Disrupting Japan

Some industries need to be dragged kicking and screaming to innovation. When margins are tight and profits are small, CEOs often don't want to spend a dime on the promise of increased efficiencies or long-term savings, and so external leverage is needed. Today we talk with Shinya Shimizu, founder and CEO of Elephantech, who explains how he found that leverage in his mission to make the global technology supply chain more environmentally friendly. We explore how Elephantech and other startups are helping the world meet net-zero targets, strategies for scaling  manufacturing startups, and how you can make money while doing good in the world. It's a great conversation, and I think you'll enjoy it. Show Notes The surprising impact of circuit boards on global CO2 emissions Growing from a kickstarter camping into a multi-million dollar startup How to raise debt financing rather than equity financing How Elephantech is selling eco-friendly solutions in a low-margin commodity industry How they built their first factory, and Shinya never wants to build another one How to scale a manufacturing startup Advice on successfully selling to and collaborating with Japanese enterprise How to take a deep tech startup global without massive amounts of capital Advice for sustainability startups on how to survive and thrive in cost-conscious industries When government regulation is good for startups and when it's damaging The danger of the wrong kinds of founder role models in Japan. Links from the Founder Everything you ever wanted to know about Elephantech Follow Shinya on Twitter @shinyashimizu_e Connect with Shinya on LinkedIn Transcript Welcome to Disrupting Japan. Straight Talk from Japan's most successful entrepreneurs. I'm Tim Romero and thanks for joining me. Circuit boards are one of those things that are everywhere, but that we really don't think about very much. Personally my only direct experience with circuit boards was years ago and involved a fair amount of cursing and a lot of solder burns. But printed circuit boards or PCBs, or a $90 billion global industry that is highly standardized, tightly controlled, and surprisingly damaging to the environment. Well, Shinya Shimizu and the team at Elephantech are changing that, they've not only developed the technology to re-engineer PCB manufacturer to be more environmentally friendly and less expensive, but they've also built their first factory and are now selling to some of the world's largest manufacturers. Elephantech is a great example of how startups can succeed while making a positive contribution in this world. And Shinya also gives some great practical advice about how to sell to large enterprises as a new startup. How to raise money for capital intensive growth, and how to introduce new innovation into a low margin cutthroat industry. It's really quite an amazing story of their journey from a small Kickstarter project 10 years ago to make a pen that lets you draw working electrical circuits to selling PCB technology to some of the world's largest manufacturers today, to just maybe fundamentally changing the way circuit boards get made tomorrow. But, you know, Shinya tells that story much better than I can. So, let's get right to the interview. Interview Tim: So, we're sitting here with Shinya Shimizu, the CEO and founder of Elephantech. The first company in the world to mass produce printed circuit boards using an inkjet printing, echo friendly, sustainable manufacturing process. Shinya: Yeah. Sure. Tim: That's longer to say than I thought. But thanks for sitting down with us. Shinya: You're welcome. So, I'm really happy to be here. Tim: Well, I try to explain what you do in that big mouthful of an introduction, but I think you can probably explain it better than me. So, what does Elephantech do? Shinya: So, Elephantech is going to completely change the way of manufacturing electronic circuits, completely changed with drastically, environmentally better, of course, and cost effective way. And our goal here is like probably in 10 years, or at least 15 years from now, the most of the circuit boards in the world, I mean, including iPhone and laptop, any kind of electronic circuits are made by our technology. Tim: Well, and I think kind of the core of your innovation is most circuit boards today are produced using a subtractive process… Shinya: Yeah. Subtractive method. Tim: And you use an additive method. Shinya: Right. I said completely different way of manufacturing. Electronic circuit means existing way uses subtractive method and ours additive, purely additive manufacturing. That's the biggest difference. So, the conventional way is subtractive, which means, so, circuit boards are copper wires are placed on plastic boards, that circuit boards. And to make the circuit boards existing way, like laminate the copper foil to the plastic board and then remove unnecessary part from the copper file so that you use the remaining part as wires. But during the process, 80 or 70% of copper is dispersed and not used. So, which is material efficiency is very