Ep.7 - Gen Isayama / WIL - The Open Innovation Talks dive into Japan's tech ecosystem

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All right, welcome everybody. This is Marco Marinucci with Mind the Bridge. And welcome to another episode of our Open Innovation Talks. Mind the Bridge chat with industry leaders in Open Innovation. Today I'm sitting with Jen Isayama with Will. Will stands for the World Innovation Lab. It's one of the major players here in Silicon Valley in both venture building and investing. Very much connected with the Japanese industry here. But not only don't miss the episode, I think there are a lot of interesting insight. All right, let me introduce Yama, co founder and CEO of World Innovation Lab. How you doing?

Good. Good morning Marco, how are you? Very good.

We're very glad to have you here. I don't think we could have thought a better speaker to get a sense of where the world of a corporate innovation in particular when it relates to to Japan is going. So very happy to have you here. Let's start with a little bit of your background because I think you're being in Silicon Valley pretty much at same amount of time, around 20 years you went to Stanford here, business school and then from there into Will. So let's cover a little bit of your journey.

Yeah. What brought me to Silicon Valley was before I came to United States for graduate Stanford education, I was working for a commercial bank, now part of the Mizuho Financial Group. And one of my mission was how can I help industry thrive? And particularly I was interested in formation of new industries. And my era was all about information technology. So as a banker I said I have to figure out a way to learn what's happening in Silicon Valley because it looks like telecommunication to semiconductors. A lot of the innovation seems to be happening across the ocean and I wanted to have the opportunity. So I was sponsored for my company. After all this rigorous selection process, I was able to come here, got fascinated about learning about innovation ecosystem. And then while I was supposed to go back after two year education, I said I really need to do something beyond just studying on case studies and textbooks. I wanted to be part of the startup.

And just to get time reference here we're at the beginning of 2000, right? 2002 by the time you graduated from Stanford Business School.

Yeah, so I'm class two, 2003. So I started school in 2001. 2003 and as you know, that time, at least outside of campus was kind of dead. I mean, it was right after the bubble. Startup was not as popular as today. Everyone was thriving for investment bank or consulting. But my interest is all about entrepreneurship. So I came here learning a lot in campus and then I wanted to go out and see the real world, so. So I decided to stay in Silicon Valley and eventually started to work for one of the venture capital fund in san Hill Road, DCM. And I spent 10 years learning about venture. And particularly what was fortunate during that time was that I had an opportunity to open this firm's office in China and also open the office in Tokyo. That's when I saw, okay, what's been going on in Tokyo while I was living in Silicon Valley. And that really sparked me to think, oh gosh, I learned so much in the United States and Japan. Since not much has changed in the Japanese entrepreneurial market, I need to do something to impact and change the way people think about innovation and entrepreneurs in Japanese society. So that kind of led me to do what I'm doing right now.

And I love when we talked before your idea that was brought from the history of also of Japan of building a trading post. Right. And poaching it from the history of the Jima maybe. Why don't you mention that? Because I thought it was was particularly interesting.

