| Published Saturday, March 10, 2001, in the San Jose Mercury News
BY MATT MARSHALL Mercury News The Japanese stock market may have tanked to its lowest level in 15 years, but ask venture capitalist Ta-Lin Hsu about Japan, and he'll answer with a smug smile and a twinkle in the eye. Last month, despite the gloomy conditions in Japan, the 57-year-old American did what no other compatriot has done: cracked the toughest and most closed market in Asia. On Feb. 26, Japanese browser software firm Access went public on the high-tech 'Mothers'' exchange, turning Hsu's $15.1 million seed investment into $140 million -- not bad for four years' work. While many Americans have invested money into Japanese start-ups, Access was the first to go public. The event comes at a time when a slew of U.S. venture capitalists are expanding their presence in Asia, including Japan, and demanding a piece of the continent's expanding pie of IPO riches. It also helps solidify Hsu's position as a leading doyen of U.S. venture capitalists in Asia, with the most experience and wide coverage of the continent. 'Japan is a tough market,'' says Daniel Schwartz, publisher of the Asian Venture Capital Journal. Most Japanese companies prefer to deal with each other in so-called Keiretsus, he notes. 'That Ta-Lin managed to pull it off is really to his credit.'' Access is off to a good start. Even as the Japanese market continued to fall, Access doubled in price on the first day of trading. Though the stock has declined since, it is still 81 percent above its listing price. Korea, Japan were toughest U.S.-based venture capitalists began investing in Taiwan and Hong Kong in the 1980s, and have gradually spread across Asia as markets once governed by tight regulations have opened up to foreign investment. The toughest to crack were Korea and Japan, because of their close-knit business communities. Japan, however, is the second-largest economy in the world, and potentially offers the greatest rewards for foreign VCs. That's why Hsu's deal is such a milestone. Hsu spends much of his time flying on United Airlines, between his bases in Japan, Taiwan and Silicon Valley. In addition, the 90-employee company he heads, H&Q Asia Pacific, has seven other offices in Asia. On a sunny day last week at the Palo Alto office of his firm, Hsu had arrived from an overnight trip from Japan. Still, he hovers around the office with the energy of a man 20 years his junior. He explains how Access' browser technology is at the heart of Japan's Internet revolution. Access is the browser carried by the vast majority of the 19 million subscribers of Japan's NTT DoCoMo's I-mode phones. That means Access has a dominant hold on the preferred way of accessing the Internet in Japan. What's more, Hsu still owns 25 percent of the company -- an unprecedented amount of influence for a U.S. venture capitalist in Japan. 'It's a specialized market,'' Schwartz says. 'Everything's got to be Japanese.'' However, Access is not yet profitable. Hsu has been prodding the company to make money since he first invested in it. And he hasn't been able to do it the way of traditional U.S. venture capitalists: pounding his fists on the table or using control on a company's board to oust executives if they under-perform. 'Oh no,'' says Hsu, shaking his head vigorously. 'They'd kill you in Japan.'' He's had to tread carefully. Hsu, a Taiwanese-American, uses a translator when speaking with Japanese CEOs like Access' Toru Arakawa. Hsu spent two years courting Arakawa, meeting with him 15 times in an effort to convince Arakawa that H&Q Asia Pacific was the best firm to help fund a global expansion. Wining and dining Like most Japanese executives, Arakawa jealously guarded his firm's ownership. Hsu wined and dined Arakawa, filling him up on sushi and sake, gradually winning him over. Arakawa began to realize he needed more connections outside Japan. Hsu had long experience in Asia and a large Silicon Valley Rolodex, not to mention offices in seven Asian countries. Arakawa shied away from doing a publicity tour on the IPO day in the United States, to the chagrin the Hsu's public-relations handlers. But in a press release, Arakawa said Hsu's help was 'invaluable.'' Hsu created alliances, including a key joint venture between Access, Redwood City-based BroadVision and Japanese companies CTC and Itochu that formed the first B-to-B mobile commerce company in Japan. Still, Hsu found he couldn't confront Arakawa directly about certain matters. He learned to approach Arakawa 'the Japanese way,'' through one of Arakawa's senior -- and more importantly -- older advisers. Hsu says he also learned to make all his recommendations as suggestions. Hsu persuaded Access to stop selling its software license to manufacturers of appliances on a one-time basis, and instead charge a larger royalty on each phone that used the software. He also coaxed Access to explore ways of generating advertising. For example, Access is now working with companies on a technology that will allow it to message phone users with an advertisement as the customer walks by a store. That's a controversial strategy, because advertisers would have information about a user's whereabouts. But Japan is on the forefront of such practices, and there's huge potential across Asia if it catches on. 'This technology is way ahead of the U.S.,'' Hsu says. Still, Hsu didn't always get his way. He wanted Access to go public on a U.S. exchange, where there was a broader investor base, more liquidity, and greater potential for global branding. He even brought in a U.S. investment bank, Goldman Sachs, to prepare an offering. Arakawa insisted that Access go public in Japan first. `National treasure' 'He saw Access as a national treasure,'' Hsu says. The move turned out to be right in hindsight, admits Hsu, noting the near-60-percent decline of the Nasdaq composite index since March of last year. Whether Hsu can hold on to his leadership position in Asia is open to question. Just three years ago, there were a handful of American venture capitalists with strong Asian connections, including Lip-bu Tan of the Walden International Group, and representatives from investment houses HSBC and Prudential-affiliated PAMA. Since then, a new breed of younger American venture capitalists has entered Asia. AVCJ's Schwartz says a growing number of U.S. venture capital firms have some sort of connection in Asia. Some have even tried to poach Hsu's team, which has grown to 75 in Asia since Hsu arrived there alone in 1985. Peter Chu, one of the better known leaders of the younger generation of venture capitalists in Asia, has expanded his firm, AsiaTech Ventures, into Hong Kong, China and Singapore. Last April, he took public a Hong Kong company, Asiacontent.com. However, like most other U.S.-backed IPOs in Asia, Asiacontent.com has suffered a big hit in its stock price. 'The environment is hostile,'' he says. Many companies are unwilling to do business with firms in other countries, he notes. 'You have to be much more hands on,'' he says. Despite the challenges, Chu plans to keep ramping up -- especially in China, because he wants to be there when the country is fully opened up. He says he's not in Japan yet, however, because it still lacks some of the ingredients that helped cause the economic boom in Silicon Valley. Japanese companies are less likely to do business with small start-ups, and young Japanese entrepreneurs are still unwilling to take risks, he says. 'They're afraid that if they leave a Keiretsu, they won't make it, and they'll be stuck,'' he says. Still, Japan is changing, and he says he'll jump in when the time is right. 'When there's enough momentum in that direction, we'll get in there,'' he says.
|
Manila