bad, and cost-wise, it's bad. So, that's the existing way. Our way is completely different. So, we first print the copper with inked printing technology and then increase the thickness of copper by plating technology. Plating makes the copper crystal grow. So, it's purely additive. So with that technology, it's inherently good. Tim: Right, right. Well, less waste all around. So, like you're claiming a 70% reduction of copper use and 95% reduction of water use. And 75% reduction in CO2 emissions. And I was amazed at how much circuit board production contributes to CO2 emissions. Shinya: Absolutely. Yeah. That's probably bigger than anyone think. Apple, I would say, for example, Apple is one of the biggest carbon producer in the world because they are making a lot of things. But 10% of their total carbon footprint, including their travel, including manufacturing and any kind of carbon footprint, 10% of them are from circuit board manufacturing. Tim: So, that's not just their supply chain, that's their total carbon footprint. Shinya: Total Carbon footprint. Tim: Holy Cow. That is really a big contribution. That's big. Shinya: That is big. And Apple is, of course aiming at net zero by 2030. So, that 10% is significant. Tim: Yeah. Well, tell me about your customers. So, who's using Elephantech technology and what's their motivation for doing it? Shinya: Yeah, the motivation is mainly decarbonization. Exactly, decarbonization. So, last year -- I cannot really talk about a lot about like undisclosed client of course, but in an already disclosed clients like Litton for example. Litton is not the most famous company in the world, but it's a big company. So, one fourth of global laptop keyboards are manufactured by Litton. So, last year we had a joint press release of MOU sign kind of ceremony with Litton and Litton motivation to use our board exactly decarbonization. The point is like Litton customers are normally Western countries. I would say it's not their customer. It's not normally Taiwanese companies. So, they're European companies or North American companies. And they really choose supplier by environmental aspect. Tim: I really want to dig in on how those consumer pressures are changing supply chain in general. But before we do that, I want to talk a little about you. So, I mean, you founded Elephantech back in 2014. Shinya: Yeah, it's long ago. Tim: But it was AgIC, right? As a Kickstarter campaign. Shinya: Sure. Oh, you know that. Tim: Oh, I've been fans of you guys for a long time. Shinya: Thank you. Yeah, thank you. Tim: Yeah. You had that cool little marker where you could… Shinya: Yep, yep. Yeah, it's cool. Little marker. Tim: Tell us about that. Shinya: Yeah. Before starting that company. So, I was working for McKinsey as a management consultant. And while working for McKinsey, I was looking for interesting scientific things especially from the universities. And because I believed, and I now still believe that university technologies are normally underused. So, there are a lot of technology that can potentially change the world, especially in Japanese universities, I would say. So, I was looking for innovations and I found this technology that is invented by a professor Kawahara, who is now the professor at the University of Tokyo. But the circuit markers, I'd say it is definitely not directly connected to our final goal. Tim: Yeah. Why the kickstart? So, I mean, when I first thought saw that, I was like, oh, well that's kind of cool. But what are these guys going to do with it? So, did you know your direction from the beginning? Shinya: No. So, this is my first company and when I founded this company I was 25 years old. And honestly, so I got lost, I would say. So, I mean, the technology itself was really, I would say immature. It's not as sophisticated as what it is right now. So, that professor's technology cannot directly print metal on plastic substrate. And all of the circuit boards are basically plastic substrate. And they started from printing copper on paper. It's interesting and it's can be a good seed, but copper printed paper cannot be used for industrial use. Tim: Okay. So, just from the outside, I was watching you guys go from like the handheld markers for drawing circuits to a kind of an inkjet on printer and now on the circuit board. But these were different technologies. Shinya: Honestly. Yes. Honestly, yeah. I mean, so we say like to investors normally, so it's all connected, but scientifically, so these technologies are not directly connected, I would say. Tim: Well, I guess there's a lot of kind of know-how and experimentation that connect them. Shinya: Sure. So, the first period is like not directly connected to what we are doing currently, but during the process,

Takako Ogawa, CEO of Panalyt, discusses career paths in Japan, dangers of going global, importance of people analytics, challenges in startup CEO changes, and the right way for startups to expand globally. Insights on HR struggles, transparency in startups, and Japan's stance on failure. A must-listen for startup enthusiasts.