Yeah. So after I worked with ECM 10 years and thought there is the opportunity for me to impact Japan in a certain way, you come up with great idea, but the toughest part is how do you implement it? It's same as startup, right? Everyone has the same idea, let's do this, let's come up with this kind of service or product. But implementation, how do you create a storyline that resonates people is so important to make sure that your venture is successful. So I thought about this after at least I spent 10 years helping startups. So I know what I need to do if I were to start a company. And the idea struck where. So if I'm trying to change or become a change agent for the Japanese society, I needed a storyline which would resonate with Japanese people, particularly Japanese senior people. Because the constituent I'm trying to influence are the Japanese corporate management team, CEOs a little bit older than I am, and also government people which are also very senior. So I had to come up with a storyline which really can impact and make them think, wow, maybe this makes sense. So I went back to the Japanese history and I thought, oh well, in 17 centuries during the Tokugawa Era, there was a period where Japan completely isolated the country for over 200 years. And basically that isolation was to prevent getting too much foreign influence, particularly Christianity. But during that 200 years, Japan became very close, in today's term, closed innovation style, where you have to do everything yourself. But one exception was this place in Nagasaki. They created an artificial island called Dejima, which was acting as a trading post for limited foreigners to come and interact with Japanese. And the interesting history about this trading post was it was such a small island, yet this was the only place where Japanese were able to learn Western technology and science. So that was a place where people learned about advanced medicine tech. And I said, wow, okay, this just looks like big corporations today. They're very close. They think they can do them everything themselves. They kind of know they have to learn from the new world, but they can't. So instead of trying to open up an entire country, I said, let me build this Dejima outpost where entrepreneurial mind inside of the big company can come out and get all these new ideas and try to influence eventually the mainland to open up. So I said, maybe this story is much more interesting than me coming up to the corporate and saying, hey, let's do something interesting in Silicon Valley, which is a storyline that anyone can tell. But this Dejima concept referring to a particular historical event in Japan, I thought is much more compelling. And so I used that rhetoric to start my firm in 2014, where I said, let me open up a Dejima for your company and try to eventually influence the way you do things, the way you think about innovation, and also help you connect with these entrepreneurs, which would eventually bring great ideas into your organization.

And obviously, I think the story resonated very well because, you know, fast forwarding now, you're extremely successful. You have a very high engagement with a very high number of corporates. You have almost $1 billion under management. And you're definitely, I think you established a model that must be really something to follow clearly for Japan. But honestly, for a number of other geographies where really the core issues are pretty similar, right. How to break down some of the natural speed that is typically not accelerated, and some of the processes that are a little bit too hard to break once you are in a corporate structure. So let's talk about will model today, I think is extremely interesting in the pillars that you build up and before that, maybe just high numbers, part of the investments, and in particular the size involvement that you have today with the Japanese market, in particular of the corporate partners.

Okay, yeah. So we Always started six years ago with the intent to become an innovation lab for a lot of the corporate. One distinct difference between traditional CVC and some of the outpost you mentioned earlier is that instead of me acting as a particular company, single company outpost, I wanted to create a very cheerful lab where various industry people can come in and come out. And this part is pretty tricky because when you look at corporate venture capital, you rarely see corporate venture capital composed of multiple companies. It's typically run by one company or sponsored by one firm and run by someone else. And we see that all the time. But whereas my Lab consists of 20 plus Japanese corporations, corporates, you know, including consumer electronic, airline companies, automotive companies, retail companies, consumer companies. And I had to figure out a way how they can align their interests because the reason why this format doesn't work often time is that people think, oh, we are competing each other and I don't want this company to know your special deal because I want to take it all to myself. And I had to figure out how do we create an innovation lab where everyone, regardless of where you come from, feel like they're learning something valuable that is irrelevant to the competitors and eventually these competitors. I was idealistic and maybe naive to think I was hoping these different industry people would come together to start a new business. Because you know, the world is becoming smaller and smaller and these industry differences becoming meaningless. When you see Google and Facebook and all these tech companies entering in automotive industry and healthcare industries, I think there's just thinking about this industry vertical didn't make any sense. So from that spirit, we are a very unique type of lab where we consist of various institutions. That's a little bit of background of why I think this is unique. And there are three activities focus on. One is, you know, corporate venture capital activity. We have a close to billion dollar fund, we invest in startups. And why do we do that? Because yes, it is a very important financial driver for us to run a business. But when you think about corporate innovation, I need to figure out how do I feed interesting ideas, how do I feed the tech trends to corporate. And I can do that as a consultant, writing a report, doing a research. But we all know the best moment where people get influenced. And when you see someone like yourself running a startup or the same live people coming up with an idea and implementing it, that's when you get so inspired. Instead of reading a report and reading books, report is interesting, but you truly change yourself when you see someone like you taking risks, trying new things. So I said I want to use this investment as a catalyst to bring startup CEO and match them with our corporate partners such that they can get stimulation and think creatively and hopefully act like an entrepreneur one day. So corporate venture investment, it's important. Yes, we invest in startup, but it was meant to be a catalyst to change corporate mindset. So that's one activity. Second part is we have a startup studio called Business Creation. We help these corporate partners launch new business just like startup, you know, launch business from scratch. But corporate has a lot of resource. So I think it's much more advantageous if the corporate became serious about okay, let me start this business. But I just don't have experience building business from scratch. So our team would help. A lot of our team are former entrepreneurs who's founded companies. So we actually work with our corporate partners to launch business and scale it up and observe it will be part of it until it takes off. So that's the second part of business and the third part of business we do. It's fundamentally how we work in a corporation is very different from doing entrepreneurship. We sometimes think that there's particular skill set and most importantly mindset needs to be educated through a particular curriculum or for specific tools that Silicon Valley startups use. So we have a little bit of this educational program in Tokyo and also here in Silicon Valley where we bring corporate executives and train them and hopefully transform them to become an entrepreneur, meaning entrepreneurial person inside of the big organization who can lead innovation, who can try new things. So those three are core activities and by having those three distinct activities, we think we are much more than traditional corporate venture capital. We're much more than traditional innovation outposts and it seems to be working. At leave this past six years we've been quite fruitful. Our fund operation is very successful and we're seeing new business come out of.

