This guest post is authored by Mark Bivens. Mark is a Silicon Valley native and former entrepreneur, having started three companies before “turning to the dark side of VC.”

He is a venture capitalist that travels between Paris and Tokyo (aka the RudeVC). He is the Managing Partner of Shizen Capital (formerly known as Tachi.ai Ventures) in Japan. You can read more on his blog at http://rude.vc or follow him @markbivens. The Japanese translation of this article is available here.

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For startup founders raising venture funding, securing a commitment from a Lead VC is a critical milestone, arguably the most important, in the fundraising process itself. The Lead VC makes a commitment, they go out on a limb. This reassures other investors to co-invest and thus enables a timely closing. This proves particularly necessary at the earliest stages of a startup, when uncertainty is highest, and when the founder’s vision for their venture appears at its craziest.

In my experience with early-stage venture investing over a variety of geographies (first the U.S., then Europe, now Japan), Japan undoubtedly strikes me as the most demonstrative example of the relevance of this principle. The pool of VC funds in Japan willing to invest at the Pre-seed, Seed, and even Series A stages of a startup is far too inadequate relative to the supply of talented entrepreneurs with ambitious projects in this large market.

Moreover, for the limited group of VC funds who are willing to invest at the early stages, scarcely any will volunteer to lead the deal. “Come back once you’ve found a Lead VC,” is an all-too-common refrain, if it’s not the old standby of, “Come back when you’re ready for the Series A…”

What is a Lead VC ?

In nascent startup ecosystems, sometimes the interpretation of the very definition of a Lead VC can be unclear. Here’s how I define it.

The Lead VC in a fundraising round is the VC fund who makes the first firm commitment to invest in the startup. They express their commitment in writing, and they specify the terms and valuation of their proposed investment.

Once agreement with the founders is reached, the Lead VC structures the fundraising round and establishes the schedule for signing and closing. They also generally perform the bulk of the due diligence effort for the investment transaction. The Lead VC does not necessarily represent the largest check in an investment round, but they inevitably serve to catalyze the fundraising process with the commitment and structure they bring.

Why the trepidation?

It is very tempting for prospective investors in a startup to take a wait-and-see approach. Investors love to collect data to comfort their internal decision-making process. VC operators have a fiduciary duty to their own fund’s investors, so it is their obligation to perform sufficient due diligence on any prospective investment.

Making decisions with incomplete information is inherently uncomfortable. This is especially true in a broader historical environment which was unforgiving of mistakes and stigmatized failures. Becoming comfortable to embrace uncertainty, especially when it involves investing other people’s money, takes time. It is perfectly understandable that new VCs — and CVCs for that matter — often defer investment decisions into early-stage companies until substantial validation comes in.

This produces a pair of diverging goals. The founder aspires to close their fundraising round as quickly as possible so that they can return to their core mission of building the business. The investor, on the other hand, prefers to wait for further validation. Phrases like, “Come back for a future round,” or “Come back once you’ve found a Lead VC,” are classic symptoms of an investor waiting for further validation.

However, our belief is that venture investing is impossible to perform successfully without a conviction to pull the trigger on a deal in the context of incomplete information. Innovation involves uncertainty. Early-stage companies do not have all the answers.

Having said this, there is nothing inherently wrong with VC funds whose strategy is to follow, not lead. Some funds, such as CVCs who invest for corporate synergies, prefer to let independent financial VC funds set the terms and valuation. Other funds simply feel more comfortable acting in a follower role, and have established such an expectation with their fund LPs. Finally, for reasons of limited bandwidth at a given time, some VC funds will lead some deals while serving as a follower in others. Serving as the Lead VC in a transaction requires far more effort than merely joining a syndicate as a follower.

Transparency is the key

Because the Lead / Follower disposition of a VC investor is amorphous, not to mention that it is often further obfuscated with misleading marketing statements, I would submit that one of the best questions a founder can ask an investor in their initial discussions is something like the following:

Does your fund generally serve as Lead VC on new investments, or rather as follower?

or

Should our conversations about a prospective investment from your fund progress favorably, would you hypothetically serve in the role of Lead VC or prefer to follow?

