Japanese corporates and open innovation

In the popular imagination, Japan is almost synonymous with robots. While Japan once dominated cutting-edge robotics, over the past decade she has fallen further and further behind the US and China. Today we sit down with Chiamin Lai of Firstlight Capital, who believes that Japan might just regain that leadership. We talk about the unique opportunity and advantage Japan has in the deployment of practical physical AI, the enterprise culture that is holding it back, and what a handful of innovators are doing about it today. It's a great conversation, and I think you'll enjoy it. Show Notes How starting startups in Japan has changed over the past 20 years -- especially for foreigners How Japan's labor shortage is driving the adoption of physical AI The biggest problem in integrating GenAI and robotics The best use cases for physical AI today and why healthcare is not one of them How secrecy is holding back AI innovation What keeps Japanese enterprise from embracing open innovation Can Japan's VC ecosystem afford to fund AI in the era of massive funding rounds Why physical AI companies should not create their own hardware Why Japanese startups should not look to hardware for competitive advantage The importance of industry cooperation and why it's critical for Japan's AI success What physical AI will look like in Japan in five years Links from the Founder Everything you ever wanted to know about Firstlight Capital Firstlight's thesis on Physical AI Connect with Chiamin on LinkedIn Follow her on Twitter @chiamin_lai Chiamin's excellent series on Physical AI in Japan Leave a comment Transcript Welcome to Disrupting Japan, Straight Talk from Japan's most innovative founders and VCs. I'm Tim Romero and thanks for joining me. Japan has always had a special and very positive relationship with robots from Astro Boy and Doraemon in the fifties and sixties, to Sony's Asimo in the 2000s to SoftBanks Pepper in the 2010s. It has always felt like Japan was set to create and then to lead a humanoid robot revolution. But that didn't happen. In fact, today, Japan seems to be far behind both China and the US in the development of not just humanoid robots, but intelligent robots in general. Well, today we sit down with Chiamin Lai partner at Firstlight Capital, to discuss how that came to be and what we can do about it. Now, Chiamin's investment interests are deeply focused on physical AI and specifically physical AI startups in Japan. And she remains optimistic about the future of AI and robotics in Japan. We talk about the market and the financial structures pushing Japan to adopt meaningful physical AI before the rest of the world. The technology and social challenges of trying to use AI and robotics and healthcare, and some really great advice for physical AI startups that are planning to raise money. But, you know, Chiamin tells that story much better than I can. So, let's get right to the interview. Interview Tim: So, we're sitting here with Chiamin Lai, the general partner at Firstlight Capital, and a director at Japan Venture Capital Association. So, thanks for sitting down with me. Chiamin: Thank you, Tim. Tim: Before joining Firstlight, you worked in startups and investing in Japan and in China and in the US but you've had ties to Japan for quite a while, haven't you? Chiamin: Yeah, I was born Taiwan, but then I came here when I was teenager, and after that I received education here. I also work in Japan, but then later to Europe and then came back. So I can say this is like my hometown in the way. I have more friends, more connection, and my family here. So yeah, some of my friends said, you are more Japanese than we are. Sometimes I agree. Tim: Yeah, I know the feeling. I've been here over 30 years myself. Yeah, it kind of sneaks up on you. And Japan is a very comfortable place to live once you kind of get used to it all. Chiamin: Yeah. But I would say it actually changed a lot for the past 20 years or 30 years. When I came, Japan is not that open up. Like people sometimes complain about they have a hard time finding apartment and so on. I'm like, okay when I came it was worse. Tim: Yeah, that's for sure. Chiamin: Yeah. Finding a part-time job, finding a job was not that easy at that time because we still have a lot of population. They don't really need a foreigner to work for their company. Tim: Well, I think that's one of the biggest changes is so when I started my first startups back in the dotcom era, a big part of it was that there weren't a lot of options open to foreigners in Japan. Having a regular career track job was exceptionally rare, and now it's almost kind of flipped. Chiamin: Yeah. Yeah. I agree. I think it's good for the country. I think both you and I, we stay here for a long time, so we have a deep understanding about this country and a lot of foreigner