【Global Leader Interview】Mr. Koichiro Nakamura: Founder and General Partner of Sozo Ventures

Companies that create new systems or infrastructure that are bound to change the world and achieve rapid growth are called ventures or startups. You may associate ventures and startups with young people, but in reality, they are often much larger than you imagine, with many experienced professionals working alongside young engineers.
  The role of venture capitalists primarily is to invest in such companies that have the potential to make a big difference in the future of the world by buying shares. In Japan, venture capitalists tend to have the impression that they are betting on the investment after pitch presentations, but as a matter of fact, it is more like scouting a baseball player. Typically, a variety of field experts would spend time watching games from the players’ Little League days, talking to their family and friends, researching their activities outside of baseball, and studying their physicality, growth, potential, past injuries, detailed athletic and mental abilities, and many other factors in scouting players. The actual scouting is then carried out at the time of draft, usually right after high school graduation. Similarly, in a venture capital, a team of experts evaluate the company background, interpersonal relationships, technical details, business model, financial plan, customer evaluation, competitors, financial needs, etc. for potential investment and explain the benefits of the investment based upon how they can provide support. When the optimum time for investment comes, venture capitalists start reaping returns from the promising companies.

Sozo Ventures is a venture capital firm that I have founded along with Phil Wickham, the former head of the Kauffman Fellows Program, an educational institute which specializes in nurturing the next generation of venture capitalist leaders. Together with top venture capital funds that have achieved overwhelming success in their respective fields, we invest in companies that we see as having potentials for building new infrastructures that will change the world and we then provide support for global expansion. To date, we have invested in companies such as Twitter, Square, Zoom, Coinbase, and Palantir.
  We call Sozo Venture’s business model, the “Cormorant Fishing” Model, where instead of making decisions on our own in the conference room, we select up-and-coming companies based on evaluations of the investors who have supported growing startups in the past, smart user companies who have experiences with such startups as clients, and other data points. We then look into the companies in-depth ourselves. In other words, we work with these counterparties that have gone through the selection of smart investors and clienteles (the prominent cormorants), rather than randomly conduct research on our own.

It is said that half of the world’s startup investment is concentrated in the United States, and half of that is in Silicon Valley. This is because venture capitalists in the U.S. invest in startups from around the world that aim for the largest market in the world. Sozo Ventures is a U.S.-based venture capital firm that invests not only in companies established in the U.S., but also around the world including Canada, European nations, Israel, and Asian regions. Another aspect of U.S. venture capital firms is that they are known to be extremely lucrative with high paying jobs and opportunities to work with entrepreneurs who can change the world, hence, we see graduates from top universities such as Harvard, Stanford, MIT, and the University of Chicago and professionals from Tesla, Apple, Google, etc. applying for these positions. While it may sound like a dream job, it is also recognized as a very specialized profession that requires knowledge and experience in finance and business, namely in investment appraisal.
  On the other hand, in Japan, venture capitalists invest in startups that are essentially established in Japan. There is not much investment from or into foreign markets, and team members almost exclusively from Japan tend to nurture Japanese startups, thus the venture capital industry itself is small-scale compared to that of the United States. Also, the venture capital industry itself is not well known in Japan. This situation was quite similar in Europe, South America, and in some parts of Asia in the past. But since 2000, the internationalization of the U.S. system, which began in Europe, enabled international cooperative investments. I am hopeful to see this trend and expansion in Japan in the near future.
  Nowadays, startups are not limited to IT-related companies, but also include a wide variety of businesses in healthcare, biotechnology, materials, and environmental fields. For Japanese companies to attract global attention and investment, they must first align their company systems, such as their contracts and evaluation methods with global standards, otherwise they will not be trusted or accepted in the global markets. It is essential to build solid friendships with the U.S. business community and academia, as well as collaborate with a diverse, multinational team. Recently, we have seen cases of students from Japan who have studied in the U.S. establishing venture capital firms by leveraging friendships they built in the U.S.
  Another opportunity for Japan to make a leap forward are changes in laws and regulations. For example, after the collapse of Lehman Brothers, strict regulations were imposed in the U.S., whereas in Europe, financial deregulation movement inspired many startups. In Japan we will see many opportunities in the fields of healthcare and welfare for senior citizens, should regulations ease up.