This is a guest post by Sushi Suzuki.

Sushi is an associate professor at the Kyoto Institute of Technology, where he teaches design thinking, product innovation, and entrepreneurship. He is also the founder of Kyoto Startup Summer School, Japan’s most intense entrepreneurship program conducted fully in English.

Sushi is an active startup-pitching coach who has helped over one hundred startups around the world improve their presentation, on-stage presence, and delivery.

Sushi was born in Kyoto, Japan but spent over fifteen years in the US and over five in Europe and has traveled to over sixty countries. He holds a M.S. in Mechanical Engineering from Stanford University and a B.S. in Mechanical Engineering and B.A. in Studio Arts from Rice University.

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Over the years, I have had the fortune of listening to a lot of startup pitches as well as coaching at some of the biggest events in the world including Slush Tokyo and Techsauce. While the importance of pitches is universally acknowledged, few entrepreneurs seem to take the time to design a compelling presentation. Through my coaching experiences, I realized that there are common mistakes that entrepreneurs often make. Here are four of them.

Mistake 1: Too much information in the slides

The pitch deck has become a ubiquitous tool in the startup world for entrepreneurs to explain their startup via a compact set of slides. Google “startup pitch” and there are countless articles and templates for budding entrepreneurs. However, a pitch deck is drastically different from presentation deck.

First and foremost, the pitch deck is a standalone document. It is almost always sent via e-mail, and the entrepreneur is not there to narrate through the slides. Therefore, all the necessary information needs to be contained within the slides so that the content makes sense to first time readers. A lot of advice online for creating a pitch pertain to the standalone pitch deck. Following these advice, however, will lead to a terrible presentation deck with too much text.

Even if the entrepreneur is not using their pitch deck as a presentation deck, more often than not, the slides will contain too much information for the audience. PowerPoint and other presentation softwares, with their standard templates, lead presenters to create outlines with titles and bullet points. I always tell presenters that they should be the primary focus of the presentation, and the slides are supplemental material. If the slides contain too much information, the audience will shift their attention from listening to the presenter to reading and understanding the slides. The best presenters, such as Steve Jobs, have minimal content on the slides which are there to reinforce the key point being made.

Mistake 2: Not having a strong hook

We live in a world where people have increasingly short attention spans. Everyday, we are bombarded with so much information that we have become very good at tuning out. If an entrepreneur is not able to grab the attention of the audience in the first ten to twenty seconds, they will tune out for the rest of the presentation. Therefore, it is important to have a very strong hook at the beginning to draw the audience in for the rest of the pitch.

There are many ways of designing the hook and it should be different for every startup. Often, the best way is to surprise the audience. This could be done through an unexpected fact about your industry or field or a user story that emotionally draws in the audience. Another way could be to engage the audience by asking them a question or having them relate back to a time. This makes the presentation more personal for the audience. The hook should be unique to every startup, but every startup pitch needs a hook.

The worst way to start a presentation is to spend ten to twenty seconds just introducing yourself and the startup and not starting the presentation. This is especially common in Japanese pitch events where entrepreneurs politely and modestly introduce themselves and thank the audience for being there. This is unnecessary and a waste of time.

Mistake 3: Forgetting the call to action

Small pitch competitions bring together dozens of people. The finals for a large pitch competition can have over a thousand people in the audience including countless VCs and journalists. This exposure is a great opportunity for entrepreneurs, but many forget to be direct.

Call to action is an instruction for the audience that almost always comes at the end of a pitch. This could include statements such as “download our demo today and try Pinchako” or “we are looking to raise $500,000 to enter the European market.” Startups are always looking for something and time on stage is the perfect moment to ask, but many forget to do so.

Mistake 4: Being forgettable

There are many, many startups in the world, and most will fail. This is a fact of life. While there may be exceptions, very rarely do startups succeed by blending in. The goal of a startup is to be exceptional, and this is no different on stage at a pitch competition.