Our lab and I think it's in a very explosive mix. And that's why I'm thinking that something that should be probably taken as a role model to follow and I want to go a little deeper in three areas. I mean the part of the corporate venture capital, the venture fund is pretty self explanatory but maybe some ideas of where you guys invest there, what's the typical size of investment, what's the value proposition. And I suspect is also, you know, providing an entry point for the full Japanese market as we know is a huge consumer market, is the third GDP of the world. So big opportunity for a scale up here in Silicon Valley that has option today to raise money.

Yeah, like I mentioned earlier Our investment, yes, it has to be financially driven such that our team is motivated enough. And actually our investors are corporate partners. They're not investing us just to lose money or for just for me to spend money and give them insightful information that's not enough. So I have to make sure that our fund operation is profitable. Yet I also have to entertain these corporate partners that they're learning something from this operation. So how do I combine those two? When I do investment, the one strategy we take is that of the 1 billion investment, a little bit more than half goes into the United States, mostly in Silicon Valley, and rest of the investment goes primarily to Japanese startups. For us, we focus in mid to late mature companies, so called mid to later stage companies where their growth, their product or technology is already proven and they're growing at least locally here in Silicon Valley and they're ready to go to Japan. Like you said, Japan is the third largest GDP and when you come to IT spending, it's the second largest country. So everyone wants to go to Japan, of course, but why aren't we seeing that trend today? It's always the language and cultural barrier. Japan is one of those few countries that the local language has so much value in terms of business world and these unique business culture which for the foreigners it looks almost impossible to get in unless you're Japanese. So us having half of our team in Japan and myself being Japanese, I said okay, I can be a perfect tour guide to take you to Japan, introduce to the right people and get the business running at the right pace. So, so we focus on mature companies ready to go to Japan and, and that resonates to a lot of startups. They were like, great, if I can get your TO guide and your team support to enter Japan, if they had a choice to pick from 10 VCs, they would at least include us as one of them. Because you syndicate two or three VCs when you do a funding at mid stage, late stage and we rarely get kicked out. And this is important because you want to get into deals that is very competitive, but if you don't have an edge or value that resonates the entrepreneur, you never get selected. And that's the toughest part. Raising fund is one thing, but getting into a good deal is another. And we are using this Japanese market size, the appetite for innovation in Japan as a hook to get into great deals in United States. And a lot of the deals in US inherently is focused around B2B software companies because that's, you know, obviously 70% of the US venture market is somewhat software business for the enterprises. And that has potentially a huge growth given what's going on right now. I think everyone is trying to digitize everything so called digital transformation. And that's majority of the investment we focus today in Japan. It's a mix from early stage to late stage. But the thesis we have is how do we digitize what is then analog today including the safe intech. You know in Japan you still have to go to branch to do particular financial transaction. You'll still have to go to the shop to buy particular things. But can we digitize these things such that you can complete a lot of the things you need to get done from home? And that trend accelerated because of Corona. You can't really physically contact people. This digital transformation just accelerated so fast. And that has been our focus this past few years. And Corona hit the world in a bizarre timing for us. But it actually ironically helped half of our companies accelerate their business. So we're living in a very interesting time. And I'm always thinking how can technology help make this world better to overcome this challenge we're facing today, which is going to go for the next few years. And that would drive my investment thesis for the next few years.

