Disrupting Japan

Those of us who spend our lives working with startups live in a bubble. Whether you spend your days programming at a startup or investing in new ventures, you and I see things differently than “normal” people. It happens to everyone to some extent. We all tend to interact with people who are like us, who care about similar things and who work in similar industries, so of course, we frequently hear the same ideas and opinions.  The startup bubble, however, is particularly strong and particularly opaque. We founders have a bad habit of believing our own bullshit. Well today, we step outside our bubble and sit down with Mone Kamishiraishi, the star of the new film Startup Girls. We talk about what she learned as an outsider interviewing startup founders to get ready for her role, what most Japanese find surprising about founders and startup culture, and what Japan can do to to make starting a company more mainstream and accepted. It's a great conversation, and I think you will really enjoy it. Show Notes What most Japanese people think about startup founders The similarities between startups and acting Why family support and role models are so important in Japan right now What’s holding entrepreneurship back in Japan What we need to do to create a broader acceptance of startups in Japan Links from the Founder Check out Mone's official homepage Follow her on Instagram The Startup Girls official site See the trailer Pre-order tickets Follow Startup Girls @startupgirlsmov Startup Girls on Instagram  Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for joining me. Today, I’ve got a very different kind of interview for you. It’s shorter than most but it’s going to be an interesting one. You and I talk a lot about innovation in Japan and how things are changing for the better here. But as many of my friends point out, I live in kind of a bubble. Not in an economic bubble but with all the startup unicorns we see prancing around these days, we’re probably living in an economic bubble too. But no, no, I mean more of a filter bubble. Disrupting Japan is a podcast about innovation in Japan so naturally, we talk a lot of Japanese innovators. Most of my friends are startup founders and venture capitalists. So, while we are seeing all kinds of innovation and increased risk-taking in this group, maybe that’s not really reflective of Japanese society as a whole. Well, today, we’re going to step outside our bubble and see what’s there. We’ll still be talking about startups, of course, and we’ll be doing it with Mone Kamishiraishi. Now, Mone was the star of the megahit anime, Your Name, and she is co-starring in the new film Startup Girls which focuses on startups in Japan. So, when Mone accepted the role of playing a startup founder, she had to figure out exactly what they were and how they were different from, well, let’s just say how they were different from normal people. It’s a great discussion about how people outside of our bubble see us and Mone and I also talk about the similarities between startups and acting, the general attitude towards creativity in Japan and how to foster a greater acceptance of startups and innovation in Japan. But you know, Mone tells that story much better than I can, so let’s get right to the interview. [pro_ad_display_adzone id="1411"  info_text="Sponsored by"  font_color="grey"  ] Interview Tim: You know, the idea of startups is kind of new in Japan, right? Mone: Yeah. Tim: So, before you started this project, before you started working on Startup Girls, what was your image of startup founders? Mone: To be honest, I didn’t even know what the word “startup” stands for. Tim: Really? Mone: Yes, I could imagine very, very vaguely but, yeah, start something, I thought. But yeah, I didn’t know and also, my image for the founding businesses are quite far from me and only genius can do that. Tim: You know, I think a lot of Japanese think the same way about starting companies. Mone: I think so too. Tim: So, you thought it was kind of like only a special kind of person in a startup company? Mone: Yes, and I will never do that in my future. Yeah, I thought it before I started shooting this film. Tim: Okay. And so when the role was proposed to you, how did you get ready for it if you’ve never heard about startup founders before? Mone: Yeah, first I Googled the meaning of startup. That was the beginning. Tim: Really? What’s a startup? Mone: Yeah, yeah, yeah, startup. Search. That was the beginning, very low level. But after that, I began to interview to the real founders of businesses, especially the people who founded their business when they are young like university students. I could find the similarity between us and that was they had to manage both study and business at the same time, right? And actually, I go to university at the same time I work as an actress, so I understood how hard it is to cope with both things at the same time. We don’t have to do reports. We cannot go to school enough and there are many difficulties, so I could feel sympathy. Tim: You know, I guess when you think about it, this startup life, the life of a startup founder and the experience of being an actor or a singer is actually kind of similar in a lot of ways. Mone: Yeah, we have to create new things always. Yeah, I thought it is the same too. But yes, the thing is that we need to change our minds right away. For example, if director said no, we have to change our plans for the acting no matter how hard I prepared for that. Tim: Okay, in the same way like in the marketplace if the customers don’t react the way you think they’re going to, even if you think you’ve got the right idea. Mone: Yeah, you need to change it immediately, right? Tim: Right. Mone: Yeah, it can be said for any other jobs in the world but I found it too. Tim: So, when you were interviewing these startup founders, particularly founders around your own age, did you end up making friends with them and are you still in touch? Mone: Yes, one of them, Miku Hirono. She is actually a model of Hikari, the role I played in the