Yet I see so many entrepreneurs trying to follow a template or copy pitches they’ve seen. While there are best practices in designing pitches, following a formula often leads to bland and forgettable pitches. An entrepreneur will give one pitch at a competition, but judges sit through a dozen of more, and most will be forgotten by the end of the day.

There is no magic formula for uniqueness. I’ve seen founders rapping, dressing up in ninja costumes , and taking the audience through an emotional journey through a life of a young Indian mother. Every startup is different, and like the hook, there should be a unique angle for every startup to be memorable.

Presenting is one of those things that seem easy but is difficult to do well. Startup pitches are extremely challenging because of short duration and high intensity. There is very little room for mistakes and very little time to recover. I have seen founders with great ideas flounder on stage and fail to get their point across. I have also seen pitches executed perfectly even if the underlying idea seemed pedestrian.

Creating a great pitch is no different from creating a company or a product. It takes thought, planning, practice, and lots of failures. If you are preparing to pitch, in addition to avoiding the four common mistakes above, my advice is to think through what you want to communicate with your pitch and design your presentation accordingly. Don’t start by stitching together information you have in a haphazard way. Also, I highly suggest prototyping and testing. Gather friends and family, ideally people who do not know much about your startup, and try your pitch. See how much they understood about your idea, and if your point is coming through. They say, “practice makes perfect,” and this is very true about startup pitching.

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If you are interested in this subject matter, I recently published the book “Riveting: Startup Pitches that Persuade from Storytelling to Design.” In the book I cover the various aspects of an onstage startup pitch including structure, delivery, and modes of presentation. The book contains pointers to many examples and borrows inspiration from fields such as graphic design and advertising. It is now available on paperback and ebook from all Amazon marketplaces ( Japan / US ).

This guest post is authored by Mark Bivens. Mark is a Silicon Valley native and former entrepreneur, having started three companies before “turning to the dark side of VC.”

He is a venture capitalist that travels between Paris and Tokyo (aka the RudeVC). He is the Managing Partner of Shizen Capital (formerly known as Tachi.ai Ventures) in Japan. You can read more on his blog at http://rude.vc or follow him @markbivens. The Japanese translation of this article is available here.

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One of the mindsets which we regularly encourage our portfolio companies to espouse is the pursuit of shortening feedback loops.

Shortening feedback loops, or “increasing clock speed,” is fundamental to a startup’s ability to navigate a dynamic market. Accelerating the opportunity for feedback underpins the minimum viable product concept in the Lean Startup philosophy.

The opposite strategy to pursuing short feedback loops is to research a topic profoundly before acting, theorize on every aspect of a project in painstaking detail, and prepare contingency plans for every imaginable outcome. This approach might be effective for long-duration projects, and is generally considered compulsory when mistakes have life-threatening consequences. (Even then however, one could argue that hundreds of thousands of lives could have been saved in the Covid-19 pandemic had governments allowed for shorter feedback loops on vaccine safety testing among consenting and fully-informed volunteers). Regardless, such an approach is nearly always a handicap in startups

The ability to iterate: design, build an MVP, deploy, collect market feedback, repeat — is crucial for a startup to find product market fit. Testing iterations of its product with real customers is the fastest way to obtain indispensable market insights which will guide the product road map. This is widely considered obvious in most innovation ecosystems today, but I am still surprised to discover corners of the world where this belief is not yet universal.

Beyond the obvious though, a mindset of short feedback loops extends beyond a startup’s initial product-market fit. It should permeate throughout all company operations: sales, human resources, investor relations, vendor management, etc. Operating with short feedback loops fosters agility in a startup and can be a source of competitive advantage by accelerating learning. (Conversely, in crowded or fast-changing markets, failing to do so will be a competitive disadvantage).

Good salespeople, for instance, naturally crave immediate feedback. Moreover, it is human nature to thrive on short feedback loops, starting from our first steps as toddler. Here’s one example of academic research in this area.