I was born in a small town on the Chita Peninsula, in Aichi Prefecture. I did not exactly receive a high level of English education at school, but I started reading lots of English books on my own in junior high school and in fact, read lots of them. In high school, through a public interest incorporated foundation called AFS Intercultural Programs, Japan, I had the opportunity to study abroad, in California for one year. I also studied abroad for two years in graduate school and earned an MBA.
  When I studied in California in high school as an exchange student, I had the opportunity to commute to a local high school where they offered conventional ESL classes. I learned survival English for foreigners, basically: Communicating efficiently with simple sentences without causing misunderstandings. Unfortunately, even with my subsequent MBA study for two years abroad, I did not feel as though my English improved drastically. I was able to communicate with others, but not on a deeper level and I found myself having difficulties going beyond academic English skills and wanted to achieve a level where I could communicate without others having to break things down for me, due to being a foreign English speaker. Even when looking at my own children who grew up in the U.S., it seems that it would take at least five to six years for them to acquire true English proficiency—they tell me that my English level is around upper elementary school level (sigh).
  When I communicate with my business partner, Phil, and other American team members at work, they understand the viewpoints of our Japanese members, including myself and we all make sure to clarify smallest nuances to ensure that we’re all on the same page as a team. Americans venture capitalists are accustomed to talking with many foreign startups and business partners, so it is relatively smooth sailing when dealing business in this industry. We also see many foreigners who use English as a second language so being unable to speak perfect English is not a barrier but rather they are accepted as professionals. This I think is one of the greatest things about working in the U.S.

My career at Yahoo Japan and Mitsubishi Corporation was in company startups. At the time, I had contact with venture capitalists, but I thought they merely made decisions based on the quality of presentations while not truly understanding the core details of the businesses and companies they potentially wanted to invest in. This all changed when I met Chicago Booth’s Professor Steven Neil Kaplan, one of the most respected leaders in venture capital finance. Through Professor Kaplan, I met many great leaders in the venture capital world and learned that there is a whole world of professionals dedicated to analyzing businesses in-depth. After I graduated from business school, Professor Kaplan recommended I apply to the Kauffman Fellows Program (KFP), a global leadership training program for venture capitalists. It was then that I decided to become a venture capitalist and founded Sozo Ventures with the head of KFP, Phil. It took me four years from the time I decided to become a venture capitalist to the time I founded Sozo and another ten years to expand the company by gathering experienced team members (of what is now around twenty to thirty people) and managing a fund of over 100 billion yen.

After graduating from Waseda University in Japan, I went on to study at the University of Chicago’s Booth School of Business (Chicago Booth). I honestly can’t speak for the difference between the two schools in two countries, or difference between university and graduate school, but please allow me to elaborate on the following premises:
  First, I believe Waseda has wonderful programs with well-organized curricula. I believe it is an ideal environment for students who have clear ideas of what they want to learn or achieve. As a student, I was not so sure of my future path so I honestly did not feel as though I had a place at the university. At Chicago Booth, there are faculty and students who introduced me to people or things in the field of my interest. Whether I decided to pursue something or not, I felt that there was a place for me there. This path enabled me to meet world-renowned professors and continue to maintain relations with them to this day, long after graduation.
  Second, I would like to share my observations about my eldest daughter’s college life; she started college last fall. It seems that many schools in the U.S. offer curricula on the premise that students have not yet decided what they want to do immediately after entering universities. For example, a student majoring in Economics is allowed the flexibility to study psychology and may even combine the two as majors. I also have the impression that education is not fully completed at the undergraduate level, hence many students go on to study at graduate school or come back to school after working for a few years. Rather than completing and culminating studies at the undergraduate level, this level is merely a first step into the world of academia with further studies thereafter.
  And third, secondary education in Japan focuses on coverage of all subjects, whereas in the U.S., the depth of the teaching content varies at the discretion of the teacher. Some teachers may delve into a specific topic without covering other areas. We know that students in the U.S. spend a lot of time reading in high schools, where they read college-level books such as “The History of the Gallic Wars,” “The Theory of Monarchs,” and “The Wealth of Nations.” We may think that U.S. education system focuses on output from the many presentations and discussion-based learning, but in fact, this is possible due to extreme input. In mathematics, we may think that Japan is ahead, as we do a lot of training in solving problems and finding answers, but the U.S. system emphasizes teaching fundamental concepts, which is just as important. In a high school Calculus class for example, few students understand the concepts at first, but they spend a great amount of time understanding the ideas and logic. On average, Japanese students may do better on math tests, but that does not mean that American students are less advanced. In general, my impression is that the Japanese education emphasizes balance among all subjects, while the U.S. allows students to learn to think without being limited by disciplinary boundaries. In other words, students in the U.S. are able to acquire the ability to think deeply, but their growth and the depth of the learning content is largely dependent on individual ability and judgement of the teacher, which can easily create learning disparities.
  Additionally, in the United States, educational backgrounds of teachers even in public high schools seem diverse and it is not uncommon for them to have a Ph.D. or become teachers after transitioning from other professions. Accordingly, we see opportunities for a flexible environment that allows for integration of new contents such as STEM or finance education, something that the Japanese system lacks.