movie. Tim: Oh okay, Miku has been on the show. Mone: Yes, yes, yes. I hope she were here. But yeah, after finished shooting the film, I went to her home and played with their children. Yeah, that was a very happy time for me. She was pregnant before we started shooting and after that, the baby was born so I felt, “Oh, the life, amazing.” Tim: And so many responsibilities. Mone: Yes. Tim: Getting back to the similarities between acting and startups, one of the most common things that startup founders who come on the show mention, one of the hardest things about starting a company is often what your family thinks. Mone: Yeah, I think it’s hard for them. Tim: Japanese families are so conservative. Did you have a similar experience? Did your family want you to do more traditional things or were they very supportive when you decided to become an actor? Mone: Yeah, they really support me. I really appreciate them. They say yes for everything I do and they watch everything, my movie or a TV drama or my musicals or so on. Tim: That’s fantastic. I think that’s so important and I think with startup founders as well, most of the successful ones have at least one parent or one family member who was a role model or who is really supportive and helped them. [pro_ad_display_adzone id="1652"  info_text="Sponsored by"  font_color="grey”  ] Mone: Yeah, yeah, I think so too. And I really respect my mother. Tim: Was she also kind of creative? Mone: She was a teacher of music in junior high school and so I began to sing when I was 2 years old. Tim: Oh wow. Mone: I was taught by my mother. Tim: You were singing basically at the same time you were talking. Mone: Yes, right like ABBA song. Do you know? Tim: Of course. Mone: Yeah, and even now, I ask my mum to give me advice and she really supports me for everything. Tim: That’s fantastic. I mean, I think that’s so important for longterm success, at least in the startup world but probably in entertainment too. Mone: Yeah, yes, yes. I think so too. Tim: Well, you mentioned that Miku is one of your inspirations for Hikari. So, do you think Hikari is kind of a typical startup founder or did you want to focus on one particular aspect of startup founders personalities? Mone: She is likely to be seen as a unique girl because of her characteristic but basically, I think she is very typical. She has what she wants to do and she does what she thinks right, and she has a difficulty in communicating with others, so maybe she’s likely to be misunderstood. But basically, she’s a very pure girl and she really wants to help others by founding businesses. So, I think she is very nice girl and working so purely. Tim: Just really focused on a girl with a vision and a dream. Mone: Yes, yes, yes, that’s right. Tim: In your research in getting ready and talking to startup founders and comparing them to the rest of the people you know, what did you notice that was really different, both good and bad, but different about startup founders that you had to model? Mone: I thought their vitality and energy is so big, maybe bigger than us. If they find anything they can do, then immediately, they move and do what they want to do. It’s a very difficult thing, isn’t it? Tim: Yeah, well I think that is difficult to do anywhere. Mone: Yeah. Tim: But I think it’s especially difficult in Japan. Mone: Yeah, do you think so? Tim: Yeah. Mone: In your country? Tim: Well, I think anywhere. I mean, it’s start difficult to be the one person who steps forward and says,

I’ve got a special bonus episode for you this week. Last month I was part of a panel discussion hosted by Stanford University and the Japan Society of Northern California. It was part of this year’s Japan-US Innovation Awards, and it was a great conversation, so I thought I would share it with you. The panel was moderated by Dr. Richard Dasher and was a discussion between me and Allison Baum who is an investor and a prolific writer about startups and innovation. We talk about a surprising source of innovation in Japan, discuss why there are not more Japanese unicorns, and peer into our crystal balls to predict what Japan’s startup ecosystem will look like in three to five years. It’s was a great discussion, so I packaged it up for you as is, with no editing or commentary. I think you’ll really enjoy it. Leave a comment

Startup founders claiming their company is going to “change the world” has become a cliche. But rarely do we see a product that could clearly and significantly make someone’s life better. D-Free is one of those products. However...

Japanese university and government venture funds play a much larger role in Japan than in the West. I've always considered this difference to be, on balance, neutral, today's guest makes a convincing case that these funds are actually hurting the startup ecosystem here. Today we sit down and talk with Hiroaki Suga, co-founder of PeptiDream.  PeptiDream is now a $7 billion biotech company, but it started out as a couple of university faculty members funding operations out of their own pockets. PeptiDream succeeded by using a very different model than that used by either the current generation of university spin-outs or biotech startups in the West. It's an interesting blueprint that other biotech firms might want to copy, but only if they are really sure that their technology will actually work. It's a great conversation, and I think you will really enjoy it. Show Notes Japanese Univstities' problems with applied research The challenge in moving from academia to startup operations How to hire a CEO What most professors don't know they don't know about business How to land large sales contracts as a small startup How to sell new technology to Japanese pharmaceutical companies Why biotech investment is so hard in Japan Why you want to step away while you are on top Japan's next biotech unicorn Why most Japanese government startup money is misused Links from the Founder Dr. Suga's Lab Everything you ever wanted to know about PeptiDream Hiroaki's new project MiraBiologics  Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for