Fusion energy promises almost unlimited, inexpensive, clean energy. That's a pretty big promise. Today we sit down with Satoshi Konishi, co-founder and CEO of Kyoto Fusioneering, and we talk about what it is really going to take to develop commercially viable fusion power and the role that startups have to play in that process. We talk about the emerging public-private research partnerships, who is pulling ahead in the fusion race, and  we dig into the long history and near future of fusion energy It's a great conversation, and I think you'll enjoy it. Show Notes Why fusion energy is much older than you think Why fusion energy dropped out of the news and why it’s back How to raise venture capital for moonshot startups The three core components to a fusion power that form Kyoto Fusioneering's business model A strategy for standardizing when technology moves quickly How recent fusion energy headlines have been misleading Why we have a fusion energy startup cluster in Japan The Japanese public attitude towards fusion How the fusion industry will develop over the next five to ten years The biggest misconception about fusion in Japan One way to solve Japan’s deep tech scaling problem Links from the Founder Everything you ever wanted to know Kyoto Fusioneering Connect with them on LinkedIn Check out some videos of the experimental fusion equipment Satoshi's ResearchGate page 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 talk about fusion energy. Now, for the past several decades, fusion has been touted as the best possible solution to the world's energy needs. It's a promise of clean, safe, inexpensive, and virtually limitless energy. So, what's not to love? Of course, making that dream a reality is not exactly a simple matter. Today, we sit down with Satoshi Konishi, founder and CEO of Kyoto Fusioneering, and we talk about the state of fusion energy today, the problems that still need to be solved and the role that startups have to play in making fusion energy a commercial reality. And if during our interview, it sounds like I'm sometimes kind of bubbling over in geeky excitement, well, it's because I am. Fusion energy is something that's fascinated me since I was in high school. It's just such an interesting and important set of technologies, and it's some genuinely cool physics as well. Anyway, Satoshi and I dig into both the history of fusion power and the current challenges being faced by both universities and startups alike in bringing it to commercialization. Why the most viral headlines about fusion energy tend to be really misleading, what’s needed for more effective public private partnerships and fusion, and of course, we also dive into how Satoshi sees fusion energy developing over the next 10 years and the real trigger that will determine when and if we will see a world powered by fusion. But, you know, Satoshi tells that story much better than I can. So, let's get right to the interview. Interview Tim: So, I am sitting here with Satoshi Konishi of Kyoto Fusioneering, who's working with researchers and startups around the world to make fusion energy a reality. So, thanks so much for sitting down with us. Satoshi: I'm very happy to just talk with you. Thank you very much. Tim: Well, it's my pleasure. And before we get deep into the fusion technology, my understanding is that Kyoto Fusion hearing's focus is on the materials and the precision engineering that are needed for fusion research. Satoshi: Yeah, that is partially true, but what we intend to do ultimately is that to make the anti-fusion plant to make fusion energy. But what makes fusion energy well is not resource, but small amount hydrogen, but big machines very precisely made. So, when need special materials, we a special fabrication technology. We have a very precise assembling, and we also have to be very careful to make the plan to be safe. So, everything just needs very careful, very dedicated, sometimes exotic technologies that everything needed for fusion energy is our business. Tim: Well, that's what I find so fascinating. So, much of fusion research is really, everyone is building their own components. Everyone is on the cutting edge of research. But Kyoto Fusioneering is not only doing the research and developing this, but you're actually selling these components to other researchers, right? Satoshi: Yes, because our company is still small, we still have about a little over a hundred people that is not a huge, huge company. So, that we can start with the sales of the, say, a small piece of the material small device to facilitate the fusion experiment. And at the other end of our business, we provide a consultation, how we can make a fusion plant to be safe, how we can evaluate the value of the fusion energy economically. So, the kind of the consultation, again, does not need a fortune to spend. Tim: So, tell me about your customers. Are they research labs or the universities? Are they other fusion startups? Satoshi: Yes. So, we do have business with all of the customers, as you have suggest. We just