Oki Matsumoto: “Sometimes, friendly parents are not good for kids.”
Monex founder Oki Matsumoto was interviewed by Frank Packard, President of Triple A Partners Japan, at an event titled “New Directions: Alternative Thinking about Venture Capital in Japan”. The American Chamber of Commerce in Japan (ACCJ) hosted this session on June 13, 2017; since it was on the record, we are able to share some of the highlights. As we are paraphrasing from our notes and not based on a recording, any mistakes or misunderstandings are entirely our fault.
“With Monex Ventures, our goal is to plug into young entrepreneurs; Japan needs more risk-taking people; even employees joining Monex today are looking for a stable environment — that was different 20 years ago when Monex was founded.”
“I am also one of 13 board members at Endeavor Japan — each of the 13 board members has committed JPY 8m personal (not corporate) capital per year for five years, and also agreed to mentoring young entrepreneurs; for Endeavor globally, there are 500 board members, and 3,000 mentors; the portfolio companies generate USD 8bn in annual revenue and employ 600,000 people.”
“I am engaging with Endeavor, because Japan ranks last in venture capital invested among OECD countries. In addition to fostering a domestic entrepreneurial culture, many of the portfolio companies want to do business in Japan, so we need a receptor (typically, Endeavor is focused on less developed markets).”
“Deep learning and AI are interesting fields in Japan as due to the language, it has been an area that is hard to capture for global internet giants; also, transaction data in Japan is personal information, and hence protected; we see some promising startups in that space.”
“ METI is very friendly to young companies, but the government funds are the worst in risk assessment, they are spending money too generously and coddling young entrepreneurs; sometimes, friendly parents are not good for kids; sometimes the government thinks it is helpful, but in fact they are not, the example again is the personal information protection law, which makes certain business models impossible to implement in Japan; the best the government could do would be to withdraw such regulation.”
“Similarly, the FSA is saying they are promoting FinTech, but at the same time they are making the regulatory scope of banking businesses broader, which does not help the startups; as a result, FinTech firms are ending up just as application providers to the banks; rather than broadening the scope of the banking business, the FSA should give a certain space to the entrepreneurs.”
Is it difficult to structure equity compensation in Japan?
“It seems to be working okay by issuing options, even at Monex 18 years ago we issued options, but employees thought it was bonus, so when the share price went down, they got angry; understanding of options is very different in Japan, providing real stock with symmetric payout might work better here; best way to align interests is to do an IPO, which has become very easy in Japan.”
Risk taking — are VC investors in Japan truly investing into an entrepreneur who has failed before?
“Compared to 20 years ago, the Japan climate has changed and it is okay now; 20 years ago, I had to personally indemnify Sony to get their capital into the joint venture; today, there is an abundance of capital; many people always try to generalize on the bad things, there are lots of good people and talent, so you need to find this interesting space and focus on it.”
Are you planning an accelerator? Other than mentorship, do you plan to provide other support?
“With Monex, we do not have enough resource to establish an accelerator, but it would be very helpful for Japanese ventures, and there are others who are serving this space. I did personally incubate Lifenet Insurance Company in an early funding round, invested USD 10,000 each with a partner; we thought that with Monex, we are the leading online financial services business, and we felt a mission as elder brothers of the online financial industry to help shake up the life insurance business.”
“The bureaucratic system influences Japanese corporates, the government is talking about female participation in the workforce, but does not really change how the bureaucracy operates, it is still very much seniority-based and gender-biased; you need to talk to Abe-san if you really want to effect change here, in the public sector first, and then in the private sector.”
“An IPO is not the goal, just the beginning, in my view it is not a financing activity, you could do that privately, but to change the character of the company, that type of concept needs to be deeply understood by the entrepreneurs.”
Why have so many new IPOs performed poorly?
“Because of government funds and lots of liquidity in the market, high prices are being paid in private rounds, so at the IPO event the price is set as high as possible because of previous private rounds, and companies are struggling against aggressive valuations.”
Most valuable area to focus on for mentorship?
“Many entrepreneurs are good in thinking about their business, but struggle with the human element. They have often started the business with friends and feel obliged to them, they feel the need to keep the hierarchy as previously agreed, and need help to make changes to scale the company, this is by far the most important area we help with.”