joining me. We’ve talked a lot before about how there are not many life sciences startups in Japan and what can be done to change that. But there are, of course, some and some incredibly successful ones. PeptiDream is one of those startups. Founded by a small team at a university lab, PeptiDream has grown from nothing to a $6 billion company. Today, we sit down with the founder of PeptiDream and fellow guitarist, Hiroaki Suga, and he’ll explain how they’re working with pharmaceutical companies all over the world to discover new drugs and new treatments. We also talk about the rather unusual business strategy that allow them to scale up with relatively little financing and to land deals with global drug companies a lot sooner than most biotech startups can. And I’ve got to say, my conversation with Dr. Suga really changed my mind about the role the Japanese universities and the government should play in fostering startups and innovation here. It’s a fascinating and unique perspective from inside the system, and I guarantee you, it’s not what you think it is. But you know, Hiroaki tells that story much better than I can, so let’s get right to the interview. [pro_ad_display_adzone id="1411"  info_text="Sponsored by"  font_color="grey"  ] Interview Tim: I’m sitting here with Hiroaki Suga, the cofounder of PeptiDream. So, thanks for sitting down with me today. Hiroaki Suga: Sure. Very welcome. Tim: PeptiDream is a peptide discovery platform but what is that exactly? Hiroaki: So, the technology started from over 25 years ago. I had idea. Is that okay? I want to develop RNA catalyst. The so-called ribozymes. I did a post doc with Professor Jack Szostak in Harvard Medical School. I run the techniques for the in vitro selections but I didn’t really get major success, but I was fortunate enough that I get an academic position in State University in New York Buffalo. So, I succeeded in developing we call “flexizimes” so that the first two patents are owned by SUNY Buffalo, but it wasn’t really quite useful yet. Tim: So, you were working on this for 20 years plus? Hiroaki: Pretty much, yeah. Tim: Did you have an end target in mind saying, “This is how I’m going to commercialize it, this is why it’s useful”? Hiroaki: Right, right. I already envisioned that we can apply this to the in vitro transition system. Once we have this in hand, we can do a lot of things, a lot of interesting things, right. So, I developed this flexizime prototype in the US. I came back to Japan by the invitation of the University of Tokyo. I got back to Japan and immediately we succeeded in real practical version of the flexizime. Tim: That’s interesting because Japanese universities have a reputation of really prioritizing pure research over applications. Hiroaki: Right. But this is actually pure research stage. Tim: Okay. Hiroaki: It’s really pure research but I was reminded to make it very practical. So, having this flexizime allows us to rewrite the genetic code. We call it “genetic code reprogramming.” Tim: It sounds like from pretty early on, you were thinking about how to commercialize this at some point in the future. Hiroaki: Yeah, at some point but not – I don’t know when. I didn’t know when. Tim: So, was the drug discovery an early and obvious target or was that something that — Hiroaki: No, no. I was not interested in an obvious target or anything. This is just platform technology. So, idea is I want to rewrite the genetic code but at the time peptide is containing the amino acids which you don’t see in a protein, then I can mimic the secondary, metabolize the various organisms like bacterias and fungus and yeast and whatever they make. And it is very often used for antibiotics or something, other things. But natural products are very important drug source for a long, long time. So, if you can mimic the natural product, then you can synthesize artificially natural product like molecule will be useful for drug discovery. Tim: So, the PeptiDream platform and this technology, in general, allows the synthesis and analysis of a huge variety — Hiroaki: Of natural product-like molecules. Tim: Right, and it can do it very quickly and very cheaply? Hiroaki: Right. Tim: Let’s talk about that. Hiroaki: Yeah. Tim: Because, I mean, now PeptiDream is a $6 or 7 billion company but you found it very recently. It was 2006, right? Hiroaki: Yes. Tim: So, back in 2006, you had a long successful academic career, you had academic accomplishments and the proof of the value of the technology. Hiroaki: Yeah. Tim: But how did the company come together? Hiroaki: So, I envisioned that okay, if I further develop, I try to prove this system works for the drug targets. If I succeeded it, I’m pretty sure pharmaceutical companies will come to me to develop the drugs together. I really want to because I know if I do with them, if I get something very nice product, and then I cannot publish. My mission in academic, we need to publish. If it’s bad ones, maybe we can publish it. But if it’s good ones, we cannot publish it. And I was really confident that we can get something really good ones. Tim: So, how did you get that initial founding team together? Hiroaki: I wasn’t really intending to make a company but I was disclosing the patent through the – it’s called Todai TRO which is Technology Transfer Office in the University of Tokyo. They said, “You know, this sounds like really good technology. Are you interested in forming a company?” I said, “I may if I can find a good CEO. I don’t want to be CEO. I don’t think I can do CEO. Business is not easy.” And so they started screening the people I interviewed, maybe four or five people, then I found one, Kiichi Kubota. So, before forming a company meeting with him many times, mostly drinking together, to know him very well, otherwise, I cannot trust. I developed a good friendship. I can see his vision. It wasn’t easy that he said yes but eventually, he said yes, we do. Tim: I mean, that’s a technology transfer office working exactly the way they’re supposed to. Hiroaki: Yeah, exactly. Tim: But rarely the way they do. So, were you worried that you would have to give up a lot of the academic research or that the time demands would — Hiroaki: No. That’s why I need the CEO, right? If I start a company and by myself, it’s going to take up a huge amount of time. At the time, I was still a researching professor, so less duty from the Institute or University duty, so it was much more time. And I was not quite famous at the time yet. Tim: So you were really trusting the entire business side of the company to him? Hiroaki: Yes. Tim: And you were just focusing on the technology. Hiroaki: Uh-huh. 100%. Tim: That takes a lot of trust. Hiroaki: Yeah, yeah, yeah. That’s why I did. I need to know him. Then also, it’s one other important person which is Patrick Reid, who is also CEO of the company now. He used to be a Science Director. He was also Associate Professor in a different lab. He’s staying one floor down of my floor but we met each other in faculty meetings. So, we started talking and then I found he is interested in starting company. I didn’t know about the time, first time. Before I decided to start a company, I said, “Ah, it’s going to be very tough in Japan. Japan is not a very good place to start a company.” Tim: So, is Patrick an American? Hiroaki: He’s American. Tim: I think that’s got to be one of the biggest difference between American university professors and Japanese university professors. Hiroaki: Yes. Tim: So many American science professors are dreaming about wanting to start a company and so few Japanese do. Hiroaki: I think all Japanese professors also somewhat thinking about or hoping to do it but they don’t know how and they don’t understand how the business is and they think they can do the business. That’s a big – I know I grew up in the family having a business, own business. I know how hard it is. Tim: So you’ve got this really good team together that trust each other and you got a foundation but selling this technology,

Startups and venture capital work differently in Japan. The rounds are smaller, the priorities distinct, and while the same terms are used, people quickly discover that the definitions are often subtly different. The game is played differently in Japan. Today we get a chance to clear up a lot of the confusion as we sit down with James Riney, founder of Coral Capital and head of 500 startups Japan. We talk about some of the most significant changes that Japanese venture capital has seen over the past five years, and we look at how things are going to develop going forward. James and I also break down the business model behind venture capital funds themselves. It's something that all serious startup founders should understand, but few do. It's a great conversation, and I think you'll enjoy it. Show Notes How venture funds raise funds Why Japanese banks and corporates are changing their attitudes towards Japanese startups The tradeoff between sector-specific and general VC funds What the hell is a Series-A anyway? How VCs try to appeal to the "right kind" of startups The real problem with IPOs in Japan How Japan's new, bigger funds will change Japanese VC in the long term What you never want to tell a VC when you are raising money What VCs do with their portfolio companies that don't work out How Softbank's Vision Fund is changing the market Advice to foreign founders who want to raise money in Japan Links from the Founder Everything you wanted to know about Coral Capital Check out James' blog Follow him on Twitter @james_riney Friend James on Facebook  Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for joining me. Today, we’re going to do something a little bit different. We are going to talk about the state of venture capital in Japan. If you are raising money in Japan or thinking of investing in Japan, you really want to listen to this. Now, normally don’t interview VCs on Disrupting Japan. It’s not that VCs are not interesting. I’ve got nothing against VCs. I mean, some of my best friends are VCs. No, it’s just that VCs have a tendency to talk in the abstract. They talk about general trends and their portfolio companies, and I have always found that it is far more informative to go straight to the source, to talk to the founders about what they specifically are doing to capitalize or respond to those market trends, to have them tell you about the real challenges that startups are facing right now, and how that fits into the bigger more important society-wide stories. Well, today, we’re going to do both. Today, we sit down and talk with James Riney of Coral Capital, and we examined the business of venture capital, how VCs view advertising and customer acquisition, and what causes some VCs to make money and others to lose money. It is not exactly like it is for startups, but it is surprisingly close. We talk about the most important changes happening in Japan’s startup community, of course, but we also dig into the challenges facing venture capital funds in Japan, and Coral Capital in particular. We talk about what VCs look for when evaluating a pitch, things you should never tell a potential investor, what the next few years of venture funding in Japan will look like, and hopefully, we will clear up some of the confusion about the difference between seed and pre-seed, and pre-series A and series A rounds. But you know, James tells that story much better than I can, so let’s get right to the interview. [pro_ad_display_adzone id="1404"  info_text="Sponsored by"  font_color="grey" ] Interview Tim: So, we’re sitting here with James Riney, the founding partner and CEO of Coral Capital and former head of 500 Startups Japan, and we are going to be talking about venture capital. James Riney: Yes, it’s good to be back, Tim. Tim: It’s great to have you back on. Now, a lot has changed since – when was that, four years ago? James: Yeah, it must have been three, 3 ½ years ago, something like that. 2015, right? Something like that, yeah. Tim: Now, so much has changed about venture capital and startups in Japan. We will get into that, but first, I