work with the universities, the researchers, small business mid-size, big companies. And even for the national project, everywhere that they are pursuing a fusion, we can provide the materials, component design, and the consultations. Tim: And before we dive into the energy, I want to talk a little bit about you. Satoshi: Myself. Tim: Yes. You've been involved with fusion research for a long time now, right? Satoshi: Yes. Yes. I'm sorry to say that I have spent it four decades, 45 years almost on fusion. Tim: Well, actually, and let's clear that up for our listeners. That fusion being used to produce energy is not new. The first reactors were in the 1950s, I think. Satoshi: Ah, yes. And believe it or not, fusion was found earlier than the fission. Tim: Really? Satoshi: Yes. Some smart guy had found that that sun is broadening by the fusion energy and also fusion reaction to make the hydrogen atoms get together makes the energy that was also found in 1930s. So, very many people has known it for a long time. Tim: But like the first fusion reactors, the first Tokamak reactors were in the fifties, right? Or was it before that? Satoshi: Yes. Even before that, people started to try the fusion by making some kinds of plasma discharge back in the late forties, early fifties. And Tokamak was one of the early invention. But before Tokamak came, Americans had started to study the discharge machine that was called pinch was still a letter, and develop very many different types of plasma devices that intended to make a fusion energy to be real. Tim: So, why was there relatively little progress, or at least the public is not aware of much progress well over the last 60 years? Satoshi: That it's partially our fault, but not our fault. We made a progress, but that just target for a little too far. Then we have expected a little more difficult. It was a little too distant, but now we are approaching the real top now. Yes. Tim: So, yes. What's led to this sudden, seemingly sudden, what's led to this recent interest and excitement about fusion then? Satoshi: That does not come from the technical scientific reason that we believe that the technical scientific progress has been a kind of a study. Yes, as you say, sometimes it stopped, sometimes that was fast, sometimes slow. But one of the big step that we are experiencing now comes from the business world, not the science. So, businessmen are aware that now that we can no longer burn oil and coals and other fossil fields in the recent, say 10 years or so, that we are aware now that we will not run out of fossil surface, but run out of the room for the carbon dioxide emission. Tim: I see. Actually, getting back to your own experience, so you're a professor at Kyoto University and Kyoto Fusioneering was spun out of Kyoto University about five years ago. Satoshi: Four and a half, yes. October, 2019. Tim: And the startup and the university, are they still doing joint research? Are there research agreements or IP sharing agreements in place between them? Satoshi: It is collaborating with the universities and other top level researchers in the world is one of our major missions still. Tim: Is there ever any conflict between the pure research and the startup side? And what I mean by that is the pure research is all about sharing and being open and publishing results. And on the startup side it's a lot about engineering and intellectual property and trade secrets. Do you ever find those in conflict? Satoshi: I do not really believe so. There are certainly some kinds of difference of the view on discoveries, the scientific achievement, but we are very keen to publish our findings to the public in academic conferences and journals. And there was something that we have to just keep as intellectual property for share because we are spending our money for that. But the discovery to make our finding to be available for other researchers who to make a much faster progress. So, we're not hiding much, only just a small part of the key of the technology that is intellectual property to be protected. Tim: How do you focus on what's going to be protected and what's going to be shared? How do you make that determination? Satoshi: For instance, if we have invented our new material that would survive in a very harsh environment in the fusion device. The material itself, it's content even is not a secret. We report it in the academic meetings, but how to make it that's risky is a kind of a secret. And also the supply chain, we can prepare the high purity of the material, how we can control the quality and how we can fabricate that kind of supply chain organization is our property.

Discover how Towing, a sustainability startup, achieved significant crop yield increases. They discuss their innovative production and distribution model, collaboration with research teams, and joint project with JAXA on farming in space. The podcast also explores revitalizing agricultural soil, scaling up a soil startup, economic growth's impact on startups, and challenges faced by ag tech startups.