Providing fast and frequent feedback to employees is also critical. When employees in a startup are not clear on whether their work meets expectations, or even whether they are working on the right priorities, the collective focus of the organization drifts. This can also undermine motivation. Similarly, it is a startup CEO’s responsibility to create an environment in which subordinates are comfortable and encouraged to provide feedback upward.

Shortening feedback cycles to investors also brings numerous benefits. Frequent business updates will keep a startup at the top of mind among its investors, which makes it easier for the investor to be helpful, be it with client introductions, capital raising, even hiring, for example. It also serves as a preventative mechanism, by keeping investors on alert before a startup’s financial situation becomes dire.

For many entrepreneurs, this behavior comes naturally. We applaud this and encourage all of our founders to embrace it as a core habit.

This guest post is authored by Mark Bivens. Mark is a Silicon Valley native and former entrepreneur, having started three companies before “turning to the dark side of VC.”

He is a venture capitalist that travels between Paris and Tokyo (aka the RudeVC). He is the Managing Partner of Shizen Capital (formerly known as Tachi.ai Ventures) in Japan. You can read more on his blog at http://rude.vc or follow him @markbivens. The Japanese translation of this article is available here.

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I’m a VC guy not a PE guy, so when I start opining about private equity, readers should grant my words a tepid reception. Yet I am observing a phenomenon here on the ground in Japan that I thought might be relevant to share.

Let’s start with recapping the current macroeconomic backdrop, a context upon which numerous experts — both armchair and real — have weighed in. Massive runaway inflation has taken root in most developed economies. At last print, CPI, a core measure of inflation in the U.S., ticked up to 8.6%.

Governments and particularly central banks — whose core mandate is to keep inflation under control — have found themselves behind the curve. As a result, the U.S. Federal Reserve Bank, followed not far behind by the European Central Bank and the Bank of England, have shifted to a steady diet of interest rate hikes and quantitative tightening, sending asset prices plummeting, with seemingly no asset class immune (equities, real estate, crypto assets, you name it).

The one glaring exception to all this within the G7 countries is Japan. In Japan, depending on how broad a basket you take, CPI inflation has risen to only 2.5%, and if stripping out food and energy from the calculation, inflation in Japan currently sits at a mere 0.3%, 20x lower than the comparable measure in the U.S.

Accordingly, the bank of Japan has maintained its policy of yield curve control, effectively capping yields on 10-year government bonds to 25 basis points. The impact of course of this stark disparity, i.e. with other countries hiking rates and tightening while Japan maintains low rates, has manifested itself in a drastic JPY devaluation to a 20-year low, as I’ve written about before. 

In light of the Yen’s tumble, there has been some speculation in the markets that the BOJ will relent on its yield curve control policy in order to bolster its currency. However, consensus here in Tokyo seems to be that as long as inflation in Japan does not get out of hand, it’s unlikely that the BOJ would do anything else but stay the course. Furthermore, BOJ governor Kuroda-san’s final mandate ends next spring. The likelihood of him implementing a radical policy shift in the final nine months of his mandate appears low.

So this brings me back to the topic of private equity. When executed successfully, private equity transactions can generate value creation in up to three different ways (VCs like to joke that there are only three, but I’ll resist the temptation here):

1. Operational efficiencies
2. Multiple expansion
3. Leverage

Operational efficiencies can result from restructuring. Divestment of underperforming assets, unlocking cost savings, bolt-on acquisitions, realignment of management incentives, are among other expertise that PE firms can bring to a company once they take control.

Multiple expansion means positioning a company to justify higher EV/S and EV/EBITDA multiples (enterprise value/sales, enterprise value/EBITDA, respectively). Higher multiples can be attained via both internal actions such as enhanced strategic focus, improved corporate governance, and external factors such as investing in a sector which is growing or coming back into favor.

Leverage means using a significant portion of debt to acquire the target company in the PE buyout. A typical leveraged buyout of a company for say $100 million might entail $30 million of equity from the PE fund and $70 million of debt from lenders.