want to dig into venture capital as a business, what the business model behind venture capital? Because that’s something that many startup founders understand. James: Yeah, I mean, I think especially in Japan, but even broadly as the venture ecosystem, the fundraising side for venture firms is a little bit opaque, and maybe some founders don’t necessarily realize that especially the sort of startup funds like us, we have to go out and raise our own capital. Tim: Yeah, yeah, in much the same way startups do, but actually, even before that, so stepping back before that, when someone decides to start a fund, what do they do? Do they start with investing theses, do they start with a couple of high net worth individuals? James: Yeah, so in a lot of ways, we have to tell a story as to how we are going to win in the market, and in our case, money is our product and money is commoditized. So, what we have to sell to investors is why we have some sort of unique advantage and why entrepreneurs are going to take our money as opposed to the other 10, 20 guys in the market, right? And then also, the founding team, the partners of the fund, they may or may not have history together, so in a lot of ways, it’s similar to a series A startup in the sense that we don’t know the dynamics among the managing team they are going to go and how are they going to market and what kind of investments they are going to make? Tim: So, in the case of like Coral or 500, what is the pitch to the investors? What is that advantage you are selling them? James: So, in our case, we launched our first fund under the 500 Startups brand, for the first story for us was selling the fact that there were not brand name Silicon Valley firms really investing in Japan, and so the selling proposition was PR a Silicon Valley style firm operating in Japan, and because we are bringing that sort of know-how in that brand, entrepreneurs will choose us over others. Tim: Who are the investors? Are they banks? Are they pension funds? Are they other startup funds? James: Yes, so this is a dynamic that is sort of unique to Japan, so in Silicon Valley, one of the firms will raise from institutional investors. In fact, most of the capital is from institutional investors, so that includes pension funds, insurance companies, endowments, etc., whereas in Japan, a lot of the capital for startups come from corporate, and so that is in the form of corporate venture capital or in the form of funds like us that have to raise from corporate. Up until recently, there has not been a lot of institutional capital be invested into the market, but now, some of the funds including us are able to raise from these institutional investors, and so it is starting to move and starting to change. Tim: Why is it changing? Do you think it is just because institutional investors feel that startups are a more safe or valid investment or that the number of startups have grown big enough that it is an investable asset class for them? James: It’s a bit of both, right? So, institutional investors want to – I mean, unlike corporate, they are investing for purely financial return, right? And, for institutional investors, they have seen the likes of Mercari that grew to multibillion-dollar IPO within just five years, and then we have like Rakusul and a few other pretty big exits in the ecosystem, and so institutional investors look at those returns and they feel that there is actually something here domestically. Mind you, a lot of these managers in the institutional firms have invested outside of Japan into the top tier firms in Silicon Valley, so they are familiar with it as an asset class, but they have not really look to Japan as a place to get similar returns. Tim: Okay, and when you are pitching these investors, so obviously, you have to pitch your strategy or the advantage you have. Do you or do most funds pitch a specific target, say we are going to be investing in B2B software or we’re going to be investing in life sciences, we’re going to be investing in anything we think is interesting? James: We are a sector agnostic firm. If you look at all the top tier firms in the world, almost all of them are not sector specific. They don’t focus on a particular area. Now, that said, if from a marketing perspective on both the fundraising side and be investing side focusing on particular area could be important. For example, AI or blocking are like hot topics in Japan right now. Because it is a specific mandate and it checks boxes for a lot of these corporate executives, they feel more comfortable investing in a fund like that, whether or not viable in terms of creating superior returns. Tim: So, are most funds general or are they focused? James: I would say most funds are general, but I think the sort of trade-off you have here if you focus on a particular area is that even though you might see all the AI and blocking companies, you might not see any of the other companies, right? That is sort of the trade-off that you have, and in Japan specifically, I don’t think that the market is big enough to specialize in a particular area. There is only a handful of really big accident and they vary across multiple different areas, and so you don’t really know where the great companies are going to come out of, and if you are pigeonholed into a particular area, you are going to miss out. Tim: There do seem to be a lot of these targeted funds in Japan. That is a drone fund, there is a couple of AI funds. James: Right. It’s probably more feasible to have a broad perspective because if you have an idea of where you want to invest,

Startup culture has crazy and contradictory views about failure. As founders we are told to fail fast, but also to never give up. We are told to follow our vision, but be ready to pivot. Somehow this macho-bullshit culture of “I never really fail and ‘m not afraid of failure.” has become dominant amount founders. But it’s the result of denial. Trivializing failure is a way of not thinking about it’s effects. The truth is that failure sucks. Failure is painful. Failure ...

