Meet the Silicon Valley fund that’s helping Japanese companies innovate

Gen Isayama is comfortably based in Palo Alto, his office positioned at the base of the bustling University Avenue and a leisurely stroll away from Stanford’s campus. Isayama is at home among the ideas, entrepreneurs, and bubbling venture capital of Silicon Valley but he just as easily strides through some of Japan’s loftiest corridors of power. As co-founder and CEO of World Innovation Lab (WIL), an unconventional venture capital firm that’s also a startup dynamo and executive bootcamp, Isayama has positioned himself to be a critical power broker between the stubborn power of Japan, Inc. and the effervescent potential of Silicon Valley.

WIL started as US$300 million fund but is now closing a round that will push it to US$400 million. That amount puts WIL at the upper echelon in Japanese venture capital, where even widely-respected firms like Globis Capital carry funds smaller than US$200 million. WIL accumulated its considerable assets through a simple to say, hard to execute pitch – provide Japan’s largest organizations with access to the best startups in Japan and America while also offering them Silicon Valley-style business incubation and executive education.

“I’m trying to create a joint research and development center for these big companies which can act like a venture capital firm,” Isayama explains.

Building the machine

First up, securing the big firms. Isayama identified that large companies in Japan are facing a crisis of innovation. They are investing billions of dollars in research and development yet cannot seem to stop their slide into irrelevance. Those firms are not blind to this weakness and were eager to work with Isayama if it meant staunching the bleeding so as to back stronger than before. It did not hurt that Isayama is well known in top business circles from his ten years working as a VC. During that time, his ever-expanding network saw him make a series of smart investments into varied firms like Ustream and Pokelabo.

His reputation preceding him, ANA, NTT, Daiwa Securities, Sony, Nissan – among others – signed up.

Stocking his pantry with startups would require some help. Though Isayama is plenty familiar with startups in California, he was operating at a disadvantage in Japan. Turning that weakness into a strength, he brought in Shinichi Saijo and Masataka Matsumoto as co-founders and general partners. Saijo was the first president of well-known Japanese VC firm CyberAgent Ventures and later became COO of the entire CyberAgent corporation. Matsumoto is a former president of Yahoo Japan and the company’s current chief incubation officer.

Saijo and Matsumoto’s bona fides resonate deeply in Japan’s grassroots startup scene, giving them access to the full array of Japanese startups.

Masataka Matsumoto, Gen Isayama, and Shinichi Saijo (left to right) greeting visitors to the WIL homepage.

The machine takes flight

With the team assembled, packed with talent to bring in companies both large and small, WIL went live last year. On the investment side at least, the firm already has some early wins under its belt. WIL stands to benefit from game company Gumi’s impending IPO, Mercari’s steady ascension in the ecommerce space, and Raksul’s growing role in the printing industry. Separately, Isayama has even been named as an advisor to Japan Innovation Network, a corporate sponsored program to facilitate innovation in large companies.

Due to the secretive nature of R&D, it’s hard to judge how much success WIL has had in its endeavors, but Isayama explains how the system works. For R&D, WIL takes projects from its partners (the companies which invest into his fund and get a piece of the profits) and tries to recast them as startup ventures. WIL receives certain assets from the parent company – the concept, a handful of engineers – and puts them in a new entity for incubation. If successful, the team will create a product that can attract outside funding interest.

This approach reduces financial risk for the limited partner (LP), frees the engineers from corporate bureaucracy, and allows WIL greater independence in managing the asset. As the first investor, the LP still keeps its hand in the pie.

Currently, WIL has two startups as incubation projects, both in the “internet of things” space. Despite numerous proddings, Isayama dutifully protected their stealth status. He did say, however, that both are advanced to the point that the company will start on a couple of new projects soon.

WIL also helps Japanese conglomerates groom their future leaders, extending Isayama’s reach even further. “You want the outspoken guy to be the next CEO, but [in Japan] the most conforming people become CEOs,” he says, highlighting a major issue for corporations plotting their own succession lines. To give senior staff the necessary vision to lead billion-dollar enterprises, these companies are sending select executives to Isayama’s team in Silicon Valley for training.

NTT has already sent three employees for short stays. Daiwa Securities will be sending one individual shortly for a year-long trip. A staff member from ANA arrived in Palo Alto last May and is not expected to leave for another three years. WIL gives them projects to run so they can be virtual CEOs without needing to start their own firms. The safety net also gives them liberty to take the sort of risks they had avoided back in Japan, where one error could scuttle their chances at getting the top spot.