DFJ Moving on Japan

Draper Fisher Jurvetson is in “very advanced discussions” to launch an affiliate fund in Japan, according to managing director Don Wood. The firm was poised to consummate and announce a relationship with a Japanese firm last year, but the deal was put on hold when the U.S. financial crisis occurred.

Wood declined to name the firm it is working with until an official partnership agreement is in place.

Venture capitalists have traditionally had a difficult time penetrating the Japanese market. “It’s historically been quite closed to outside investors,” says Wood. “There’s a tradition there where the smartest university graduates are tempted to join larger, stable companies. It’s harder to attract talent to smaller companies there.”

Still, Japan is the world’s second largest economy and entrepreneurship is starting to take root there, says Wood. He attributes the change to a critical mass of successful startups new founders can emulate and a greater understanding of how startups work in other countries gleaned from the Internet.

“People are no longer just looking in their own backyard,” Wood says of Japanese entrepreneurs. “They have proof that you can raise venture capital, take your company public, make yourself a lot of money and create a lot of jobs. That’s really just occurred in the last three to four years.”

Venture capitalists invested $44 million into 43 Japanese companies last year, according to data from Thomson Reuters (publisher of PE Week). The actual amount invested may be significantly higher than indicated by the data, as many of the deal values were undisclosed.

Mothers Milk

One of the most attractive aspects of Japan is its Mothers market, a subset of the Tokyo Stock Exchange that promotes high-growth, small companies, says Wood. “It’s a training-wheels public market,” says Wood. “You could be public there with a $25 million market capitalization.”

In fact, the average trading value on the Mothers market at the end of 2008 was just less than $14 million, according the exchange. Mothers hosted 12 IPOs last year and 23 during 2007.

One of the biggest recent new issues on the exchange was Internet Services company Gree, which listed last year in a $143 million IPO. The company was founded by a 26-year-old, according to reports, and is one of the companies Wood believes will act as an example for other entrepreneurs.

DFJ already has affiliates in South Korea, China, Europe, Brazil, Israel, Vietnam and Russia.

During the downturn, DFJ is working to make its existing affiliates as successful as possible, says Wood. “We don’t have a big push to be planting flags in other markets,” he says.

Other markets of interest for DFJ include Southeast Asia, Malaysia and Australia. The firm had once worked on an Australia affiliate called DFJ Southern Cross, but never fully consummated that partnership, says Wood.

An earlier version of this story appeared in PE Week, a sister publication to peHUB.