It's Tough Being an Angel in Japan
You'd think entrepreneur Yukio Iura would be a proponent of saving money. After all, he was a top banker at the Bank of Japan and other lending institutions for 34 years in a land where his countrymen have socked away some $6 trillion in low-interest savings accounts. But you'd be wrong. Actually, Iura thinks the Japanese obsession with saving is "scandalous."
After a decade of falling land and stock prices, most Japanese still shun risk. But the 59-year-old Iura is out to change all that. He wants investors to put some of their savings into young Japanese startups.
The gospel of angel investing has been a godsend for high-tech businesses in places like the Silicon Valley and in Austin, Tex. But in Japan, it remains a hard sell. After all, it's risky -- and the Japanese abhor uncertainty. Besides, young Japanese companies are struggling against a global tech market slump and Japan's entrenched economic problems.
Nasdaq Japan, which caters to startups, listed only nine new companies in the first quarter, about half of last year's pace. Japanese banks, drowning in bad loans, have no appetite for small, unproven companies. And corporate backers of startups are slashing investments and restructuring their own operations.
But Iura is undeterred. To capture the daring few, he has created a nonprofit entity called the Nippon Angels Forum, plus a for-profit investment fund called Nippon Angels Investment Co. The forum hooks up investors with cash-starved entrepreneurs at meetings every two months. The sessions typically draw about 200 potential investors, who listen to pitches from a score of struggling startups. The audience picks the best three, and Iura invites the winners back to give one-hour presentations.
The meetings also promote Iura's investment fund. For as little as $20,000, investors can buy a stake in the fund, which in turn backs some of the companies that participate in the forums. It's a substantial chunk of change, but the potential payoff is huge: If just one of the startups that the fund's executive team chooses makes it big, investors can double their money in four years, Iura claims. It's "like buying a lottery ticket," says Iura, who put up $200,000 of his own money to start the fund in June, 2000. An additional 30 investors have kicked in an average of $35,000 apiece to bring the fund up to $1.2 million.
BIKER AND BIZ SITES.
Investors have yet to see the fruits of his dedication. The 11-month-old fund hasn't yet had a "liquidity event" -- venture-capital jargon for an initial public offering or the sale of a company in its portfolio. That's unlikely for another two years, says Iura. But after posting a small loss this year, Iura expects the fund to make money next year by earning commissions doing legal work for startups and investors.
So far, the fund has doled out an average of $50,000 in seed money to seven different companies: Two community Web sites, Risys Co. and Forwhom Co., cater to motorcycle riders and small businesses, respectively. The startups are using the cash to pay for lawyers, patent searches, and other services -- some of which Iura's team provide for 5% fees. The startups also cobble together money from other individual investors, government grants, and the founders' savings to help get through their first year.
Take George Sawai. Last July, he founded the online advertising company, e-Marketing. Iura's fund chipped in $32,500, and Sawai sold an additional 700 shares in his baby at $400 a pop to 12 other investors. Yoshihiko Tano, chief financial officer of Nippon Angels Investment and a former advertising executive, sits on the company's board and is helping Sawai secure a second round of funding from potential customers who also want to invest in the business. "There aren't many people who provide seed money in Japan, so I have Iura to thank for getting me this far," says Sawai, who spent 10 years as a freelance software programmer before starting e-Marketing.
STRIKING A CHORD.
The angel formula was a hit during the U.S. tech boom because people with money to invest wanted a crack at the stupefying yields venture capitalists were getting. Can it work now in recession-bound Japan? The crowds at the Nippon Angels Forums suggest that Iura has struck a chord. After all, the average Japanese household sits on the world's largest pool of savings -- $116,000 per family at last count -- yet interest rates are near zero, and real estate and stock prices are still 65% below their peaks of 10 years ago.
Iura says he makes it clear to investors at the forums and individually that they could easily lose their money. But he doesn't just give his picks and leave them to sink or swim either. He has assembled a team of eight business experts, including accountants, lawyers, and an auditor to coach the startups.
Having retired after three decades at the Bank of Japan, the International Monetary Fund, and the Bank for International Settlements, Iura also has global connections to help his flock of companies. "He has a long-term vision, and he's one of the few people I've seen with the passion and dedication to change this country via his work," says Tatsuyuki Saeki, president of Nasdaq Japan.
Like the companies he funds, Iura runs his on a shoestring. His desk sits in the middle of eight others stuffed into cramped office space shared by the company's 11 staffers. Government agencies donate their seminar rooms for forum meetings. Lawyers and accountants who belong to the forum provide discounted services or sometimes work for stock options. The Japan chapter of the International Angel Investors Institute, which supports angel groups around the world, co-sponsors the meetings and offers separate courses on how to be an angel investor. Iura is also taking his investment model nationwide by organizing forums for bands of angels in Yokohama and Osaka.
Still, veteran angel investors like Allen Miner, founder of the Japanese incubator SunBridge, reckons it will take years before grassroots efforts like Iura's turn Tokyo into a Far East Silicon Alley. The conditions still aren't conducive for investors or entrepreneurs. Stock options are a rarity in Japan. And in any case, Japanese employees are unlikely to leave a job that pays hard cash for the promise of a stock-market windfall -- especially with the Nikkei at a 16-year low.
Onerous listing criteria also make it extremely difficult for young companies to go public. It takes twice as long as in the U.S. -- so investors have a longer wait to recoup their money. But Miner, who also put $6 million of his own money in 14 startups, says angels like him invest for the long haul. And Iura and his fledgling group think angel investing at least gives them a chance of earning lucrative returns they'll never get from a Japanese savings account.
By Ken Belson in Tokyo
Edited by Douglas Harbrecht