I’ve got a special bonus episode for you today. Last month, I moderated a panel discussion at Coral Capital’s “Bilingual’s and Gaijin in Startups” event.' Our panel focused on what foreigners should expect when working at Japanese startups and what Japanese startups should start doing to better support their international employees. It was a great conversation with four amazing people from four of Japan’s most interesting startups. Tetsuya Sawanobori of Connected Robotics Jordan Fisher of Zehitomo Takanori Sato of Shippio Tatsuo Kinoshita of Mercari This is a bonus episode, so the recording is straight off the board. There is no editing, no transcription, and no witty summary at the end alluding to the larger significance of the discussion. But a lot of good ideas were shared on stage, so I really wanted to share it with you. If you’ve ever thought about working for a Japanese startup, I think you’ll really enjoy this. Leave a comment

The idea of computers capable of reading our emotions and responding to them is both fascinating and terrifying. Will this technology serve us or manipulate us? Well, the speculation is ending because the technology not only exists, but it is being rolled out commercially. Today I'd like you to meet Hazumu Yamazaki, co-founder of Empath. Empath is a web-based API that detects human emotion from audio data, and its initial use in call-centers has shown a significant increase in sales. But as Hazumu explains, the potential effects are much larger. It's an enlightening conversation, and I think you'll enjoy it. Show Notes How emotion detection is being used in commerce How easy is it to emotionally manipulate us into buying something? The hardest thing to get right about corporate spinouts Why detecting emotions at scale will make money The true killer app for emotional recognition How startups can use pitch competitions & accelerators strategically How Japanese startup founders should act while overseas What Japanese founders can really learn from their overseas counterparts Links from the Founder Everything you wanted to know about Empath Friend Hazumu on Facebook Connect with him on LinkedIn Pitch training at Slush Tokyo Empath on Orange Blog Announcement for ICT 2019 Keynote  Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs. I’m Siri and thanks for joining me. Today, I’d like to talk with you about – Hey, Siri, why are you doing the podcast intro? Hi Tim, I’ve noticed you’ve been very busy and seemed a little stressed, so I thought I would help out with this week’s podcast. I appreciate that, but I enjoy doing the podcasts, so I think I’ve got this. Okay, Tim. You know where to find me if you need me. Thanks, Siri. There is no doubt that computers, that artificial intelligence getting better at understanding our emotions, and when we think about the application for that emotional connection, we usually think of things we interact with directly, like personal assistance, like Siri. But it doesn’t look like that’s going to be its primary use, and it’s certainly not going to be the most profitable use of this technology. Today, I’d like to introduce you to Hazumu Yamazaki, the co-founder of Empath. Now, Empath is an AI system that can determine your emotional state by listening to how you speak, so Empath does not need to understand what you are saying, but by listening to how you speak, it can quite accurately determine whether you are feeling calm, anger, joy, or sorrow. The first commercial use of this technology has been in call centers and customer contact centers where it’s improved sales by as much as 20%, and yeah, this does open up some serious ethical issues over emotional manipulation that we are going to get into a bit during our conversation and get into a lot more in the comments at the end of this episode. But along the way, we will talk about how a modern version of build it and they will come might just be a viable marketing strategies. The key to making corporate spinouts worked in Japan, and a different way for Japanese startups to go global. But you know, Hazumu tells the story much better than I can, so let’s get right to the interview. [pro_ad_display_adzone id="1404"  info_text="Sponsored by"  font_color="grey" ] Interview                                                                                 Tim: So, we are sitting here with Hazumu Yamazaki, the cofounder of Empath, so thanks for sitting down with me. Hazumu: Yeah, thank you for having me today. Tim: Now, Empath is a technology that detects emotion in human voice, but you can probably explain it a lot better than I can. Hazumu: Sure. So, we developed Empath which is an emotion AI that can identify emotion from your voice, and we focus on not what you say but how you say it, like speed, tone, pitch, or the intonation, so if that sense, it works language agnostic. Tim: And so, why is this important? Why is it important that we be able to detect that kind of emotion invoice? Hazumu: For instance, especially in a contextual sense, our emotional analysis has already demonstrated up to 20% increase of the sales conversion rate by analyzing both customer and operator’s emotional state, so we got some correlation between purchase activity and emotional state which finally improves the sales conversion rate in contact center. Tim: Actually, that was something I wanted to dive into later, but let’s talk about that use case right now because that’s really interesting. So, one of your big success stories is you have implemented Empath in a call center and you saw conversion rates go up by 20%. Hazumu: Up to, it’s maximum, yeah. Tim: Okay. So, what kind of a call center was this? Hazumu: We are now working with a remote for telemarketing contact centers. As you mentioned, including some financial sectors, as well as some companies who are selling subscription education materials, as well as some cosmetic companies, so they are some of our use cases. Tim: Okay, and so Empath detects four different emotions, right? So, it is joy… Hazumu: Calm, anger, and sorrow, in addition to energy point which can detect the people’s motivation, for instance, whether it be a negative mood or a positive mood. Psychologically speaking, it’s kind of the balance that detect mood status of the people. Tim: So, in the call center example, what is the mood where the customer is most likely to buy? Hazumu: So, we found that it’s sorrow in some timing. Tim: Sorrow? Hazumu: Because they are really wondering whether they should buy it or not, and it’s that timing, we have always succeeded in detecting the sorrow, not the joy. At first, our hypothesis was they would some symptom of the joy or being happy. Tim: Yeah, that’s what I would have guessed too. Hazumu: But that was not true. A lot of good customers who could decline this kind of marketing offer that