Just to finish on the topic of investment, do you tend to lead investments that typically require suggest a board seat also to get an understanding of what's your involvement with the scale ups here?

Yeah, so I joke a little bit here. I always tell my US team that we should become a best buddy for good traditional VCs in us giving our fund size. We can try to compete with big funds like Sequoia or Axel or Lightspeed. But as much as I would like to fulfill my ego by competing with them, I know how hard it is to compete with these firms with legacy and a lot of networks already established in the valley. So my realistic side of me says, you know, we want to be a best partner for them because they don't have expertise about entering Japanese market. And you know, we could be a very complimentary investor at some point. I mean Series A, Those early stage VCs are going to take everything. And we don't have, we don't have a lot of ads because company's too young. But mid stage, late stage when they double down, you know, follow invest and they're looking for a new investor ad, we have to be there, we have to be one of those firm when let's say some sandhill road VC thinks about the next funding on one of their top portfolio they have to think, oh, let's call Will because you know, this company is ready for Japan and Japan is a big market and they do this best than anyone else. And that's a branding and positioning. We cannot lose against any other players because I mean saying oh, I can help you enter Japanese market is easy. But really doing this in helping them enter, opening an office, establishing a team, generating meaningful sales, this is not easy. And I have to make sure I am way ahead of the competition providing that infrastructure for any startup. So my strategy is to become the best co investor. Obviously co investor doesn't mean we're going to be a passive investor. Some of our partners become a board member because they have rich experience as an entrepreneur in the United States and sometimes the startup CEO demands that and we'll be happy to provide any help. But we're not stuck with the concept of oh, we are a vc, we have to take board seat kind of thing. We're trying to help entrepreneurs. It's always entrepreneur first and it's not our ego thing where we look good on the board or we look like we're taking initiative on a corporate direction. We need to do the right thing for the corporates entrepreneurs to thrive and want to stick to that position.

You alluded to that before, but you're not really structured as a typical in a classic vc.

Right.

So even the terms that you have are drastically different from a typical vc. So when you talk about competition to some extent, right. In the investment phase, but really the way that your structure is dramatically different.

Yeah, it's still that the pool of capital, you know, people ask again, are you a VC fund? And I said yes and no because we're like a corporate membership club. So I always refer us as, oh, think of us like a golf membership club. You have to put a deposit. And the rule here is that you get my deposit back after 10 years and I can do whatever I want with the deposit and hopefully I'm always trying to make sure that I return more than you deposited 10 years ago. And that's, that's the simple rule I have. So yes, the structure look identical to 10 year traditional venture capital fund, but the pool fund that I manage is quite flexible than traditional VC funds are. But we still primarily invest in startups and we want to generate capital gains from the investment. But the kind of, the intent and the objective of the limited partners who are the investors of the fund are quite different. I mean if you are traditional VC fund, all they care is about numbers and IRRs. Therefore they will ask, just keep investing in great companies and just exit fast and return all the money to us as fast as you can. I don't have that pressure. I have a luxury to really think through what is right for obviously for RLP partner corporate partners. But also I can do the right thing for the entrepreneurs if they need more time. I'm going to give them time. I'm not going to rush them to get out and go public or take this M and A offer just to liquidate my holdings. I don't have to do that. So that really helped me centralize my interest in helping entrepreneur first, not about oh, how can I be successful as a fund manager? I mean that is important of course, but I can always make sure that the entrepreneur is a first priority in whatever we do because they are the people who are taking risks. And yes, we were providing money, but they have to be most respected. And I think they should be taking all the credits, not us. I sometimes thought that VCs are taking too much credit just as an investor and I really didn't like that. So here I wanted to make sure that whoever is taking the risk who are doing things get all the credits and also not just credits, but financial reward as well. Because that to me feels fair thing.

