Bit Valley -- Japan's Internet Startups Gather

A new wave of young but savvy netpreneurs are surfing right over the reefs that are ripping the guts out of Japan's traditional businesses. They move fast, they think "Net," and they won't put up with the red tape and ministerial "administrative guidance"-long-term hallmarks of this country's stolid business climate.

They move fast, they think "Net," and they won't put up with the red tape and ministerial "administrative guidance"-long-term hallmarks of this country's stolid business climate. Where to find them? The hottest area for Net ventures in Japan is Tokyo's Bit Valley-a concentration of high-tech, Net-based startups centered around Shibuya station on the city's west side. It may not be Silicon Valley West, but Bit Valley is one technology lighthouse that's helping some Japanese companies avoid the shoals.

Kiyoshi Nishikawa, president of NetAge, a Net consulting venture, is generally credited with coining the name Bit Valley-a play on words in Japanese between shibu (bitter) and ya (valley). The name avoids the coffee dregs connotation of the first noun, and neatly summarizes the digital revolution genesis of many of the area's enterprises. Kiyoshi, however, didn't stop there and has gone on to found the Bit Valley Association, aimed at promoting members' Internet venture interests to politicians and government, facilitate networking between venture companies, attract new enterprises and VC, and enhance relationships with like-minded Net-centric organizations worldwide. Given the fabled Net- blindness of many of Japan's political and bureaucratic elites, the Bit Valley Association has its work cut out.

For the budding entrepreneurs in the Bit Valley Association, one of the more popular events is the association's hosting of periodic "non-virtual" gatherings in the Shibuya area to allow members to swap startup opinions and offer mutual encouragement. Participant numbers at the gathering, called "BitStyle," have been increasing every month, and some 200 regulars now attend, as well as TV crews and journalists. A recent BitStyle evening saw the CEO of a Silicon Valley high-tech firm, a Merrill Lynch Japan VP, and a Softbank Japan media relations type exchanging meishi and packed elbow-to-elbow with some three dozen other attendees.

"I'm glad that Japanese society has finally come to accept the concept of entrepreneurship," said Nishikawa. "In the past, large corporations played a major role in this society, but they don't fit well into the idea of a networked economy, where quick decision-making is crucial. What we need here are flexible entities that can take action quickly, and that are not hampered by traditional Japanese business customs."

Leveraging the Net
The association operates a mailing list to facilitate the exchange of information and opinions between members, and publishes an e-zine to pass on news, comments, and tips. The mailing list receives 50 or more postings each day, and as of September, some 1,500 people were on the list. Online discussion topics have ranged from business and financial issues to Internet-related news and analysis. Although based in Shibuya, the association is open to anyone, anywhere. In fact, Bit Valley members include engineers and Net venture entrepreneurs, and also venture capitalists, researchers, academics, and students. According to the association's mission statement, members believe that "participants and residents of Bit Valley will have a strong leadership position in the future of Japan's society and economy."

The Net samurai do well
Nishikawa, meanwhile, has attained something close to legendary status among local would-be digital tycoons. Building on his experience working on various projects at Japan's KDD telephone company, Arthur D. Little (Japan), and AOL Japan, Nishikawa established his own consulting practice-NetAge-last year. In April this year, he sold NetAge's two-month-old Internet-based car sales site, Net Dealers, to Masayoshi Son's Softbank, gaining the immediate attention of all industry watchers. The deal was a classic case of expand a niche, disintermediate the traditional players, and flip the growing website for a substantial profit. Net Dealers serves as an online link between new car buyers and vendors, quickly providing competitive price quotes from a network of some 60 dealers, and it had become so successful that the big fish could no longer afford to ignore it. Under terms of the sale, Net Dealers will go to Car Point (Japan)-a JV between Softbank, Microsoft, and Yahoo! Japan-and (reportedly) several hundred million yen will go to Nishikawa. For fellow Bit Valley alumni, this is pretty cool stuff.

For now though, most of Japan's Net-related startups are still trying to emulate Nishikawa's success. The problems? Lack of working capital, immature business concepts, and insufficient business know-how. The lack of financial support is the most serious factor. Japanese banks these days won't lend hundred-yen water wings to a Titanic survivor, much less cash to a netpreneur. This is in stark contrast to the U.S. situation, where VC money is available to anyone with a computer and half an idea. Recently, however, the many new Japan Net ventures that have launched appear to be attracting definite VC interest. Nishikawa himself received investment offers from several VC funds, including a foreign one, which-in most cases-offer larger investment sums than domestic players. But in general, Japan's netpreneurs tend to prefer Japanese VCs to foreign ones due to language problems and the foreign VC fund's lack of understanding of Japanese business situations. "Foreign VCs need to find a partner or some kind of a mediator in Japan for successful investment," says Nishikawa. "They need to understand that just bringing the U.S. success model here won't work so well."

In the meantime, organizations like the Bit Valley Association will help motivate Japan's fledgling entrepreneurs to overcome Japan's conservative business ways and lead them to Internet success.

Sampling of Bit Valley Members

Digital Garage Inc.
Kaoru Hayashi-President
Established: 1995, Capital: JPY656.9M
Operates the WebNation entertainment site. Provides Internet-related strategic planning, Web solution tool development, and consulting services.
+813-5465-7747
http://digital.garage.co.jp/

Dennotai Co. Ltd.
Kentaro Kawabe-President
Established: 1996, Capital: JPY3M
Develops and promotes WAP (wireless application protocol)-related applications for Japan's cellular phone market. Developing an Internet survey engine and related database.
+813-5447-7108
http://www.dennotai.co.jp/

Horizon Digital Enterprise, Inc.
Kazuhiro Ogura-President
Established: 1996, Capital: JPY150M
System integration; intranet, database, cybermall construction.
+813-5456-3260
http://www.hde.co.jp/

Indigo Co.
Taizo Son- President
Established: 1996, Capital: JPY100M
Network system integration, communication circuit installation, software & content development. Taizo is the brother of Masayoshi Son, the successful president of Softbank.
+813-5334-7833
http://www.indigo.co.jp

InterQ Inc.
Masatoshi Kumagai-President
Established: 1991, Capital: JPY254.6M
Internet service provider. Developed a system to offer information and e-mail services via Dial Q2 numbers-premium rate telephone numbers where users pay by the minute to receive online data.
+813-5456-2555
http://www.interq.ad.jp

Kinotrope, Inc.
Masahiro Ikuta-President
Established: 1993, Capital: JPY40M
Content & software development.
+813-5478-8440
http://www.kinotrope.co.jp/

NetAge, Inc.
Kiyoshi Nishikawa-President
Established: 1998, Capital: JPY38.45M
Consulting and research for Internet business planning, development, and operation.
+813-5459-2255
http://www.netage.co.jp

Newsbase, Inc.
Motoya Kurihara-President
Established: 1986, Capital: JPY20M
Planning and hosting of seminars and conventions. Creative design and publishing.
+813-3406-1535
http://www.newsbase.co.jp