 Hello, everyone. I'm Steve Zerker. I'm the host of Looking to the East. Welcome to my show. Thank you very much for tuning in and watching and recording Lager. We have a very special guest with us today. As you know, when you, if you followed my show, I'm a professor of entrepreneurship management at Kansai Gaida University. So I teach about entrepreneurship and I'm also an investor in business firms, as well as into venture capital funds. And I have one of my friends, colleagues, business partners. I guess, Aruna, you show all three of those categories. Aruna is the CEO of a company called Japan Cloud. He is a venture capitalist in Japan. And that is going to be the topic of our show today. What does it mean to be a venture capitalist in Japan? What is the state of VC in Japan? So we'll be covering those topics with Aruna. So thank you again, Aruna, for joining us all the way today from San Francisco. I'd like to start with just asking you about your background. Maybe very briefly talk about your business background and most importantly, how that led to where you are today. Thank you, Steve, for that introduction. Before I start, people might be wondering, I'm actually based in Tokyo. I run Japan Cloud, which is based in Japan, but I am here in San Francisco. It's been a year and three months since I last came here. And I must say, I am, despite the jet lag, I am glad to be back in San Francisco. It's the hub of technology. There's a critical mass of people, finance, and technology here. But some of the observations, just a few days here, on the good side, the one-on-one, there seems to be much less traffic, at least as a great thing. And I came in on Thursday and I was able to just walk into a CBS and get a Pfizer-BioNTech shop. It seems to be like anything in everybody can get inoculated here. But the flip side is the hotel I'm staying in is deserted. Apparently, only 5% of the staff are here. You can't get any food. There's no laundry. I've got to go to the local supermarket to do some shopping. So those are the pros and cons. But I am glad to be back here, meeting with our companies. We have a couple of companies in San Mateo and some others in the region plus some investors. So now back to your question about how I got started. I am originally an engineer by training electrical engineer in computer hardware. And then my first job was in software. Did software for about three or four years moved into sales and marketing with the same firm and then ended up with my MBA. After my MBA, I joined Deutsche Bank and they sent me to Tokyo. And in Tokyo, I happened to meet Alan Minor. Right. Alan's been a guest on this show before. That's right. And that was back, I think, in 2002 or 2003. He had this joint venture with Mark Benio, the Salesforce Japan joint venture. And Benio was about to take the company public. He was trying to value the Japanese entity for a number of reasons which I want to get into. But then I was a guy who had to do that. I was a young banker who was working on numbers. And Alan doesn't let me forget that. I came up with my final report and which was like, well, the valuation joint venture is anywhere between $30 million and $75 million. That was not helpful. I'm sure you were following financial standards and recommendations and so forth to come up with that broad-range number. So that's how I met Alan Minor. And he was running Sunbridge. And then we went out separate ways. I went to Beijing for a few years, four years, worked there, came back. As I wanted to come back, I was talking to Alan again, and he said, why don't you join Sunbridge? They had done, obviously, Salesforce and then Concur. And they wanted to, I think Alan wanted to kind of keep building that practice. So in 2012, I still remember, I think, this October 2012, I came back to Tokyo and joined Alan. And that's the beginning of my venture capital journey. Right. So just a little background on the Sunbridge and Alan, although he has been a guest a couple of times on the show. But Alan Minor is, Aruna, would it be fair to say he's kind of the godfather, at least of foreign investors in Japan? He was originally a part of Oracle Japan and helped to create that great success. So his company, Sunbridge, is regarded as one of the more progressive and more successful venture capital firms in Japan. And I think he was also the chairman of the Japanese Venture Capital Association for that. Okay. Yep. Well regarded. But so when I joined, I looked at all the investments he'd been making. And it was quite clear that the inbound, in other words, U.S. companies coming into Japan and his company investing in those companies were giving quite, quite strong returns compared to the Japanese companies. And so 2014 or 2013, we decided to do another fund focused entirely on inbound. So when you introduce me as a venture capitalist, I am a venture capitalist. I'm an investor, but I invest in a very unique model, which is U.S. software companies that we bring and transplant and build in Japan based on the Salesforce model. Yeah. So why don't you explain that a little bit more? How do you find these companies and how, why are they interested in doing this? Maybe you can discuss how this model actually works. You mentioned Salesforce.com. I think everybody in technology and even those who are not are familiar with that great success. So this bringing in a foreign company into Japan through a business agreement, a joint venture is the model there. But maybe you can explain about it a little bit more, Runa, just at a general level for our audience. Maybe Salesforce is probably the most easily recognizable B2B SaaS company that most people would know. That in Japan is a joint venture, was a joint venture for 10 years. You take the IP, the software from the U.S., you localize it and then you build the Japan team by way of a joint venture. So Alan and his team were instrumental in hiring the right leadership, developing the right leadership, and then helping it go to market and building the