JP (Y100B)
53.6
60
JP 0.04%
45.5
50
40.8
32.7
40
31.6
27.2
30
21.7
21.6
20.9
21.0
18.8
18.9
14.6
12.6
20
11.0
8.8
7.9
7.2
10
4.1
3.7
3.5
2.6
2.8
2.4
2.3
2.2
1.8
2.0
2.0
1.6
1.7
1.5
1.5
1.2
1.1
0.8
0
1993
1995
1996
1999
2000
2005
1991
1992
1994
9997
1998
2001
2002
2003
2004
21
Japanese VC industry spreads risk

Many small investments across large portfolios
( 出典： : Global Entrepreneurship Monitor, 2001: www.gemconsortium.org)
22
Japanese VC Investments by Company Age

Shift from pre-IPO to earlier stage investing.
Over 50% of investments now in companies under 5 years old
Figures are total amount invested (in \100M units) 1996-2001 are percentages
100%
11
90% 23 285 185 244 113
29 35 11
80% 39
7 111 69 101 36
70% 16
60% 21 14 194 141 199 125
17
50% 20
40% 21 14
15 59
30% 54 659 467 596 261
20% 32
25 27
10%
1 2 2 3 1 19 13 10 13
0%
1996 1997 1998 2000 2001 2002 2003 2004 2005
Age (in years) of company at time of investment
0 <5 5 to 10 10 to 15 >15
Source: VEC Annual Surveys
23
IPO lead-time truncated after 2000
Quicker exits
on new markets.
Better IRRs
for VCs & LPs
Macro financial factors supporting

potentially high VC returns in Japan
US Trend of Annual Venture Capital US ($1B)  Shortage of Capital vs Size of Opportunity
Returns Investments
50
104.8
 VC/GDP ratio < ¼ that of US.
53.6
E U ( €1 B )
40.8
VC as % of
Peaked 40 2004 GDP JP (\100B)  No Overhang in Japan
Here US
0.17% “US VC is still about 3 times overfunded”
30
21.6
21.7
EU (Ray Lane, at Stanford Summit, 4/6/05)
20.9
21.0
18.9
0.10%
14.6
20
JP 12.3  Very Few megafunds exist in Japan
11.0
11.0
9.8
0.04%
8.8
8.5
8.4
 Venture Economics fund benchmark data shows a
7.9
10
5.0
4.1
3.7
3.4
2.8
2.4
2.4
2.3
1.9
2.0
2.0
1.5
1.6
1.7
1.5
1.2
precipitous drop-off in IRR performance as funds

0.8
0
grow larger than $250M
93年
96年
00年
01年
03年
04年
05年
94年
95 年
97年
98 年
99年
02年
(Sources: NVCA, EVCA, VEC)

 Buyers Market = Attractive deal valuations
 Fewer me-too startups = Higher probability of success
 Better capital efficiency = Less dilution
 Attractive IPO exit market (UNTIL J-SOX!!!)
 Stable = No need to force companies thru a window
 Reasonable = Less (wasteful) regulatory overhead
 Continued acceptance of young emerging cos.
 Median Revenues of about US$20M, profits of
$1-2M at IPO on Mothers and Hercules
 Side-effect: Underdeveloped M&A exit market
 Result: Better environment for high VC returns!
25
SunBridge Investment Performance

Former executives of Oracle, Sybase, SAS, Adobe, Fuji Xerox, Recruit, Accenture and IBM Japan
providing strategic guidance and a full range of business development services to Japanese,
American, Asian and European entrepreneurs striving to grow successful technology businesses
in Japan.
Top Quartile Vintage 2000 VC Funds (IRR)
. $100M invested. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
• 45 Japanese and 12 US companies SunBridge

Average Top Quartile 8.45% 3.9x net to date
49.50%
• Information Technologies and Internet. Top Quartile Vintage 2001 VC Funds (IRR)
• Seed & startup in Japan. Early expansion in US. 0% 2% 4% 6% 8% 10% 12%
1.3x net to date

Actively add significant strategic value beyond capital
Equitek 10.4%
• Average Top Quartile 8.1%
• World-ranking IPO (7) and M&A exits Top Quartile Vintage 2002 VC Funds (IRR)
• Global top-quartile IRR SunBridge 2002
0% 5% 10% 15% 20% 25%
24.3%
Average Top Quartile 6.8% 1.3x net to date
Top 20 2004 IPOs (US and Japan, by Initial Market Cap., $Ms)
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000
Google IT Media
SMIC
DreamWorks Animation
Cabela's Top 20 Venture-Backed Acquisitions 2001 to 2005 ($Ms)
Salesforce.com $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000
EyeTech Pharmaceuticals
Bill Barrett Corp Skype, 3Q05
Antero Resources, 2Q05 $843
Shanda Interactive Entertainment Flarion, 3Q05 $805
NetPrice (#1 in Japan) Seisint, 3Q04 $775
Shicoh Engineering (#2 in Japan) Hotwire.com, 4Q03 $665
InPhonic VMWare, 1Q04 $625
Lipman Electronic Engineering VxTel, 1Q01 $550
Angiosyn, 2Q05 $527
Archipelago Holdings Shopzilla, 2Q05 $525
MCJ (#3 in Japan) Lynk Systems, 3Q04 $525
Kanbay International Interactive Search, 2Q04 $501
Atheros Communications ESP Pharma, 1Q05 $486
Macromill (#4 in Japan) Catena Networks, 2Q04 $466 Japan
Airespace, 1Q05 $450
Fujipream (#5 in Japan) Amber Networks, 3Q01 $421
Shopping.com Viva Inc, 1Q05 $415
Dipping (#6 in Japan) LightLogic, 2Q01 $400
TradeWeb, 2Q04 $385
Brightmail, 2Q04
Ocular Networks, 1Q02
$370
$355 26
How are we doing? (2010)
 A Dynamic Venture Habitat that borrows best p