That takes me to the other part of your business, the part that is also part of your name in the lab. So I want to talk about that a little deeper because what goes under the name of startup studio company creation is the model that has been around for some time. I remember even the tech companies, I remember Yahoo was working on it for quite some time. Google itself is actually still doing it. There's all different shapes of forms, but there is not a single model that I think has been extremely successful to be replicated. Like why Combinator in the world of accelerators? So I would like to get a little deeper in the. In your process is how you create those entities, those spin out what from the beginning of the idea, the involvement of some of your corporate partners and then how you then decide to spin out one entity rather than the other.

Okay, so now during the process of meeting with entrepreneurs and understanding the tech trend, a lot of the corporate would take some of the information that they're allowed to share back to corporate headquarter R and D. And that chemical reaction creates some interesting action in the R and D side where they start to say they have hundred new technology they're working on and they have prototyped certain technology into a product or service. Yet as a corporate side they have to pick one or two to scale up. And they sometimes have to give up some of the R and D project just because they were just not selected in their priority in the selection process. But some of these abandoned project, I say, look quite similar to what's happening in the Silicon Valley. I sometimes say, hey, this technology and this kind of service is becoming very popular in Silicon Valley. You already created it, but this project was never selected. Do you think it's a little bit of waste of your money? You already spent some money to develop this, yet you're not launching it commercially. Let's spin it out and launch it. Because we have a great role model across this ocean and it seems to be working in the United States. We should do something in Japan. That narrative works quite well because when people get convinced, I can always try to say, oh, this technology, great, let's start a company. But that is not enough, because it's better if you have a proof that this technology or product has certain value. And the best way to communicate that is it works in the United States, it works in Europe. And that's when Japanese people get excited because, wow, it works. It's working in the United States. Maybe it might work in Japan. So I used this in the old days we used to call this a time machine strategy where certain technology or certain business that is already working in some other parts of the world, I will use that as a reference to convince Japanese corporate to spin out particular business ideas they were already working on. So that's kind of the very important process that happens when I think about any business creation that we do inside a will. So after that process, we go and we obviously have to pick some projects, these abandoned projects, because the corporate says, again, okay, it's free, you can take any of our projects and you can keep financing the project if you think there's an opportunity for business. And we often do that with big companies who has a very strong R and D facilities, in our case, consumer electronic company has a very strong R and D team. Also telco companies, World Warcraft, they have a very strong technical team in working on novel technologies. So we go to their R and D lab and select some technology. One of the early project that we did, so we did a lot with Sony. Obviously Sony as a big conglomerate, they have a lot of technologies that they bake, but they keep it in the closet because they cannot take every idea into a real product with Sony logo onto it. So we took out some interesting IPs and created one company that the very first project we did at will in 2017 was a smart lock company. You know, basically I just wanted to get rid of home keys and use my smartphone to own and that entity we, you know, we use Sony IP to and run it just like a startup outside of Sony. And so and will invested about 70% of the company and Sony owned 30% of the company. We grew the business for two years and then eventually Sony bought back our ownership. So it's now part of Sony growing the business. So one great success of incubating outside of your corporate. We help them run the business. We hired all the people, we hired the CEO and then bringing it back to the parent when they think the timing is right. Second product we did very well financially was an R and D product. Out of NTT R&D three engineers came to me. Hey, my project was somewhat abandoned. They said I can. Do you know if I can find a sponsor I can continue.

Sorry, those are the engineers from the corporate partner, right? So yes, yes.

