NEW YORK-The Land of the Rising Sun has emerged as the place to be for investors interested in grabbing onto incipient wireless telecommunications trends, said a managing director of Whitney & Co., the oldest American venture-capital firm.
Venture-capital companies based in Japan have become more active in looking outside the country for investment opportunities. Japanese private-equity players have the reputation of preference for partners from the same country, but these firms sometimes give more credence to venture partners based in the United States.
While the venture-capital market in Japan still has many problems, a gradual opening to outside investors is under way, said Paul S. Slawson, who heads the Tokyo subsidiary of Whitney & Co. Whitney, established in 1946, opened its Tokyo branch a few years ago, just as Japan began to let foreign companies into its venture-capital market.
“Wireless will be really hot for the next three-to-four years. You have to be in Japan if you want to play in the next several innings,” he said at the Japan Society’s recent conference on “Venture Capital and the Internet in Japan.”
“There is a tremendous opportunity to test out a number of technologies and markets before going to the rest of the world.”
Within and outside Japan, Whitney is targeting the wireless Internet, fixed wireless, third-generation wireless, embedded device technologies, and back-end network infrastructure. It avoids areas with low barriers to entry, like consumer-oriented applications or content aggregation.
“We are looking for solutions to chipset problems, which will make phones too hot to handle at two megabytes. There are concerns about cell towers, which were set up for 30-40 minutes of talk time, not for people playing games,” Slawson said.
“There are opportunities in the gaps in technology transfer and in the fusion of technologies into new industries, like wireless and the Internet and hybrid broadcasting and cellular networks. Sony is in the vanguard of putting TV and mobile channels into one handset, and a number of European companies also are working on this.”
The potential of convergence also has the attention and participation of IRI Japan, said Hiroshi Fujiwara, president and chief executive officer. The company is participating in a joint venture with NEC Corp. and Panasonic that plans to invest $100 million by spring in start-up companies involved in the convergence of television, the personal computer and mobile telephony, including satellite communications.
Japanese companies already are looking into fourth-generation wireless, with data throughput in the range of 10-50 megabits per second. Fujiwara said he is a member of the committee charged with developing recommendations, which he expected to be issued by winter.
Notwithstanding the potential, Slawson cited a litany of obstacles yet to be overcome fully in Japan’s venture-capital marketplace: very few independent venture-capital players; questionable selection processes for companies worthy of going public; accounting standards far more lax than those in the United States; inefficient regulation; lack of participation by venture investors on the boards of investee companies; poor legal protection for minority stakeholders; and insufficient industry analysis.
“The reasons to invest are that the capital markets have become more liquid and sophisticated, there are more entrepreneurs, private company valuations are better than they are here. Once you’re in, although that’s tough to do, there is little competition.”
In fact, it is sometimes easier for a foreign newcomer to enter the Japanese market than home-grown companies looking for partners there, said Ikuo Nishioka, president and chief executive officer of Mobile Internet Capital Inc., established in 1999.
“We have a very exciting venture business in the United States, and all members of the firm are Japanese,” he said.
The company, whose biggest backer is NTT DoCoMo, first opened for business in Japan. Nishioka said potential Japanese co-investors snubbed Mobile Internet Capital until it relocated its offices to the United States.
In February, the firm raised $60 million from DoCoMo, Sony, NEC Corp., Panasonic, Sharp and LP Partners.
“Four of the 11 companies we’ve invested in are Japanese. We invest a small amount of money, so we don’t care if we don’t receive a capital gain. We spend more time matchmaking,” he said.
“I believe this is a new style for Japanese venture capital investing, which also has tended to look only to Japan.”
