here to return to the table of contents)
with Yukio Iura, President & CEO of Nippon Angels Forum
Keith W. Rabin
Yukio Iura started his career as a banker at the Bank of Japan in
1965. In 1982 he was dispatched to the I.M.F. (International Monetary
Fund). From 1989 to 1999 he worked for B.I.S. (Bank of International
Settlement) in Basel, Switzerland as a fund management officer,
in charge of managing eight percent of reserve assets of the central
banks. After resigning from the B.I.S. in 1999 he started the Smart
Investors Forum from which he created a group of more than 400 individual
investors who are eager to invest their assets in the stock or bond
market. In 1999 he also started NAF, a group of angel investors
who would assist entrepreneurs both by investing money and by providing
advice. As of June, 2000 this group consists of 450 members and
holds monthly meeting to help match angel investors with entrepreneurs.
He incorporated NAIC in June, 2000, using the core members of NAF.
He intends to assist entrepreneurs more effectively and systematically.
Mr. Iura holds a Bachelor of Economics Degree from Aoyama-Gakuin
Thank you Iura-san for offering our readers this chance to learn
about your work. Can you tell us a little about the Nippon Angels
Forum (NAF) and Nippon Angels Investment Co., Ltd. (NAIC) and your
activities over the past few years?
Following my retirement from the Bank of International Settlements
in 1999, I enjoyed a short vacation but soon began to think about
the problems facing the Japanese economy. In time I came to view
one of the primary challenges being the need to promote entrepreneurship.
Japan lags behind the U.S. and many other economies in new business
formations. We have ample capital, but promising companies are not
able to connect with VCs and other investors who are reluctant to
invest in seed stage businesses. This is one of the great tragedies
of the Japanese economy. The consequence is that many good business
seeds are dying because they are not fed enough money to start-up.
As a result I decided to form the Nippon Angels Forum (NAF), which
facilitates matchmaking between angels and entrepreneurs.
addition, I formed the Nippon Angels Investment Company, Ltd. (NAIC)
as a means to invest in the most promising firms. The NAF now has
450 members. Half of them are entrepreneurs who want the support
of angel investors. Through these members, we identify promising
seed stage businesses, which present themselves at our bi-monthly
matchmaking meetings. The formula is proving very successful and
as a result, we are now receiving inquiries from individuals who
are helping us to establish sister organizations across Japan.
Given current market conditions, investor interest in start-ups
and angel funding in the U.S. and many other markets has grown very
sparse and difficult. Judging from the sense of excitement and mood
of the participants and presenting companies at your latest event
in Tokyo, however, it seems very alive in Japan. I was impressed
by the wide diversity of people in attendance, ranging from young
and middle-aged entrepreneurs to private, corporate and institutional
investors. Do you view angel investing as a growing phenomenon in
Japan and if so, can you explain why this should be the case when
at least for the moment it is declining in most other markets?
You have to remember that we started from scratch. Not many organizations
in Japan offer a platform for angel investing. Although we are starting
from a small base, Japanese angel investors have found a place to
exchange information at NAF. In U.S. and other markets, after the
IT investment boom went bust, the market was full of suddenly empty
forums. Here, we are only starting, and so the reverse trend is
seen in Japan.
Your web site (http://www.naic.co.jp)
highlights the mismatch between venture capitalists and venture
businesses and talks about your goal of providing business acceleration
and incubation services to startups and firms. It states "no
venture capital companies (VCs) are going to invest in them because
they cannot measure the potential of these venture businesses".
In the past, however, we have seen firms such as Softbank and Hikari
Tsushin in Japan and CMGI or Internet Capital Group in the U.S.,
which made many, what can be termed "indiscriminate" investments
in large numbers of firms. Most of them have not performed well
from the standpoint of investors. Can you explain how NAF and NAIC
differs from these entities and why your own business model should
meet with more success?
Softbank and Hikari Tushin had abundant funds and their policy seemed
to be betting on statistics, i.e. ignoring research but with confidence
that a large net will catch a star opportunity or two which will
more than wipe out the losses incurred by the remaining junk stocks.
They had money and time, possessing young presidents and were happy
to take on big risks. On the other hand we have very limited funding
resources, and therefore choose investment candidates very, very
carefully. We have no other measures other than a determination
to make careful and sound investment selection. Neither NAF nor
NAIC can afford to make "indiscriminate" investments because
of our limited financial resources. There seems no other way but
doing extensive research work in advance and screening carefully.
This, we believe will result in successful investments.
Can you give us some specific examples of the types of companies
who have been participating in past NAF's, how they are selected,
their success record in gaining funding, as well as your own NAIC
investments and their subsequent performance?
Our business flow is as follows: First, we organize start-up company
presentations every two months. Each time10 companies make presentations.
We choose these 10 companies carefully out of 60-70 candidates.