There were three. Yeah, there are three PhD guys from NTT lab, very great engineers. I happen to know them as a friend. They came to us, they said can help me, I want to really finish this project and I think I can commercialize this. So eventually we decided to fund those three guys left NTT to be the three founders of this entity which we funded through Will and two years later this business was sold for a few hundred million dollars to another corporate. So great success as an investment and a great success case as a project where an IP or a project spun out from a big corporation entity became very valuable after two years of kind of cooking. Right. I mean it was raw material when it came out. But obviously my job was to make sure that this become a real business set that such that it has a real business value eventually. And in retrospect it only took two years from something zero to become few hundred million dollars. Which is somewhat fascinating and eye opening to me that to really think how rich the talent pool and technical pool of big corporations in Japan is, we just have to figure out how do you unlock it in a very effective way. And the concept is like you said, it has been there for decades and it's just so hard to do this right. Sometimes it's just a, you know, financial arrangement, sometimes it's ego, sometimes it's just market is not ready. But this one big success we were fortunate to have early on made me think I have to figure out a way to do this more frequently because this is equally important to investing in greater startup and helping them Thrive in Japanese market and US market. That's important activity. But equally important is that how can I shed light to this abandoned project or technology that is sitting inside of a closet, Bring it out, commercializing it and making these engineers a superstar. That's what I need to do more. Because that's when average people think oh, if he can do it, if she can do it, I can do it. And then this entrepreneurial momentum would eventually expand into the corporation. And that's when these large corporate can become very creative, innovative instead of becoming very conservative and dull in a boring organization which happens everywhere in the world.

A bunch of follow up questions there because the example that you gave are very telling. And then how to scale that into processes that can be replicable as you mentioned, I think is the billion dollar questions. But today again, do you have people dedicated to industry, internal people that are your antennas into the R and D of your partners? Or is that something that is not structured or maybe is dedicated by corporate by partners?

Yeah. So one of the model I thought about is that the traditional model is you hire a bunch of experts in my side who can interact with this company. But that's almost like you have this experts talking to experts and there's. You're not going to come up with new creative ideas by doing it. The best way to come up with a creativity that you never thought of is you bring in someone, it's like an ultimate generalist who is thinking of something interesting. So who is thinking how to change the world for the better. Talk to the semiconductor engineer, talk to the telecom engineer and share the big gap and technical understanding. Yet there's so many things we can learn from each other and that sometimes sparks that leads to creating these entities. So I'm trying to make sure that we have the right people who is a very good communicator regardless of the background and who knows how to inspire these engineers who tend to be a little bit shy sometimes because they're always working inside of the lab and they never see the sunlight. Right. They're always stuck in the lab. Once their product becomes real, it goes to the sales team or the product team and you know, they work on a different project. So you need a good communicator to influence these genius inside of the lab and bringing up and convincing them to become an entrepreneur. So from our process we like people who, who are likable, good communicator, good cheerleader to go to these labs, communicate and share at least what are the issues and needs out there in the world. Like right now, post corona, there's so many things we need to fix, so many things we can do. But if you're just sitting in the lab, you don't see that world. So our mission as a corporate lab is to share. Here are the things we need to fix. And you guys have technology and skill to do it.

So on a practical level, so you go to those labs of your partners in the headquarters on a regular basis and so you have your cheerleaders, as you call them, to just spark the ideas.

Yeah, and it's not as, it's not as tedious in a sense because once you establish the relationships, what happens eventually is that good ideas come to us. So we don't have to do this periodical meeting anymore because now they know. Oh, when we have a project that is interesting that didn't get selected in this selection process, let's bring it to Will. We have like a second chance consolation match to get my product out there if Gan likes it or the Will team likes it. And we're just doing something simple. Right. We're giving a second chance to a lot of engineers inside a big corporation to become a superstar. It's like you're not done when that headquarter process didn't select your project. We will become a second set of eyes and maybe we like it and we might, and that project might be better because no one knows which technology is going to work in a ten years from now. And sometimes corporate decision is not always right and I'm not always right as well. But we're only providing these more chances for engineers, people who are trying to change the world. And we're trying to provide extra support for those people who wants to keep doing it.

What's the rate of success of those that go through that process? I'm sure there are going to be different stages of idea confirmation, idea involvement, but what's the rate of success of the ones that eventually get started?