like us I think we all wish that we can contribute somehow to this society because it's a good country to live. That's also one of the reason why, even though I left for few years and I decided to come back to Japan and to do some contribution, and that's one of the reason I'm here. Tim: Well, let's talk about that because first slide invests fairly broadly in pre-seed, up to seed, but your own focus and your own passion seems to be in physical AI. So what is physical AI and why is it important now? Chiamin: So as a fund, our investment thesis is how can we actually solve the demographic challenge here in Japan. And if you want to solve that problem, of course you can use AI, we can use software, we can use automation. A lot of solution out there. So for my investment, I also of course invest in AI company, SaaS company. But one of the reason why I have heavily looking into physical AI is because of my background. Before I came back after COVID, I work in China for seven years. So I actually witnessed the heavy growth in China for entrepreneurship from 2011 to 2019. And then I also was working for a DCM, which is a Silicon Valley venture capital. I also was seeing how the Silicon Valley startup was doing. When I came back to this industry, I look in Japan, I think one thing that a lot of entrepreneurs forgot is what is the strength about this society and what is the heavily problem that you solve. For the past five years, SaaS has become a very common platform or common tool for a lot of office worker. But what we’re looking into this social problem right now, we need to urgently solve the problem on the ground, which means that essential worker. If you look at the restaurant, if you look at the construction, we are heavily lacking people, but we don't really have a solution to solve. So, let me come back to your question of physical AI. My definition of physical AI is how can we embed artificial intelligence on the actual physical operation? Tim: I mean, there's a lot in there. So let me try to peel that back a bit. So, could physical AI just be IoT rebranded with some AI, or is it something fundamentally different? Chiamin: I think right now, if you look at the VC, a lot of investment tied to humanoid robotics. If you look at recent fundraise with figure AI, with all those very interesting robotics company, humanoid company, right now, I think US, they are aiming for that. For me, I think it could be robotics, it could be using hardware to embed artificial intelligence. And to go back to you saying, is that a rebounding of IoT? I disagree. Because what we are talking about is how do you distinguish gen AI and AI, that's the discussion we normally have. Tim: Well, I mean, I want to get into that just nailing down what physical AI is before we get into gen AI. So there's AI can be applied to industrial processes, to robotics control, to like I mentioned IoT with a bit of AI shoved in there. But physical AI, does it require robotics? Does it require AI actually controlling something in the environment? Chiamin: I would say physical AI would be the enabler for automation in terms of action. Tim: So, does smart sensors count as physical AI? Chiamin: No. No, I don't count smart sensors as physical AI, it's automation of the procedure or process on the ground. So, let me give you a very easy imagination for physical AI on the construction side. So, if you are building the house here in Japan today, you need to have director checking the progress. So, making sure your house can be built and also making sure it's on time and on quality. Today, how do they do that? Is they will need to visit the site. They will need to use the measure to really measure exactly the length and so on. But Japan, today, we are lacking a lot of experience monitor person because they are retiring. So, what's happening today is the undergrads come to onsite, he's going to check in your house. Are you going to be comfortable for not really experienced person to making sure all the construction is correct. That's going to happen in 10 years, or even in five years. Now, when we say physical AI is if you have a tool there that has intelligence that can actually check what is going on the ground, using the AI to understand your status as well as the lengths because you need to measure what is going on, if that can be automated. And then you can have an agent to tell you, okay, in this case, this is what you need to do. Tim: So, the physical AI is AI that is interacting with the physical world in some… Chiamin: Yeah. And then it can generate action. And that's why I think why people say robotics right now, because you need somebody to do the actual physical world. Tim: Well, yeah. In most cases there would be some sort of an interaction component. Chiamin: Right, exactly. Is that there needs to be action there. Tim: So talking about AGI,