At Sozo Ventures, we have been working with some of Japan’s leading global companies. In the last five years, the ratio of overseas business conducted within Japanese companies has been increasing and we feel that such businesses are rapidly shifting outside Japan. As such, many companies are faced with the globalization of human resources. No matter the circumstances, you will need communication skills to interact with people on a global scale and on an equal footing, and the conventional tactic of understanding among Japanese people will no longer be applicable. Further, it is inevitable that the business environment will continue to change as the winds of business practices continue to blow towards globalization. Subsequently, individuals continuing to study or learn throughout their life, and professionals going to graduate schools to relearn would become the norm. In summary, globalization and higher education will advance simultaneously and knowledge of foreign languages, English in particular, will become indispensable, and the ability for continuous adaptation to change will be imperative.
  Japan has the advantageous factor of a low geopolitical risk. Having economic stability and low risk of political conflicts are auspicious to doing business. Together with the high-quality of human resources in this peaceful nation, I hope we will see more people being able to compete globally going forward.
  For corporate leaders, this means it will become increasingly important to continue coping with globalization and new changes. Unfortunately, the reality in Japan is, despite hiring qualified, highly-educated, and experienced professionals, wages and evaluations are not necessarily reflected in respective terms. Thus, incentives for pursuing further education (whether going to graduate school or studying abroad) are dwindling. Compared to the early 2000s, the number of Japanese students studying at business schools in the U.S. is on a downward trend and, thus, I feel a sense of impending crisis. It is time for Japanese corporations to place emphasis on hiring foreign nationals and people who have studied and/or worked abroad.

Looking at my own children and the new graduates who join Sozo Ventures, I believe that today’s young generation is better off in many ways and more talented compared to my generation. You can feel that the world is evolving because of them: They have a broader perspective and are more capable in many ways. I believe the future created by them will be bright. But they must be aware that the competition in the future is not predetermined and immutable within this world. Change is what creates new values: Respond to new changes and keep learning.
  Correspondingly, your future is not set in stone according to which schools you graduated from or which companies you worked for. Roles can always be reversed. I decided to become a venture capitalist when I was 38, so I believe the younger generation can seize plenty of opportunities at any time. The sad truth is, the salaries of qualified, highly educated graduates in top-caliber jobs in Japan are not that high even by global standards. Why not take the risk and go abroad to push the boundaries?

I am very fortunate to work alongside my business partner Phil, known as Mr. Globalization of the VC industry and startup ecosystem. He is a true global leader who has given opportunities and inspiration to other innovative leaders around the world. I look up to Phil as mentor, a colleague, and a father figure in the U.S. He is a man with a global perspective, always “betting on the next generation.” Just as Phil taught me so many things and bet on my potential, I too would like to entrust hope in the next generation.

Establishing a startup essentially means creating a new era, which I think is a wonderful profession. But not all startups become successful and building an organization with continuous growth to become a top player in a field requires a lot of hard work. To become a leader of such an organization requires a variety of knowledge and skills, experience, and charisma. It is thus important to acquire such attributes strategically and grab opportunities to work with extraordinary people. If you are currently a high school student, now is a good time to start thinking about what you want to study in college and what career you want to pursue from a long-term perspective. To achieve this, first decide what tools you will need and what kind of yardstick you will use to look at the world. This will also tie to your college major.
  Again, language skills are more important than you might imagine. Being able to communicate in English greatly broadens your options when you enter college and beyond. In addition to test preparation, be sure to increase your vocabulary skills and general knowledge base.
  We do not live in an era when learning ends at the time of college graduation. We all know that we can’t use old information forever. I believe that high school students in Japan are well-educated from a knowledge perspective, but must keep updating that knowledge, and continue thinking about how to make full use of that knowledge.