Everyone agrees that the Japanese education system needs to be modernized, but EdTech startups still face an uphill battle in Japan. Of course, academia and governments are not known for being particularly innovative or forward-thinking, and that's why Kohei Kuboyama left a fast-track career at Japan's Ministry of Finance to launch an EdTech startup. Kohei lays out his blueprint for getting new technology and new products adopted in Japan's schools, explains the challenges of leaving government service to start a startup, and talks about a few optimistic long-term trends he sees in Japan's eduction system. It's a great conversation, and I think you'll enjoy it. Show Notes Why it’s so hard to leave the government to start a startup The three waves of "founder acceptance" in Japan Why EdTech startups sell to cram schools instead of regular schools The key to turning teachers into product advocates The biggest challenge in selling to high-schools in Japan. How to create life-long learners in Japan The appropriate role of the Japanese government in supporting startups The biggest risk with government funded startups Getting over the fear of failure in Japan Links from the Founder Everything you wanted to know about okke Friend Kohei on Facebook Connect with him on LinkedIn Transcript Welcome to Disrupting Japan. Straight Talk from Japan's most successful entrepreneurs. I'm Tim Romero and thanks for joining me. Edtech Startups in Japan need to overcome some significant barriers in order to succeed. Oh, it's not that people really want those barriers there. There's a huge desire for change in innovation. In fact, there is an almost universal agreement that the way Japanese children are taught needs to be modernized and reformed. The hard part, however, is getting people to actually agree on what concrete changes need to be made. Well, today we sit down with Kohei Kuboyama, the founder of okke. And Kohei lays out his strategy for getting EdTech startup products approved by and used in Japanese schools. He also tells the story of how okke evolved from a simple YouTube curation site into an integrated testing and tutoring platform. We also talk about Kohei’s surprising decision to leave his fast track career at the Ministry of Finance to start a startup, the key steps to selling to Japanese high schools and cram schools. And we dive deep into the Japanese philosophy of education and instruction, how it differs from that in the West, and exactly how Japanese high schools and even cram schools are starting to change. But, you know, Kohei tells that story much better than I can. So, let's get right to the interview.   Interview Tim: We're sitting here with Kohei Kuboyama, the founder of okke and maker of Dr. okke. Who's helping high school students learn. So, thanks for sitting down with us. Kohei: Thanks for having me. Tim: I talked really briefly about what okke does but I'm sure you can explain it much better than I can. Kohei: Yeah. So, our mission is to make a world where every person learns actively and every person can make their lives fulfilled. We are providing two products. One is for high school students and one is for schools. One product is called okke, this is actually an app for high school students and they can use our app for free. So, the basic concept of okke, is to let high school students learn wherever they want to, whenever they want to, and wherever they live. The basic concept is the search engine. So, there are a lot of useful and helpful learning information and contents on Google and YouTube, for example. But there are many kinds of information there. Game and contents of music and so on. We are making the search engine under the platform focusing on learning. Tim: So, how does it work? So, I think like at first you originally started just curating videos. And recommending educational videos, but okke’s developed into a much deeper platform than that. Kohei: As you mentioned, the main contents are the videos, especially on YouTube. So, we are curating many lecture videos on YouTube, and every high school student can search, for example, like if they cannot understand the concept of some fields of math, they can search that field’s name. So, they can search by levels and the fields and the units they want to learn. Tim: And you also have like quizzes and tests built into the app as well, right? Kohei: We are providing quizzes for schools, but maybe in future, we are incorporating that in the app. Tim: So, who are your customers really? Are they cram schools? Are they public schools? Are they parents? Who pays for okke? Kohei: Yeah, actually okke is free for high school students, and we are not monetizing that. But second product we are providing is called Dr. okke. This is to be service and for cram schools and schools. So, the basic concept of Dr. okke is to let teachers provide tests with their students. Tim: So, the cram school product is not something the students use, it's something only the teachers use. Kohei: Yes. Tim: So, how do the two products work together? Kohei: Yeah, we are combining the products. We are incorporating the Augustus contents into the Dr. okke which means students answer the questions on Dr. okke. And after that, there are many like, details, answers, and below that we are incorporating videos and the articles which is explaining the question. Tim: So, a student can take a test and then based on the results of the test, okke would recommend you should watch these videos to better understand the points you