revenues. At some point, our model is that eventually the joint venture is dissolved and our shares are then acquired by the parent company. And in the case of Salesforce, that happened back in 2010. And I joined in 2012, it had been done and dusted, but I kind of helped improve the model and to where we are now with Japan Cloud. I think maybe some of the nuances are, first of all, we only do B2B software, which is enterprise software. It's not the kind of Facebooks or Twitter, which is what we call consumer oriented software, B2B. People may have heard of Salesforce, but I guarantee you people have never heard of Blackline or Walkme or Koopa or even... These are some of the current investments, right? They are companies in our portfolio today. But to me, they are much more valuable long term because the consumer may become a member of Facebook or Twitter, may use it, may not, may stop using it. Whereas business to business software, once you get it into a company, it tends to continue for 8, 10, maybe even longer years. Yeah, I talk about this with my students sometimes. If you take a look at the overall software business, if I remember right, it's somewhere around 70 or 80% of sales are business to business. It doesn't capture the mind share of the general public. They're, like you said, more familiar with the B2C, the business to consumer types of product. But the real great market, the business interests, the revenue opportunity is B2B. And I also worked in that area as well. I didn't know that going in, but I learned it certainly through a long career, selling software from one business to another. But getting back to your model, why would that model, why would Salesforce and the other companies choose to partner with you rather than go direct, which we do see happening on occasion? Why is the partnership model more successful? Very good question. I think Japan has a unique set of characteristics which make it not so easy to enter and to build a business. All the way from recruiting language barriers, to recruit people who are perhaps, if you go direct, you might recruit people who have a good demand of the English language, but not so strong from a business development and a growth perspective. So that's one. The other is their business practices in Japan that require you to have almost a full bench. So when we build our businesses, we tell the parent company, it's not just a sales and marketing outpost. Of course, you need to have sales and you need to have marketing and pre-sales, but you need to have technical expertise on the ground, customer support in Japanese in real time, customer success. So you need a fairly big investment to go into Japan, which a lot of US companies tend to shy away from. They tend to think they can do the same thing they did in Singapore or Australia, supported from the region and invariably Japanese enterprises, and we tend to go after the large enterprises, though a billion dollars in revenue or more. They tend to have high standards in terms of customer support and success and so on. So most US companies coming in, I wouldn't say most, quite a few of them would struggle in Japan. And by contrast, the companies we brought into Japan, we don't do that many, but the ones that we have done have done really, really well. Typically, Japan becomes the second largest market for them outside the US. Excellent. So I guess I should, in full disclosure, state that I am an investor in a Rootus company, a very small investor, and I had invested in the previous firm or company as well, a joint venture fund, which included companies like Marketo and Concur, which as Aruna pointed out, we're very, very happy with their partnership with Sunbridge and with this and the utilization of this partnership model. So for, I may show this to my students, Aruna, so I'd like to get your opinion. Since you're meeting with so many of these companies and generally it's with the founders, they're still in place so that the founders and CEO. Do you see similarities or similar characteristics of these individuals or now that you've been doing this a number of years, when you meet them, can you look in their eyes or get a sense that this is someone who I can understand why they're still successful? So I guess there's two parts of this question. Do you see commonality in these people and then also are you looking for certain things in these people that you think will help them? Maybe you know they're already successful in the States or Israel. It's not just the US, by the way. I know there are other firms, but do you look for characteristics that will help them be successful in Japan as well? So two-part question, I guess there. I think it would be presumptuous of me to think there are characteristics of CEOs that make them successful or not. I don't think I'm qualified for that. As a professor, I'm trying to get these things. This is how I teach, Aruna. Try to make simple points. You know, COVID really dented my travel to the US, so I couldn't travel for over a year, but what I call the office smell test. If I go into a company, I can tell whether that company's on the up if it's growing or if it's pregnant just by walking around the office and listening to the buzz and also the kind of culture and atmosphere. That's often a very good indicator of is this company growing overall, not just Japan, fit for Japan and separate. Is this company on the right track? Is it a growth company or is it more of an older, perhaps less high growth kind of company? So you need to do a vibe test, which so you would never make an investment in a company unless you go to visit the headquarters and get that sense. You couldn't do that over the phone or over Zoom and so forth. I think it's really hard to do that over Zoom anyway, but also our joint ventures are so unique that we need to meet with the founders and the board members, key investors, and almost impart the energy on both sides. So it tends to be that all the companies we've invested in so far, despite COVID, are