Yeah. So success on our startup studio is quite high simply because we already, like I said from our process, we already know that there's a demand in the market. Sometimes it's just technically challenging, sometimes it's just the pricing there is, the cost is too high and we're not trying to start something new that we don't know there's a market. So the chances of the market product fit is quite high. So the success ratio is probably above 70% and maybe 80%. But sometimes we just shut down the project after a proof of concept, after we get excited. That idea we created the first prototype, we share that to a limited set of people and we get a social reaction. I'll just say, okay, let's call off of the day. I'm not going to do a second chance. Let's do a new project, because that's what we're supposed to do. Whereas if this was a corporate, as you know, they keep revising the plan, they keep changing, they keep going because once they start a new project, it's very hard for them to shut down. And that's the mentality of any project in corporate, because there is a stigma to shutting down a project as a corporate officer, but I have nothing to do. I'm trying to do the right thing for the society, for the market. So if the idea we came up with didn't fit the market, we said, okay, let's not waste our time, let's try something new. And so we have some project that we had to shut down after six months. And good thing is that we didn't have to spend a lot of money to keep investing in the project that didn't work and shift the focus to a project that is working. So the success ratio so far under current style is quite high. And in my term, success is either we use enough capital and we at least got more back when we, you know, when the parent company acquired the entity or when we sold this project to other companies. We get, you know, we got at least some interest or return on whatever we invested in this project. So it's quite high so far and.

The projects are more mature. What's the kind of range of capital that you deploy there? Because the arrangement is pretty interesting. So there is part of the fund and part is from the corporate that decides to be. To be the core investor.

Yeah. So one interesting element of this is that when you spin out the day of, okay, day one of this venture, the project, sometime this entity has a sunk cost worth of tens of millions of dollars. You know, when you spin out, the corporate is not going to ask me to invest that money because they already spent that money. So we have a luxury to head start with a very mature technology. And sometimes we get those technology for free, sometimes we get this technology as paying a licensing fee. When we use it, we arrange a licensing agreement with this parent company such that every time we sell a product with this technology, I'll give you X. Right. So it's very simple. The toughest part about funding the startup is it takes sometimes 20, 30 million dollars to create this technology. But we start with the technology from day one and That's a huge advantage. So what I'm trying to say is that the required cost of capital is going to be significantly less than traditional startups because we are already having head start of having a mature technology that's 1 and 2. Even after the project is launched as a joint venture, the headquarter always wants to help. It's like your baby, right? They're going to give us free access to their lab, they're going to give us ideas, they're going to loan engineers for very low cost, sometimes for free, since they think this is a great way to train their engineers in a venture project. And sometimes these licensing payment terms are very favorable. They said, you don't have to pay me. I know this startup is in a cash trap, so pay me when you get the income. So sometimes we have a luxury to play around with these cash flow issues. With startup, typically when you want to build something, you have to pay first and then sell it to the market. Whereas most of my projects, I have a luxury to launch these products or services before I pay to the parent company. And they said, ken, just pay me back when you make money. And it's easy to say this, but it is so important when you're running a company to manage a cash flow. You know, you're allowed to pay after you get a check. It's so valuable. I mean, because pretty much a lot of the financing you do, you do it to gap finance these working capital, right? Whatever you do, it costs. You have to pay up front to create something and sell something. Whereas I have a luxury to postpone the payment as much as I can. And they're allowing us to sell stuff before I pay. And that's quite significant. So our project is typically in single digit million. I mean a lot of our project would have cost 10, 20 million dollars easily if they were a traditional startup. But we end up investing single digit million less than half of traditional venture investing. And the outcome is quite effective.

Not to mention also the rest of the other corporate investors have a vetted interest in supporting this venture. Right, because they are part and related to the equity and the return of that journey. How is the COVID 19 pandemic affecting their business today? What's your take?