Second after each matchmaking session, we select the 2-3 firms that
generate the most positive reaction, who return to make what we
call "deep presentations". Here they are able to make
detailed business pitches to those angels that showed interest at
the initial presentation.
through NAIC we are able to make investments in the most promising
firms. This structure enables angel investors to make direct investments
or to participate in our special purpose funds where they are able
to gain the diversify that comes from utilizing a portfolio approach.
Through these funds we have made investments in more than 20 companies.
I'd like to mention three examples.
First, Business On Line: This company offers quick accounting services
to accounting firms. They also offer OEM services to the U.S. firm,
Intuit. After having set up their company in August, 2000, they
have expanded into various small and medium sized firms and envisage
an IPO within 2 years.
Second, Oregadale: This company created a secure Internet messaging
method. They have an alliance with Japan Oracle. Their business
performance to date has been excellent.
Third, Apparel Web: Japanese apparel companies have close business
connections with China. The company helps both Japanese apparel
companies and Chinese counterparts to use Internet technology. At
the moment China takes care of the manufacturing function for Japanese
apparel companies but in the near future China will no doubt become
an attractive consumer market for Japanese companies. The company
provides useful services for both Japanese and Chinese apparel companies.
must have been a major adjustment to move from the Bank of Japan
where you worked for so many years to dealing with the concerns
of these smaller, privately-held enterprises. Can you give us an
idea of the challenges you have had to face?
monitoring the Japanese economy from outside of Japan for many years,
I decided that helping start-up companies and venture capitalists
is one of the most important factors needed to revitalize Japan's
depressed economy. At NAF and NAIC we are trying to revitalize the
Japanese economy from the firm level, for which many of my colleagues
at BOJ have also expressed concern. In Japan with 10 years of almost
no growth, high unemployment rate and strong downward pressure on
prices, it is extremely difficult for start-up companies to build
their businesses. But Japanese individuals have huge assets and
I am trying to lead some of those assets to flow into start-up companies.
Your experience as a central banker combined with your new
role as a provider of advice and capital to private enterprises
give you a unique perspective on the Japanese economy. International
media coverage on the Japanese economy has been quite negative for
several years now. Is this justified and how do you perceive the
general outlook moving forward?
I often quote from Franklin D. Roosevelt - "The only thing
to fear is fear itself." Many Japanese economists and professors
together with various media sources repeatedly make negative comments
on Japan's economic prospects. This results in a negative perception
by Japanese people on the future, letting them wait for the worst
to come. In my opinion a vicious circle of pessimism makes Japanese
people weary of taking risks in their investments. Of course the
Japanese have their own problems.
Nonetheless, I feel such problems are common in the U.S and Europe
as well. We all suffer from various problems one after another.
In the past we experienced Oil Crises, the disastrous earthquake
in Kobe, serious deflation after the bubble bust, and a lot of large
companies have been trying hard to restructure and re-organize to
maintain their integrity in a mature economy. Continuing bad debts,
deflation, deep-rooted problems in the banking system, the weak
stock market and a lack of consumer demand and confidence, are all
negative factors for the prospects of venture capitalists. That
is no doubt about it. For us, we just do what we can do with our
limited funding resources. The venture capital market is declining
in Japan. That has affected new start-up companies. We are trying
to make every effort to encourage investors as well as start-up
companies and C level companies.
a large, complex economy such as Japan's there are always bright
spots, no matter the state of the overall economy. In fact, some
would argue these very problems are driving and giving rise to many
unprecedented and exciting opportunities. Can you comment on whether
you believe this to be the case and talk about some of the sectors
and areas that offer the most potential to corporate and portfolio
investors. If possible can you give us some examples of specific
companies that will benefit from these emerging trends?
Currently various liquor shops and rice selling shops are beginning
to suffer from changing pricing policies by the government. A number
of these liquor shops' profits are declining sharply. In addition,
"gofuku" or "kimono" shops are suffering from
weak demand from young women. But some of them are trying to build
networks with other similar small shops. Some are converting themselves
into supermarkets or convenience stores. In the case of "kimono"
shops, some are developing brand businesses, using their well-known
names to market handbags and jewelry.
One interesting example is Suzuran International Corp. This company
is a Japanese "sake" producer in Iwate Prefecture. They
are small but produce one of the best sakes in the Tohoku region.
They established a network of small liquor shops and now their annual
sales total 250 million yen. The president of this company founded
a Japanese sake bottler in Australia, where rice prices are 1/8-1/9
compared with that of Japan. Down there the company can produce
sake at less than half the cost in Japan. By importing sake produced
and bottled in Australia back to Japan, they are selling via a distribution
channel of networked small liquor shops around Japan. Suzuran International
has made individually weak and unorganized small liquor shops a
high performance retail network by realizing such a unique idea.
This is one of the good examples how one can revitalize scattered
and depressed small retailers.