missed, that kind of a thing. Kohei: Yeah, yeah, exactly. Tim: Okay, that makes a lot of sense. Before we get into the marketing and the go-to market. I want to talk a little bit about you and your background. Kohei: My background. Tim: So, you graduated from the University of Tokyo. You went into the Ministry of Finance which is just a very typical successful path, right? I mean, it's… Kohei: I know what you mean. Tim: I mean, I'm sure your parents are very happy with that. But after about three and a half years, you decided to leave the ministry. So, why? What made you decide to move out of that really great career path? Kohei: Yeah, so I graduated from the University of Tokyo and I went to the Ministry of Finance because I wanted to make a direct impact on our society. When I was 22, I was thinking of how I can make an impact and yes, I have to become a bureaucrat in Japan. And I went into that. But after three and a half years, the Ministry of Finance provided me the chance to study abroad. And I went to the University of California Los Angeles, UCLA, to get the MBA and during the MBA years -- so I had to do an intern, but I was sponsored by the government, so I couldn't get income in the US. So, I applied for many major companies in the US but I was rejected because I couldn't take the money from the companies. Tim: They didn't want you to work for free. It wasn't part of the program. Kohei: Yeah. It's illegal. So, I had to do the intern in the startup. And then I jumped into the startup world and I was excited. This is very fun and maybe I can make a direct impact on the society from startups. Tim: What kind of startup were you interning with? From UCLA? Was it an EdTech startup? Kohei: No, it's actually AI startup, so it's like emotional analytics. But when I was working in that startup, I wanted to do myself. And also I was born and grew up in rural area in Japan, and I went to Tokyo in university. So, I felt like educational regional differences in Japan. So, that's the deep program. I felt. So, when I was thinking of making my own startup, I felt very deep program in education in Japan. So, okay, I will do that. And I make my own setup. Tim: So, after you got your MBA, you came back to Japan and started a startup? Kohei: Yes. Tim: And was the Ministry of Finances said about that? Kohei: Yeah. So, I had to go back to the Ministry of Finance, of course, because the ministry paid my tuition of the MBA, so I had to pay back all the tuition to the government. So, that's very tough. But yes, so I paid back all the fee to the government and also like my boss, like scolded me, of course. Actually it was just start of the coronavirus, the spring of 2020. Actually the day when we launched the website, the Prime Minister of Japan decided to close all the schools in Japan. So, we are introduced by many articles and media. So, it was a good timing and I was able to decide to leave the ministry. Tim: I mean, that's really exciting. But it's very unusual in Japan for someone to leave. Well, no, I find it fascinating because it comes in wave. The first wave was kind of like, so when I started my first startup in the nineties here, only people who had to start startups started startups. If you know what I mean. But then it was students from like, really good universities from Todai and Waseda started starting startups and then more people from like mid-career at really good companies started starting startups. But it's still very unusual to see someone from one of the large ministries starting a company. So, what was the reaction from like your colleagues? Kohei: So, I didn't know the person who left the Ministry of Finance to start their own startup directly. So, there are many people, for example, go to the consulting companies and then do their own startups. But this is like an irregular case, to like start my own startup directory after leaving the ministry. So, the working in consulting companies, it's kind of similar to working on the Ministry of Finance. So, it's like a negotiating and the managing many counterparts. But this is like, I don't know how I can say that, but the startups and the ministry is kind of like opposites. So, it was interesting, but many colleagues cheered me. So,

Yuichi Tamura, founder of Cardio Intelligence, discusses the challenges of bringing medical AI to market, the importance of understanding doctor's needs, and the role of venture capital in medTech startups. They also highlight the significance of explainable AI in the medical field and the challenges of commercializing startups in Japan.

Yan Fan, Founder of Code Chrysalis, discusses the need for coding bootcamps in Japan and their impact on software development. She shares her experiences as a foreign founder in Japan, raising funding, attracting customers, and the importance of building a community of learners. The podcast also explores career switching, Japan's employment mentality, and the opportunities for startups in the country.

The innovative age of Shadow IT is coming to an end. Yasu Matsumoto, former CEO of Raksul and founder of Josys, discusses why the end of shadow IT is a good thing for everyone. He shares his experience leading Raksul from startup to post-IPO success and his new startup, Josys, which aims to end shadow IT. They talk about the challenges of enterprise SaaS, global expansion plans, and the impact of COVID-19 on remote work and cloud services. They also highlight the importance of continuous play and the scarcity of serial founders in Japan.