companies that we have met in person. You have, okay. They've come, a lot of our, we work 100% on referrals, so we don't go out looking for companies. If something comes inbound, which it often does, first question I asked is who referred you to us? Because our structure, our joint ventures are quite unique and different and so we need to get the heads around a structure. If they don't, it's not familiar with us, then I'd rather not spend that time. Now I'm going to go back to your question, which is what is a good fit for Japan? Yes, exactly. A long time now and perhaps made mistakes along the way. I find increasingly that the parent has to be of a certain scale to go into Japan or a non-English speaking geography. It's easier to go, you know, typical trajectories, you know, either West Coast starting, they go off to the East Coast and they go to the UK, Australia, Singapore. Exactly. That's the pattern. That's been the pattern for decades. But going into companies or Chinese or Korean, non-English speaking market is much more difficult, especially Japan, which is not completely. So you need to be, now how do I judge that? I think the only way to do that is say how much revenue or ARR annually recurring revenue you have. And if it's approaching 100 mil, and I think it is at the stage where the bench strength of the management team, the international experience, they probably have an office in Europe, maybe in Singapore, they are more ready for expansion into Japan. That's one. The other is I think the willingness of the CEO and the key team to work with us. If somebody says, hey, Aruna, I've got all the playbooks, I just need you to implement them, then there's no value added for us either. If that's going to work, then I recommend that they go direct. But if they say, hey, we are open to your GTM playbooks and processors and experience, and we want to listen to be open to your thoughts, then that's kind of a person company that we want to partner with. And let me give you an example. I think New Relic. When we partnered with New Relic, we put up a bunch of our preferred leader, general manager candidate. And I'm not saying the general manager is the answer to everything, but he had just turned 40, from 30 to 40. And the immediate question from the U.S. headquarters in San Francisco was, isn't he too young? He's never had any experience as a general manager and doesn't have the contact. He's just had a first line manager experience somewhere. And yet they were willing to take a bet on our recommendation. And two and a half years later, the business has grown over 40 people, fantastic, in fact, the best performing unit of that company global. So I think it's about being open to our thoughts. And maybe through the qualification process, and maybe to deal with Cloud, the CEO recognizes that he knows what he doesn't know about Japan. Unfortunately, because I've worked in similar types of positions, this is what you're describing, kind of being a mediator between the West and Japan. Sometimes the CEOs, because they started their own company and they have obviously strong initiative, they think they know how to do things and it would transport over to Japan. But maybe through the betting process, there's a tacit acknowledgement that they don't know what the right thing is to do in Japan. And they're going to turn leadership and guidance over to you, Aruna and the other GPs who are involved in the effort. So you can't, there's no examples of where that's gone or awry. You thought you had a more compliance CEO and then all of a sudden he was looking over your shoulder or have you been able to avoid that? We've made every mistake in the book. Okay. All right. I don't want to bring back bad memories. Let me switch the topic then. I think the mistakes are what allow us to learn and we would then find the model. We've had to stop our general managers. I've had to step in to run businesses sometimes as long as 12 months. But by partnering with us, the parent company has some level of comfort that we'll do what we need to do to get the business growing and the business so that at the end of that joint venture, that platform will continue to grow for those companies. And it may be developing people, maybe coaching people, all our CEOs, we call them CEOs, general managers, attend development programs. I have one-on-one coaching with them every month, every single one of them. Pudda might have technically two-on-ones, we call them. We bring them together for joint training and development. So not only is recruiting, talent recruiting is one thing, but that's the beginning of the journey. And we've got to keep developing and nurturing those people so that they'll grow. And that's not just the leadership, but also the next level down. So the heads of marketing, the heads of sale, the heads of pre-sales and so on. We have joint training that we roll out for all of them. Yeah. I've been impressed, Aruna, with how well organized you are and how you structure the ongoing management or engagement with the joint ventures that I don't think that even the business community understands how important a part that is to the entire investment process. And maybe, I don't know if you would agree with this, it may be the most important factor. You can get things set up and you can hire the right people, but then to nurture them and guide them to success through the course, because this normally takes what five to six to seven years before you see a final outcome. So it's a long process, which means it's like growing a garden, right? You have to tend to it on a weekly basis in order for it to be successful. Totally. And our joint ventures are long, and Alan's original joint ventures are 10 years. The hours range from between eight and 10 years, the most range on is 10. And it allows us the flexibility, the Yoyu in Japanese, I don't know what the English term is, but to the luxury, perhaps, of building the right team at the beginning and nurturing them and developing them. So we have a bunch of labor, but we do have the benefit of time to build the business in the right way. Is this a repeatable process, or do you find that every investment is unique in that the products are different and the people are different and the headquarters operation is different? Or is it something that you feel very comfortable going into that you know that it'll be 80% the same or 70% the same as previous investments? A few years ago, I met when I first met Robert Smith, who founded Vista, this deputy partner. Right, so famous. Aruna, you need to learn to scale. And I took that to heart. I mean, it is not trivial to find get the labor and standardize them into certain processes that we can then roll out. So the short answer to the question is 70% is similar to the recruiting the development. 