There are various business opportunities in severely regulated sectors
including agriculture, education, and medical industries. Mr. Taguchi,
the former executive officer of Misumi, introduced the possibility
of medical doctors without hospitals. The idea is to send doctors
directly to patients' home. Visiting doctors can save patients'
In Japan, there are many established firms, which are fundamentally
sound, but need to adopt more competitive financial, marketing and
other business practices. In many ways these firms, which are not
dependent on the development of new technologies and who already
possess infrastructure and customer and business networks would
seem to have less risk to investors -- who can gain dramatic increases
in valuations through standard restructuring practices. Can you
comment on the importance of restructuring and reengineering in
In the case of Nissan, Carlos Ghosn has been very successful in
restructuring its operation and has made Nissan regenerate profits.
There are many other examples similar to Nissan type restructuring.
Especially construction companies and distribution sectors are suffering
from very weak profits base and many manufacturing companies need
to re-orient their business prospects. Now many consulting firms
are helping such large and small companies to reorient themselves.
I think Nissan is the tip of the iceberg. Gradually that trend (restructuring
and reorienting) is spreading to small companies as well.
Foreign investors do not seem to understand the geographic
diversity offered by Japan, believing that all business is conducted
in Tokyo and perhaps Osaka. Can you talk a little about opportunities
outside of these major metropolitan areas and the attractions offered
by different local economies in Japan?
is no doubt that 25-30% of companies are situated within a radius
of 100 kilometers of Tokyo or in Kanto Plain. Many other parts of
Japan seek opportunities in Tokyo and its suburbs as possible marketing
places to raise funds. However, there is a very good chance for
various Japanese and non-Japanese firms to establish themselves
outside of Tokyo. The central government of course helps in such
efforts, and prefectures and cities are also prepared to support
those who will do business in local cities. The central and local
governments find NAF quite useful to access such private sector
needs. We hope to cooperate with such public sectors and provide
matching coordination for private entities.
Can you also talk a little about the emergence of China,
Japan's relationship with Korea, and other relevant factors as they
pertain to foreign investors that are looking to increase their
exposure in the region and with small to mid sized firms in particular.
China has a big presence in Japan and it is my belief that the emerging
China will be favorable to Japan. China and Japan have been influencing
each other through our long-term relationship, for 2000 years or
more. China has always been a good partner of Japan. China is the
main exporter to Japan and Japan exports cosmetics, underwear, and
other vital items to China. We have cultivated a mutually profitable
relationship. South Korea is also clearly an important partner for
Japan, and I hope South Korea has the potential to become another
Singapore in terms of developing a free economic zone concept.
One major problem foreign investors have when dealing with
Japanese firms is their intense domestic focus and difficulties
in understanding Japanese business and accounting practices and
most importantly, monitoring investments after a transaction is
completed. Cultural and language differences also often represent
a real problem. Do you think that small to mid sized Japanese companies
have a capacity for dealing with outside investors - both foreign
Integrated and international companies such as Sony, Hitachi, and
Toyota, these companies operate internationally and domestically.
But are you aware of the "Ichiro effect", Hideki Matui
, another of our baseball stars, has just signed a contract with
the New York Yankees. Today Japanese individuals are becoming international
stars in many fields. And after the successful World Cap Soccer
Games held in Korea and Japan I feel internationalization is beginning
to penetrate into smaller companies in Japan as well.
Some of the foreign investors and financial intermediaries we
deal with are considering a funds-based approach to investing in
Japan. Through these vehicles they are seeking to achieve additional
diversity as well as the ability to rely upon professionals who
are better able to interact with, and monitor, these companies and
accelerate their long-term performance. From your perspective, which
approach makes more sense for foreign investors and are their any
particular factors, i.e. size of companies and investment, etc.
that are especially important to consider when considering either
Definitely we propose a funds-based approach. Look at NAF and NAIC.
We can interact between foreign investors and Japanese companies.
We are in the same group offering various services for growing Japanese
and foreign companies, offering both direct investment and funds.
Iura-san, you clearly have come a long way in only a few short
years. What are your plans for the future? How would you like to
see NAF/NAIC develop over the next few years? Do you have any plans
to expand in markets outside Japan?
I have growing confidence in creating a new angels market in Japan
thanks to the past three years' experience at NAF and NAIC. When
the Japanese economy hits bottom, our activities will expand fairly
quickly just like a forest fire. For the moment we are not planning
on exploring other markets, say in U.S. or other part of the world
although in the long run we envisage opportunities in the U.S. as
well as Chinese and Korean markets.
Thank you so much for your time and attention. Do you have any
final points you would like to make to our readers?
Media reports are always very negative and not productive. By activating
sleeping finances, new businesses will bloom. I am confident that
there are enough business opportunities in Japan, those areas, which
Japan has neglected over the past 50 years.