Fortunately, some will. Just because their core business has hurt so much through this Covid and keeping this outpost in Silicon Valley. We all know that the cost of living here is ridiculous. So sometimes they have to cut back on the cost and sometimes they shut down the outpost office, which is unfortunate. And not only that, we have this immigration issue, when you have such a huge unemployment happening in every state, including California, it's very hard to send people just to come by. I mean they're not going to give you a visa and green card anymore. So there is a little bit of that economical issue and more of immigration issue that makes it harder for Japanese companies to keep their operation here in the Valley. So yes, we're going to see some retreat happening. I saw that happen during the Lehman, I saw that happen during the bubble. So it would happen. And that's why I think we need to have some locals like myself who can keep this, keep going like this without worrying about oh my gosh, I have to retreat my expats because their visa is expiring or because our headquarters hurting. I can just keep doing this on behalf of many corporates as as long as they're members of a club. And I think that's one of the key reasons why I started this. But unfortunately, yes, we are going to see some retreat. But again, given how much energy and interest generated this past decade, I want to make sure that this, you know, this momentum never stops. I mean it would be a big waste for a country if a lot, you know, half the company retreats. I don't want to see that happen. So my job is to keep making sure, hey, yes, do whatever cutting cost necessary. But let's not stop the heat of innovation. I mean innovation is important and the.

Idea of having antennas is actually a very relatively small cost into an upside that is very valuable. So let me turn into the very last question and it's more on policymaking. I know that you also with your experience, you're an advisor also to a number of ministries in Japan. What, what is your advice? We didn't talk about the empowering piece of your business is kind of a more on the training side. But what advice are you giving these days to ministries? I mean, in particular, you know, related to innovation or technology development.

Yeah, I've been saying two things this past few weeks when I, you know, it's interesting, a lot of the politicians these days are getting used to doing zoom meetings. So I had the luxury to talk to many politicians this past few weeks and two things I've been telling one is please digitize the infrastructure of Japan. As you know, the government agencies are at the most analog species in Japanese society. And when you have a government agency so analog meaning they still use tax ML and you know, you know, in CEO. So they just cannot get rid of these analog process in the business that eventually can influence the corporate. So then the corporate has to comply with the analog process. But if the government becomes digitized, then the corporate can be digitized in our life. Our society will be digitized. So I told them, hey, no more excuses that people still love cash. Get rid of cash. Make every government service electronically available such that we can, you know, we can truly transform our culture to be more efficient. And that's when these entrepreneurs in Japan can truly thrive. Because if you have this analog process that is owned by particular constituents, there's so much we can do. But if everything is digitized, there's so much areas we can improve through the power of innovation. So that's one. Can you digital transform the society through this hardship? The another thing just like you said, is innovation. If you think about amount of capital required to make big changes, venture investment is the most efficient. Building roads and streets and dams, it requires a lot of money. And I get it. Sometimes those stimulus policy is necessary to keep the employment rate up. But the biggest return can come from helping entrepreneurs building innovation. And you don't need billions of dollars to do that. We only need a small fraction of capital, small fractions of GDP to potentially create 10, 20% GDP value 10 years from now. And you should never forget the factfulness of how the power of capital can buy in the venture world instead of pouring money into traditional industries. As you know, every country would try to help traditional industries overcome this crisis. But not to say that forget all the traditional industry, we need to be smart about spending money. We can't just pour everything into traditional industry. If we can provide a fraction of that capital into venture and supporting innovation, your society could look very different 10 years from now. So those two are things that been excellent.

So again, highly appreciated your insight.

Thank you.

And I think congratulations again for the model and the oldest success. I think we're looking forward really to see Will also in the next few years. So thanks again everybody and have a good rest of your day.

Thank you. Bye. Thank you.

All right, I hope you appreciated the conversations today. We looking forward to receiving your comments, your thoughts, your ideas for more interviews on our LinkedIn profile so go to LinkedIn mind the bridge profile and add your comments there. Next episode I'll be sitting with Brian Schetler, a partner and the head of AEI HorizonX will be talking about a hot conversation of the future of cvc, the corporate venture capital. In particular, we'll be talking on the topics of whether or not it makes sense for CVCs to distance themselves from their own corporate roots and the pros and cons of rebranding versus a CVC as a service. So follow us. We'll be online again.

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