70% is similar. There are obviously product market differences for different companies, but most of them tend to go direct. So the marketing playground, digital marketing content, lead nurturing, maturity and then into sales and then post sales, that is about the same. Aruna, I see a book here. I see a book that you and I can write based on all of your work and partner wrote a book. He's called the model. Oh, okay. A book is in Japanese and Korean now, maybe eventually in English. It's called the model. It's probably Japan's most famous go-to-market model based on his experience at Oracle Salesforce Marketo. I didn't, you know, as well as I know Alan, I didn't know that he had written the book. He's never mentioned it. Oh, okay. Oh, I see. Interesting. All right. Hey, Alan, we're sorry. Aruna, we're running out of time, but there was one last question I wanted to ask you. I mean, when you and Alan started this model to bring companies in and then you began to develop specifically for the cloud, I think at that point it was unique. But over the last year, Japan has finally recognized that it's been an under-investing in digital technology. I've been reading about all of these new funds that are starting. Sony and Suzuki has just started a huge fund. I'm sure you follow this more closely than I do. Then there's a huge one now with a Japanese founder. I think it's Will, WIL. I can't remember, but that's another huge one. They are looking at the cloud. I think what do you think about what's going on in Japan right now? I mean, your model has been validated by the market, obviously, with the success, but now other people are doing the same thing. It's kind of a mixed blessing, right? You now have more competition. I think the model is very different. The companies you talk about are investing in Japanese homegrown science. I think that's a great thing for Japan. You need more interest areas in software. You need to shift to a software-defined economy, I think, and more software that there is the better for everyone. If there's a particular category and we've got a player from the US and there's a Japanese homegrown, I think the interest just increases overall market size anyway. I'm all for it. We tend to operate the high-end enterprise level where when you roll out something, it's rolled out, not just in Japan. I think Kuta, for example, we're just rolling out with a large mass national. It's starting off in Japan and it's going to go off from France and Germany and the US. Typically, we find that only the large, large US software SaaS companies are able to handle that sort of global deployment and global use of the software. This infusion of venture capital money will be in a different area or with different types of firms than what cloud computing is doing currently, you think? It is all cloud computing, but it is homegrown in Japan, so developed by Japanese entrepreneurs and founded in Japan. Other parts of Southeast Asia, maybe in general, tends to be quite local, domestic whereas what we do is local. There are certain pros and cons of each pro, but they're all making money. I think the shift to software is something that I'm very much involved in. I've watched that for many years and I've always been mystified about why Japan hasn't been more successful in the software area. Japan is more of a hardware culture. I certainly see that in the Kansai area, but the focus is finally on software. I don't know what you think. We'll have to see how it goes because it's not just money. You need more than money. Like in San Francisco, there was a culture that supported software entrepreneurship. There are other elements that are behind the success of the software industry as experienced in Boston and in Sweden now, too. It's not just the United States. We'll have to see how it goes in Japan. Do you have a quick opinion? We're running out of time, Arun, if you can just maybe wrap up. I think the pieces that make software successful are the developers, the archetype for early-stage companies, the companies we buy from, the money. That's all here in San Francisco, but there's no reason why that cannot be replicated in Japan as well. I know Toyota, in the big software push, they made the entire software team led by foreign people in Japan now. I'm quite hopeful that they'll make inroads into that area. All right. Well, Arun, we've run out of time and this went by so quickly. I appreciate it. Taking time during your late afternoon in San Francisco while you're traveling to be with us. I really appreciate it. Sometimes we get follow-up questions. I'll forward them to you. If any of our viewers have additional questions, you can send them to ThinkTec and we can get them answered for you. Thanks so much, Aruna. Thank you for tuning in, all of the viewers. We look forward to seeing you in a couple of weeks. I'm thinking that, I'm thinking this is totally different from software. I'm thinking of doing a show on Geisha. There's a professor, Kansai Gaida, who's an expert on Geisha. That's what will be the topic in a couple of weeks. For my viewers, please tune into that as we look at Japan in their show. Thank you, everyone. Thanks for tuning in and thanks again, Aruna. Thank you.