Entrepreneur Association of Tokyo
"Takaaki Hata - Globis Capital Partners "
Takaaki Hata, Globis Capital Partners
On May 7 at the Foreign Correspondents’ Club of Japan in Yurakucho, EA-Tokyo members were treated to some valuable insights into venture financing, courtesy of Globis Capital Partners’ (GCP) Retail and Services team leader, Takaaki Hata (Taka).
Taka’s Credentials
Taka has been at GCP since 2004, where he has provided hands-on management support as a board member on investments that have included Money Square Japan (OSE: 8728), Dears Brain, Dream Dining Corporation, and Net Life.
Before joining GCP, Taka worked for General Electric in the UK, where he led various process re-engineering projects and integration efforts related to GE’s then newly-acquired mortgage loan business. He also spent two and a half years at GE Corporate Audit Staff, completing various global projects such as M&A, strategic consulting, and financial & compliance audits in such locations as the US, UK, France, Singapore, China, Australia, Philippines and Japan. Prior to GE, Taka worked for Mitsui & Co. Ltd. where he was in charge of Sales, Marketing, and Managing Joint Ventures.
Japanese, but raised in Houston, Texas and with work experience in numerous countries, Taka is a truly international citizen. Rounding off his impressive credentials are a BA in Law & Politics from Gakushuin University and an MBA from the London Business School.
In Taka’s Words – Seminar Highlights
Typical Business Model
“Take a restaurant chain of one outlet with sales of ichi-oku yen, for instance. We would say ‘OK, your evaluation of the company is ichi-oku yen and we will invest go-sen-man yen and get 50 percent of your equity’. After say five years with the equity and the cash the company received, the company will grow into 10 outlets. And, for instance, sales will have grown to ju-oku yen, 10 times the original, and there is a profit of ni-oku yen. Then the valuation of the company has grown from ichi-oku to ju-oku and we still have 50 percent of the shares, so we will receive a capital gain of 450 million yen. This is a typical capital gain, and this is how we make money. Another part –and this has nothing to do with you entrepreneurs- is that we receive a management fee from our investors, which is typically two to three percent of the amount that we are managing. The carried interest on the capital gain is sort of the carrot; 80 percent goes to the investors and 20 percent the venture capitalist will take.”
Venture Capitalism like Driving a Car
“Basically we support the management team to accomplish the company’s mid- to long-term goals, and I sometimes us an analogy here, saying that it’s like driving a truck or a car. The CEO is driving the car –or maybe the management team is driving the car- and I’ll be sitting next to them and our goal is to climb that big hill. Sometimes I will say ‘let’s hit the breaks now because the economy isn’t so good,’ but the CEO will say ‘although the economy isn’t so good, I want to just whiz through it and get passed the difficult time.’ We discuss what the basic strategy is, agree on it, and the CEO acts on the strategy. Sometimes I might take the driver’s seat when I shouldn’t because the company needs to grow without the venture capital. This is a difficult point because we have lifetime, meaning our fund life is 10 years. After the life of the fund we can no longer be there.”
The VC Environment in Japan
“Statistically, in Japan only three percent of the work force is working in ventures compared to ten percent in the US. On top, there are not many angels. And unfortunately, they are not many VC firms in Japan, most of them are bank arms and the VCs are seconded from the bank – salaryman-style venture capitalists. There are not many professional managers, either. Probably this is a Japanese “familism” or “guild”mindset, but a lot of company-founder CEOs like to stick with their own business…there are some companies like Rakuten or Yahoo! Japan, but there are not many M&A buyers. Fortunately, the IPO market is much easier to go public in compared to the US. This venture environment may sound miserable, however; the reason that I am here is that I think this is all a great opportunity!!”
Q&A
Matthew Murray, Objective Trading: You mentioned briefly the exit process, who are you exiting to and do the founders and CEOs also exit at that time? Who is purchasing this equity?
Taka: If the management team suddenly goes away, then the company won’t be able to survive, so typically there will be a lock-up period for the management of a year or two years potentially. Also, it depends on the buyer as well; if they want to make it a 100-percent subsidiary or a 50-percent subsidiary. This is very much case by case, but usually we discuss with the management team because the company will keep on surviving with the new shareholder or the new parent company. After discussing with the company, we will say ‘are you satisfied with this company?’ and then we can say we are ready to share our shares with you.
Derek Fitzgerald, Geometric: If you take your restaurant scenario, when you make the initial valuation of the company, what are the key factors you consider –obviously sales, profitability, brand image– but I was wondering what are the key elements you look at for valuation?
Taka: In terms of valuation, this really depends on –it’s not so easy, but in general– revenue, revenue growth, profit, profitability, market situation, various technologies or patents that they hold, various assets that they may hold, and we may put some importance on the management team. If it is a very strong management team, we will put a premium on top, possibly.
Andrew Shuttleworth, CVP: You say that the Japanese VC ecosystem is relatively underdeveloped compared to the US and you say that there is an opportunity there. Do you really see things changing, and what are the drivers behind those changes?
Taka: I’ve been in this business for almost five years and the quality of the deals or the CEOs that we are seeing has grown phenomenally only in the past four or five years. Even I feel the change in this short period. With the coming five to 10 years, the quality of these managers will be developing and also the mindset of people is changing…a lot of undergrads are saying they want to challenge themselves in a venture society, so I think we are starting to see change. Also lifetime employment is changing and people are looking for more values, so we are seeing changes.
Dave Mori, EA Tokyo NPO: Over the past five years have you found any common characteristics of the founders or CEOs you have invested in? For example, do they all have MBAs or have the majority of them all worked in consulting? Have you seen anything that results in a higher chance of getting investment from you?
Taka: One important element that we see is the team mindset. One individual can only do limited things, but a CEO with a legal guy, a finance guy, an operations guy etcetera, can enhance the business much, much quicker and bigger.
About GCP
Globis Capital Partners (GCP) is one of Japan's leading venture capital (VC) firms. With a unique combination of local business expertise through the Globis Group and the experience of Western VC experience, GCP has set, and continues to set new VC standards in Japan, with hands-on, in-depth industry expertise and staged investments. GCP currently advises on close to JPY 40 billion.
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