As you can imagine, combining two or all three above factors can exponentially enhance the financial return profile of the investment. Let’s say that the aforementioned $100 million company is valued at a multiple of 5x EBITDA, (EBITDA = 100m / 5 => 20m). The transaction is financed with 30m from the PE fund and 70m in outside debt. If the PE firm through operational efficiencies is able to increase EBITDA from 20m to 30m,  and in parallel is able to justify that the company thanks to its improved strategic focus and sectorial growth justifies an EV/EBITDA multiple of 7 rather than 5, the enterprise value of the company becomes $210 million. If the PE fund can find a buyer for the company at this price, it will generate a return on its invested capital of 4.67x ((210m – 70m debt)/30m). 

When viewing Japan through the lens of the above three factors for private equity value creation, the market here looks pretty attractive. 

Without naming names, it’s no secret that many incumbent corporations carry underperforming business lines on their books, and hence offer some opportunities ripe for restructuring, which in turn could unlock operational efficiencies. Additionally, Japan’s new ESG compliance requirements are forcing some companies to restructure and in certain cases even carve out business units.

Regarding the principle of multiple expansion, EV/EBITDA multiples are moving in quite the opposite direction worldwide, as rising rates depress asset prices. Yet I would submit that such forces of multiple compression run deeper in the U.S. and Europe right now than what we are witnessing in Japan.

However, thanks to its low interest rate environment, debt financing in Japan remains a relative bargain compared to the rest of the world. The opportunity to structure buyout transactions with inexpensive leverage is where Japan really shines on these vectors for private equity value creation.

Moreover, the perception in Japan of the business of private equity, even of foreign funds, has been gradually improving. In the eyes of foreign PE funds, the Japanese market represents a reliable beacon of security and rule of law.

Upon admittedly superficial analysis, it stands to reason that Japan should represent an appealing market for global PE funds in the current environment.

We’re already witnessing some evidence of movement. At the start of the latest annual shareholding meeting season, a record 77 companies faced proposals from stock owners, many of them foreign funds. In March, Sweden’s EQT acquired Bering Private Equity Asia, with stated expansion plans for Japan. The potential imminent $20 billion buyout of Toshiba would serve as a bellwether.

Whether these data points portend a broader trend remains to be seen, but if they do, this could result in increased competition for Japan’s domestic PE firms. (Unlike venture deals, in which VC firms often invest collaboratively as syndicates, private equity is more of a solo sport). An informal survey suggests to me that they are not alarmed.

Perhaps I’m straying too far out of my lane here, but because I enjoy these hypothetical thought experiments, here’s my unsolicited (and probably unwelcome) advice to Japan’s domestic PE firms: build relationships upstream, i.e. with venture capital funds in Japan.

The market here still remains quite opaque to foreigners at the venture stage, so you have an inherent competitive advantage by being on the ground. Granted, not all venture companies grow into private equity targets, but high-growth firms in some sectors often do, such as in enterprise SaaS, or alternatively can serve as complementary targets for PE build-up strategies. Building such relationships today will lay the groundwork for future dealflow before the competitive bidding process even begins.

This guest post is authored by Tomohiko Hayashi.

He is Pricncipal Director at Accenture Song / Accenture Ventures. He leads business development and innovation from a customer experience perspective.

He has won and judged many awards at industry events including SXSW and Cannes Lions.

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You all know about a16z media, right? Then, have you heard of Lenny’s Newsletter? In my opinion, it is a newsletter and global Slack community that gathers the best startup information available today. More than 150,000 people, mainly startup PMs, managers, engineers, designers, etc., are registered.

Lenny Rachitsky, former product manager of Airbnb, who operates these programs.

The off-line meetups of this community are being held in various countries around the world by community participants. In June 2022 alone, there are 24 locations worldwide.

I’d like to make it happen in Tokyo too! So I raised my hand to be the host.

The first meeting will be held at Accenture Innovation Hub in Azabujuban on Tuesday, July 12, from 7PM. Would be great if we can get the Tokyo global crowd together!

The content of the event is to be a place for international startups and globally minded startups to meet and exchange ideas. Please apply for the event by filling out the form above. There will be free drinks and snacks. You don’t have to be a newsletter reader.