Sei Uchiyama, founder of an online lending startup, discusses the future of finance in Japan, including automated loan approvals, real-time credit scoring, and the impact of competition between FinTech startups and banks. They also explore the unique nature of lending in Japan, the challenges faced by lending fintech startups, and the success of automated debt collection. Finally, they discuss Credit Engine's expansion into Southeast Asia and the potential opportunities in different markets.

The legal system is complex, hard to understand, expensive to navigate, and ripe for disruption. In the future, we will still need lawyers to help us understand the law, but it look like we are going to need far fewer of them than we have today. Nozo Tsunoda is an attorney who walked away from a promising legal career to start LegalOn, an AI startup focused on making the practice of law more efficient, transparent, and easy to navigate. We talk about why corporate legal departments are the early adopters, but why AI technology is forcing its way even into the most traditional law firms, and how it might someday be used by consumers as well. It's a great conversation, and I think you'll enjoy it. Show Notes Why it's hard to sell AI technology to law firms How AI is starting to change the way law firms compete Why Nozo left the law to start a legal startup The contract review workflow and why it's perfect for AI disruption How many lawyers will AI replace in the next five years? Differences in how US and Japanese staff view working from home A $100M investment in US market entry Differences between Japanese and American legal systems Can today's AI understand contracts better than a junior associate? The big changes AI will force on the legal industry The need for more immigration in Japan Links from the Founders Everything you wanted to know LegalOn Their US website Learn about LegalOn's Products Japan Products LegalForce LegalForce Cabinet US Products Read about LegalOn's US market expansion Transcript Welcome to Disrupting Japan. Straight Talk from Japan's most successful entrepreneurs. I'm Tim Romero and thanks for joining me. Of all the industries that are going to be impacted by artificial intelligence, the legal profession is going to be one of the most profoundly transformed. And today we sit down and talk with Nozo Tsunoda, a licensed attorney and the founder of LegalOn a rapidly growing startup using AI to review and manage contracts. And while their initial clients have been mostly corporate legal departments, Nozo explains how AI is beginning to force changes to the behavior of even traditional legal firms. Now if you're in the US you might not have heard of LegalOn yet, but you'll be hearing a lot about them soon. Nozo and the team recently raised over a hundred million in large part to fuel their recent US market entry. Nozo and I talk about the challenges of selling increased efficiency to lawyers who bill by the hour LegalOn’s US expansion plans, and how AI is going to change the entire legal industry. But, you know, Nozo tells that story much better than I can. So, let's get right to the interview.   Interview Tim: So, I'm sitting here with Nozo Tsunoda of LegalOn, who's using artificial intelligence to simplify and improve contract review and management. So, thanks for sitting down with us. Nozo: Thank you. Tim: Well, listen, I gave a really brief description of what LegalOn does, but I'm sure you can explain it much better than I did. So, what does LegalOn do? Nozo: LegalOn technology is legal tech companies. I found it seven years ago, and now we have three solutions. And globally we have four solutions and globally we have 3,700 customers. Tim: Well, but to get to the basics for some listeners who might not understand anything about the legal process, so what is the service that LegalOn provides? Nozo: For contract area we have three product for pre-ex execution process of contract drafting or review. And second product is for contract management. Tim: So, contracts is a very, very broad subject. So, LegalOn focus is mostly on things like NDAs and purchase agreements and things like that. Nozo: Yes, of course we can support NDA, purchase agreement or service agreement, but we can review 50 types of contracts for the market. Tim: Tell me a bit about your customers. So, you said 3,700 customers, which is fantastic. Who are they? What kind of customers are they? Who are you selling to? Nozo: Enterprise corporations or midsize corporations. Tim: Okay. But it's mostly selling to corporations, not to law firms. Nozo: Both. So, we have 500 law firm customers. Tim: Now that is interesting because in one of the many startup projects I've started over the years, one of them was actually a contract lifecycle management company. And what we found was that it was incredibly hard to sell to law firms because they bill by the hour. They don't want to improve efficiency, they don't want to do things any faster. So, how are you selling to law firms? Nozo: So, law firm can use our product as their tools or their weapon. They can improve their productivity or quality of their