shows the symptoms of joy because they really good at communication, but some people are really wondering if they should buy it or not. Tim: okay, so it’s that sorrow that stress point, probably like right before someone decides to buy. Hazumu: Probably, yeah. Tim: That’s interesting, and what about – you mentioned you are also monitoring the emotions of the call center staff. Hazumu: Exactly. Tim: So, what are you looking for on that side? Hazumu: So, we use our emotion analysis for operators as well, and we use it for the education, as well as the evaluation of the performance of the contact center operators. For instance, we found that operators who show calm, demonstrates higher performances compared to low-quality operators who demonstrate more peaky on the emotional states, like joy or anger, or sorrow, or whatever, so we can use the technology for the evaluation of the operators, and based on this evaluation, we could provide some kind of education program for low-quality and our middle performers based on the result of the high performers. Tim: Okay, so you would be using it for feedback saying, “Wait, you’re showing too much emotion, you should be more calm when you are talking.” Hazumu: Exactly, exactly. Tim: And, you show that to them in kind of real-time? Hazumu: Exactly. Tim: Oh, okay, that’s really interesting, and how many different call centers is this being used in now? Hazumu: So far, we are working with about, with contact centers, about – not only contact centers, but also some other business centers, we are providing our solutions, like automotive, check the mental state of the drivers. For instance, when they get irritated, we provide alert to drivers for safety. Also, working with some communication robots company like Fujitsu to make communication robot understand, uses emotion to be more empathetic. Tim: Okay, I want to dive deep, deep into the technology and the business model in a minute, but before that, I want to talk a bit about you. You are one of the cofounders and Empath was founded in 2017, so pretty recently, but the project is much older, right? It was spun out of SmartMedical. So, when did the project itself start? Hazumu: So, Empath project, actually started around 2011, so we spent four or five years R&D period before we launched this software, and our first project was actually with NTT Docomo in Tohoku area to check the mental status of the victims, as well as the care workers after the 3/11 earthquake which happened in 2011. Because SmartMedical was developed for clinic malls, in metropolitan Tokyo area, especially for the primary care, and they also have some kind of their psychiatry sector. So, what we tried to do is to provide some kind of ICT solution for the mental health care. So, we started our R&D around 2011 regarding this voice recognition technology, whether we could check and monitor mental state of the people. Tim: So, why did you decide to spin it out of SmartMedical? Hazumu: First, we studied mental health care startup but we got a lot of other country use cases, as I mentioned, in contact centers or automobiles, or whatever, not only the healthcare sectors, and for funding, it’s quite easier for venture capitalist to focus on just one solution or one technology, so we decided to spin it out. Tim: Yeah, but spin-outs can be really tough. Hazumu: It was tough. Tim: What was the structure? So, after it spun out, the new Empath startup team, how many of them came from SmartMedical and how many were new hires from outside? Hazumu: In SmartMedical, we had a department called the ICT Section. Before coming up, we’re about 5 people, and all these 5 people joined Empath. So, it was kind of the carve-out of our department itself. Tim: Okay, and when you raised funding,

We've been talking about smart homes and smart cities for a long time. However, it turns out that we are not willing to pay very much for simple convenience, so the technology is coming into our homes bundled with different agendas. We've seen this happen with the success of Alexa and Google Home, and we are now seeing it here in Japan with Nature Remo. Today we sit down and talk with Haruumi Shiode, the founder and CEO of Nature, and we discuss not only what the future of home automation will look like, but who will be paying for it. It's an enlightening conversation, and I think you'll enjoy it. Show Notes The real motivation behind smart home purchases How hardware entrepreneurship went mainstream The one way in which crowdfunding is still relevant Why Nature decided to launch English-first How to outsource hardware production without going bankrupt Nature's real business model for the future The importance of demand-response in Japan The growing significance of corporate alumni networks in Japan Why Kyoto might be Japan's next innovation center Links from the Founder Everything you wanted to know about Nature Remo Friend Haruumi on Facebook Follow him on Twitter @haruumi524 Read about Haruumi's transformational sailing journey. It's a pretty cool story. Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero, and thanks for joining me. Smart homes and smart speakers have not really changed our lives in the way that was predicted. I mean, it’s not that they have not sold well. Amazon has sold over 100 million Alexa-enabled devices and the technology is a really amazing, but voice assistance remain a novelty rather than a real step forward, and here in Japan, even with Japanese language support, the adoption rate has been low. I think a big part of that is the lack of conductivity, and by conductivity, I don’t mean the ability to connect to a computer or interact with other programs. I mean, smart speakers don’t connect us to each other in new ways. In the end, they are just an input device. They don’t provide something that we don’t already have in our lives. Well, today, I’d like you to meet Haruumi Shiode, the founder and CEO of Nature’s created a new smartphone device, the Nature Remo. Now, the Nature Remo provides some immediate utility: the ability to control your life and your air conditioner from your smart phones or based on rules that you set up, but the real reason that Nature is so interesting is what comes next. It’s a lot more than just turning your lights on and off; it’s a new way of connecting with each other and a new way for power companies to manage the power grid during times of peak load. But you know, Haruumi tells the story much better than I can, so let’s get right to the interview. [pro_ad_display_adzone id="1411"  info_text="Sponsored by"  font_color="grey"  ] Interview Tim: So, I’m sitting here with Haruumi Shiode of Nature, so thanks for sitting down with me. Haruumi: Thanks for inviting me for this podcast. Tim: No, I’ve been looking forward to it. So, Nature makes the Nature Remo which is a really