ractices from both Silicon Valley and Japan
 to influence and improve Japan’s Venture Eco
system, helping to create
×
 World-class Global Ventures, and
 World-class (top-quartile) investment returns
Helping passionate
Entrepreneurs build
Competing Globally
Japan continues to create many world-class

entrepreneurs and multi-hundred-million
dollar high-growth companies.
Why don’t they expand internationally like

they used to?
“The Middle is Missing”
 2004 get-acquainted meeting with METI’s newest “shinki sangyou tanto kac
hou”
 “Don’t japanese startups have a hard time raising seed capital?”
 Japan does not lack seed capital or exit opportunities. But private $10M+
“C round” (and D round?) to enable aggressive sales and product expansio
n is missing…
 Instead the entire Venture Ecosystem pushes Japanese entrepreneurs to g
o public as quickly as possible
 They raise cash that they can’t use for aggressive organic growth and often
underperform expectations after their IPO.
 Japan needs a “chotto matte IPO” fund or two.
29
The domestic opportunity is big enough?
My most disappointing globalization war-story
Globalization of Some Leading Japanese Internet Cos.

Alexa WW
Company Site Rank Revenue International
Rakuten #73 $2.98B fr 2010 w/ Baidu
CyberAgent #77 $938M fr 2008. neglig.
Index Holdings mob. $724M 13%
DeNA mob. $376M fr 2008. neglig.
Mixi #96 $120M 3%
30
China/Shanghai vs. US/Silicon Valley
 Emerging Economic powe  Established Economic po

r = rapidly growing market wer = big established mar
opportunity ket opportunity
 Biggest internet and mobil  Big internet and biggest s
e markets martphone markets
 Current WW Focus of atte  Gathering place of global
ntion & capital Tech talent & capital
 Cultural cousins  Cultural opposites?
 Not a stepping stone for gl  Highly connected worldwi
obal expansion de (incl. China)
 Repeatedly creates “the n
ext big thing”
31
What Can I do about it?
Since 2009: Shifted my emphasis from

Bringing “Silicon Valley” to Japan to
Bringing Japanese to Silicon Valley
Launched July 2010 at Plug & Play
 The most active, dynamic hu

b for startup activity and rela
ted industry interaction in Sil
icon Valley.
 Continuous flow of local VCs
and international visitors tha
t provides high-value networ
king opportunities
 Launch with 5 high-potential
Japanese startups and a net
work of supporters
 Attract US VC expansion cap
ital and world-caliber executi
ve talent
Globalizing Japanese Entrepreneurship

 2 of 3 finalists at Plug-and-Play
International Business Plan contest
(PACT) 2010
 Keio University collaboration with
SunBridge Japan pavilion
 Fukuoka Univ. affiliated biotech
startup chose to create business in
Silicon Valley instead of Japan
 Profitable Japanese cloud
computing company postpones IPO
to invest in globalization.
 100+ visitors to our “Lucky” sofa
 More excitement to Come!
34

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Creating

The next challenge for

SunBridge Founding Goals (2000)

 Create a Dynamic Venture Habitat that comb

 World-class Global Ventures, and

SunBridge Venture Habitat

Tokyo and Osaka: leaders of the “Spiky World”

 #1 and #9: World’s largest metropolit

Japan is an Innovation Superpower

Patents in VC-favored Technologies

Japan leads the world in R&D investment

R&D Intensity (%)

“Lifestyle IT” leaders

• Lifestyle IT (non-computer computers)

• Key enabling technologies

• The result is an ever-richer technology

Contrary to popular myths, in Japan, as everywhere

World laggard in new business formation

( 出典： : Global Entrepreneurship Monitor, 2002: www.gemconsortium.org)

Highly entrepreneurial at times

Founding year of Japanese Public Com panies

250 1/3 (599) w ere formed

World-class Japanese Entrepeneurs

Nidec Culture Convenience Club Park 24

SoftBank Pia H.I.S. Group

How to create more world-class entrepreneurs?

From the mid-1990s MITI officials began to have

Dramatic changes in a short time

Where High-Growth Companies Start Today

Number of public companies By Country:

A shortage of private capital and low barrier

Comparing VC Investments Globally

Japanese VC industry spreads risk

( 出典： : Global Entrepreneurship Monitor, 2001: www.gemconsortium.org)

Japanese VC Investments by Company Age

IPO lead-time truncated after 2000

Macro financial factors supporting

precipitous drop-off in IRR performance as funds

(Sources: NVCA, EVCA, VEC)

SunBridge Investment Performance

• 45 Japanese and 12 US companies SunBridge

1.3x net to date

How are we doing? (2010)

 A Dynamic Venture Habitat that borrows best p

Japan continues to create many world-class

Why don’t they expand internationally like

“The Middle is Missing”

The domestic opportunity is big enough?

My most disappointing globalization war-story

Globalization of Some Leading Japanese Internet Cos.

China/Shanghai vs. US/Silicon Valley

 Emerging Economic powe  Established Economic po

What Can I do about it?

Since 2009: Shifted my emphasis from

Launched July 2010 at Plug & Play

 The most active, dynamic hu

Globalizing Japanese Entrepreneurship

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