product… Tim: So, most of your customers are enterprise or corporate customers. And there it makes sense because in-house lawyers, they want them to be as productive as possible. If you can get the work done with three in-house attorneys, that's much, much better than 10 in-house attorneys. But if you're a law firm, you want to have 10 attorneys billing the project. Nozo: So, I think they're competition, law firm need to win new clients by their service levels or service qualities. If they use our product, they can support more customers. Tim: That's interesting. Actually later on I really want to talk about how the legal industry is changing, but from your perspective, the law firms are responding to this kind of pressure and competition. Nozo: Yeah. In Japan or maybe globally law firm tried to get new customers. Because then they compete by their services. So 10 years ago or 20 years ago, lawyers didn't have such kinds of ideas, but now law firm need to think about their service. Tim: That's a really positive development. That's good for everybody. Well, actually, before we talk about the product, let's talk a bit about you. So, you're actually a licensed attorney in Japan, right? Nozo: Yes. Tim: Now I cannot imagine two career paths more different than being an attorney and being a startup founder. So, what made you want to make that change? Nozo: So, then I became attorney I didn't think I will be product founder. But 10 years ago people think about deep running or math running and I found it legal with co-founders and we discuss about if we can leverage machine learning or deep planning to legal areas, we can change legal practice or improve. Tim: So, he was your colleague at Mori, Hamada and Matsumoto law firm. Talk to me a little about that decision. Because it just seems like such a big -- so I talk to a lot of university students who become startup founders, but going from an attorney to a founder just seems like such a big jump. So, what made the two of you decide to do this? Nozo: We thought this change of technology is a kind of must, must come in the future. So, if we didn't try legal practice, we be changed by another person. Tim: Yeah. Someone else is going to do it. Nozo: If so let's try. It'll be exciting. Tim: No, that makes perfect sense. But at the same time, or close to the same time, you also founded the ZeLo Law firm. What was the connection? Nozo: So, now I focus on management of LegalOn and co-founder, Ogasawara, we founded both LegalOn and law firm ZeLo. And at first phase I worked for ZeLo as an attorney to earn money. Tim: So, was this your backup plan? Nozo: At first phase we had a plan. So, legal developed technologies, then ZeLo leverage technology to legal services. So, we tried to create kinds of new legal services with technologies. Tim: So, ZeLo still exists. What's relationship today? So, I mean, clearly your LegalOn is more than a full-time job. Nozo: So, Masa manage ZeLo and ZeLo is expanding too. Now it has 100 people. Tim: Do the companies just share a history or is there a closer relationship? So for example, a lot of your advantage is that the suggested language is reviewed by attorneys. So, is that done by LegalOn attorneys or is that done by ZeLo attorneys or? Nozo: Both. Legal attorneys make directions about contents, but we order ZeLo attorney to create new content source and they'll use our product. This kind of collaboration is now… Tim: That's interesting. So, it's still very close relationship. Let's talk a bit more about the product. So, what happens during contract review, walk me through the workflow of how an attorney using LegalOn will review a contract and why it's better that way. Nozo: To review contract attorney need to find this point but it's really difficult to realize if there are nothing. So, if there are some this point it's written, we can find it. But if there are no clause, we should add some clauses. Tim: So, the AI will go through and highlight the risk points, whether it's wording that might not be quite correct, or clauses that might be missing and should be added. What does it show the attorney who's using it? Does it say you should consider putting in this text or this word is dangerous or what kind of suggestions does it make? Nozo: So, our product can show missing clauses or less clauses in few seconds, 10 or 20 points. Then attorneys they consider about that point and then change document. Tim: So, when an attorney has to review a 40 page contract, LegalOn will highlight, these are the 10 points you should double check and the rest is okay. Nozo: Yeah. It's difficult to say rest is okay but our product can find 10 point… Tim: For special attention. Nozo: Yes. The attorney need to check, then the attorney can reduce time. Tim: So, it's more of almost like best practices type of advice. These are the kinds of clauses and kinds of wording you should think about using in this case. Nozo: Yeah. Tim: So, the reference text that it displays, the reference text is not generated by AI, it's generated by real attorneys. So, within LegalOn what's the breakdown between what percent of the company is legal,