interesting device that you can probably explain a lot better than I can, so what is the Remo and how does it work? Haruumi: Nature Remo is basically a very small tiny device that can turn your AC or TV, or lighting through smart device. It communicates with those appliances through the infrared and they connect to Wi-Fi, so that you can control from your smart phone or smart speakers. Tim: Okay, so infrared means it’s sort of – it’s emulating the remote control for your TV or your air conditioning? Haruumi: Yes. Tim: Ah, okay, cool. So, if it’s infrared, and so if I wanted to outfit my apartment with these and control or my air-conditioning units and my TV, so would I need one Remo in each room? Haruumi: Yeah, you have to have one device per room. Tim: Okay, and since it’s infrared, it needs to be line of sight, so you mount these on the wall or high up in the rooms? Haruumi: It will do anywhere. Yeah, yeah, it just has to be line of sight to the appliance. Tim: Okay. Haruumi: And, just to give some background to the audience, in Japan, most of the air-conditioners come with infrared control, and obviously, TV comes with infrared remote control, so when the Google Home or Amazon was launched in Japanese market, there was not many smart home devices that can speak with those smart speakers. The people wanted to have kind of a bridging device, so Nature Remo was exactly that one. Tim: Okay. So, actually, anything with a remote control, it could control, right? Haruumi: Yes. Tim: Okay, that makes sense. Haruumi: Infrared remote control, to be precise. Tim: Infrared remote control, right. And, what do these devices, what do they cost? Haruumi: So, right now, we’re giving a little bit of a discount, so it’s selling at around $70. Tim: So, tell me about your customers, so how many users do you have and what kind of people are they? Haruumi: So, our user base is getting close to 100,000. We just recently did the customer survey, and we got a response from more than 2000 customers. Majority of our customers are male and aged between late 20s to 50s, then many of them work or IT or the makers in Japan, so they are kind of tech-savvy. Tim: Definitely the early adopter profile, right? So, is there motivation playing with cool new gadgets or what do you think the main motivation for your current customer base is? Haruumi: Two big reasons why they buy the device: one is they have Google Home, Amazon Echo, they want to control their home appliances through their voice, so they buy our device, and the other reason is, our customers want to control those home appliances from those smart phone, like turning on the AC before they come back. Tim: So, it’s mainly convenience? Haruumi: Yes. Tim: We will dive into the business model in a few minutes, but before that, I want to back up a bit and talk about you. Haruumi: Okay. Tim: Now, you quit Mitsui to go to Harvard Business School, and in another interview you did, I noticed that you said you went to Harvard to start a startup which just struck me as a really weird phrase, you know what I mean? I mean, I hear people who moved to San Francisco to start a startup all the time, but Harvard Yard MBAs tend to go into investment banking or consulting, so what were you thinking? Haruumi: Even if I look at the stats, that is not exactly true because Harvard has been putting a huge effort to promote entrepreneurship and there’s a bunch of entrepreneurs, and if you think about the Japanese market, two big entrepreneurs are Harvard MBA alumni. One is Mikitani­-san from Rakuten, the largest e-commerce company in Japan, and the other one is Namba-san from DeNA. They are both from Harvard Business School. Before, you can’t name a big entrepreneur from Stanford Business School. Tim: From Japan? Haruumi: Yeah. Tim: No, you’re right, I can’t, but I mean, yeah, Namba-san and Mikitani-san, their kind of entrepreneurial journey, it’s almost like the last generation of Japanese entrepreneurs, right? I mean, that was back when starting a company meant you had to have the right connections to the right people, and it’s different now. Haruumi: Yeah, so I knew that I’m going to start my own startup when I was 10. My father was an entrepreneur, so I have been observing him like starting a company and a really exciting moment of launching his own product, so I have been preparing to start my company. The last missing piece for me was a global connection. Tim: Looking at your website, it looks like the Harvard experience really helped you. You participated in a lot of startup programs and one a few competitions that were directly related to that school. Haruumi: I think it helps in many ways, so probably the biggest one is that trust that I can get from typically, B2B partners. In Japan, everybody knows Harvard Business School. If I say – oh, I don’t need to say that, and then they see me on the website, and then they see that I graduated from Harvard Business School. Tim: So, you founded the company while you were at Harvard. Your launch, so you founded in 2014, right? And in 2016, he launched a Kickstarter campaign, an IndieGogo campaign, and a Makuake campaign. All the same time? Haruumi: No, we started from Kickstarter, and then moved to IndieGogo, and then started the Makuake campaign here in Japan. Tim: So, what was the objective of the multiple platforms? Are you fund-raising or was this part of your marketing campaign? Haruumi: Pretty much our marketing campaign, but there was a big trend in the crowdfunding circle starting with Kickstarter, and then shifting to IndieGogo, because Kickstarter is only 30 days, but IndieGogo, you can run as long as you want, so after you finish Kickstarter, people are doing the IndieGogo right after that, and Makuake, the reason why we did Makuake is there’s a bunch of Japanese potential customers who are not really good at English, so we wanted to reach out to those audience as well. Tim: For marketing purposes? Haruumi: Yes. [pro_ad_display_adzone id="1652"  info_text="Sponsored by"  font_color="grey”  ]   Tim: Alright. I mean, obviously, the Makuake backers were all Japanese, but for the Kickstarter and IndieGogo, where most of your backers from the US or from Japan, or from somewhere else? Haruumi: Yeah, that’s another reason why we did Makuake, so after doing Kickstarter, we found a 50% of our backers are from Japan and 30% is from the US, and 20% is the rest of the world, so we saw a big fraction from the Japanese market, yeah. Then, we did Makuake to get customers. Tim: So, you have 50% backing from Japan and your Kickstarter page,

Learn about the importance of relationships and trust in selling services in Japan. Sriram shares his experience growing Infosys Japan from one to over 1,000 employees. Discover insights on building successful startup in Japan and navigating cultural nuances.