Why CVCs Should Think Globally When Investing

Hideyuki Ebihara
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PKSHA Capital

‍After graduating, I worked at a marketing company before joining CA Capital (now CyberAgent Capital) in 2005. I was seconded to a media company operating restaurant-related businesses, where I was involved in hands-on activities such as strategy planning and business improvement. After that, I gained experience in investment execution and support for more than 20 early-stage companies, mainly in Japan. In October 2012, I was stationed in South Korea and, as the representative of the Korean subsidiary, I was involved in establishing the office and fund, as well as investing in Korean companies and supporting their management and global expansion.

In 2017, I founded Hybrid Ventures and in May 2019, I joined PKSHA Capital, where I became involved in venture investments through the PKSHA SPARX Algorithm Fund.

In 2016, I was ranked 7th in the Global Corporate Venturing Rising Star Awards.

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A Capitalist Should Understand Business and Management Well Enough to Step in as a CEO

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- Ebihara-san, you have a long career as a capitalist. Could you tell us about your journey to becoming a partner at PKSHA and your career background? 

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I didn't join CyberAgent (CA) because I wanted to work in venture capital (VC). My main interest at the time was in new business development. In my previous job, I was involved in marketing, promotions, and creating business proposals for new projects, but I eventually wanted to get more hands-on and participate in actual business launch and execution.

I shared this desire with then-director of CA, Mr. Saijo, who is now the head of X Tech. I said, "I want to do that," and he responded with, "You can do it." As a result, I was seconded to a company acquired by CA, which was running a restaurant reservation site business. While CA had acquired the company, the actual business development was just getting started. From Day 1 at CA, my main mission was the launch of the restaurant reservation business (laughs).

Under the leadership of the company president, I worked on everything from cold-calling sales, marketing, fundraising, and more for about two years. Eventually, the company was sold to a major corporate group, and I returned to the financial division of CA, where I had originally been assigned.

- Up until this point, it sounds more like you were a COO and CFO of a startup rather than a venture capitalist.

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To be honest, there was a time when I considered leaving CA. During that period, I had gained a lot of practical experience working under a hands-on president. However, as a result, I became more interested in "brain work" and thinking strategically, which led me to consider transitioning to consulting. I even started exploring job opportunities in that field.

However, during the two years I spent seconded, CA's financial division, where I originally worked, had restructured and became a dedicated venture capital firm (now CyberAgent Capital, formerly known as CyberAgent Ventures or CAV). After discussing with colleagues, I was advised, "VC work involves both the brain work of making investment decisions and hands-on business development, which is the kind of work many consultants want to pursue." With that advice in mind, I decided to stay at CA and get more involved in venture investments, thinking it would still be a valuable learning experience.

- This must have been a major turning point in your career. After that, you spent 6 years focusing on domestic investments, followed by 4 years as the head of the South Korean office, further building your career in venture capital.

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At that time, CAV had a clear policy in place for training investors: "We don't invest in companies where we can't improve performance by being involved," and "Capitalists should understand the business and management well enough to step in as a CEO." Looking back, I think this was a very different approach from traditional VC firms. However, when I see that many independent capitalists emerged from this system, I now realize that this policy was probably correct in terms of "training capitalists."

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- I see. What other thoughts or characteristics did the CyberAgent Ventures team have?

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First, the VC team's evaluation was tied to the key performance indicators (KPIs) of the portfolio companies they were supporting. For example, if a KPI was achieving 500,000 monthly active users (MAU), the evaluation of the team was heavily influenced by whether that target was met. In terms of voting rights, we held at most 5–15%, but that was no excuse to say, "They won’t listen to us." If the CEO did not take our advice seriously, it was our job as capitalists to continue communicating until they did. Fundamentally, there was a clear belief that “the work of a venture capitalist is to create businesses.” It was not viewed from a financial perspective of "making investments," but rather fully operating under the concept of "building a business."

In terms of due diligence (DD), for business DD, we scrutinized things like future forecasts, KPI progress, and feasibility in great detail. If necessary, we would even consult with specialized departments within the CyberAgent group. On the other hand, the financial and legal DD followed standard procedures, and there were no major concerns in those areas.

As a base, we always contributed to business development by helping entrepreneurs with feedback and suggesting or supporting concrete improvements. We would often spend a full day having deep discussions on business strategy, such as pivoting a business, and trying to persuade the CEO and the management team. However, after my two years of seconding to portfolio companies and getting deeply involved in business launches, it became rare to engage at that level, even though I was in charge of about 20 companies, even though the focus was on internet businesses.

- I understand the philosophy and approach of committing to a business. However, if you were to pivot a business and commit to its creation, did you ever face objections from other shareholders?

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That kind of situation didn’t really happen. Since it was more than 10 years ago, I think there wasn’t much of a mindset around "equality among shareholders" or "how things should be done" in terms of how shareholders interact with startups. To other shareholders, the young venture capitalists at CA, who were at the forefront of the internet industry and were becoming a mega-venture, might have just looked like they were doing their best, without much concern (laughs).

As a shareholder with at most 15% ownership, it may seem strange now for a relatively inexperienced young person to boldly say to a founder who took the risk of starting the company, "Let’s build this business together," or "Please consider pivoting the business." However, at the time, we thought it was our role, and we were doing our best in terms of our duties.

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- Given the VC model, I assume there’s always the goal of "increasing investment returns." How did the balance work between committing to a business and allocating resources for that purpose?

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From a return perspective, it was definitely preferable to work with companies that required less effort. It’s obvious, but (laughs). So, getting involved directly on the ground and helping to build the business was, from an “economic rationality” standpoint, probably not the most cost-effective thing at that time. However, from the perspective of training capitalists (and growing as a capitalist myself), I think it was a necessary and effective process.

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There’s No Need to Be Tied Only to the Japanese Market, Which Has High Homogeneity and a Ceiling

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- After 6 years in Japan, you spent 4 years leading investment activities in South Korea. Could you share what experiences and discoveries you gained, and how South Korea differs from Japan?

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Having experience covering more than one country is extremely valuable when making investment decisions. Every country has its own unique customs and values, and if you only look at Japan, it’s easy to get caught up in views or decision-making frameworks that are influenced by Japan’s particularities. Having perspectives from two or more countries allows you to compare and think more critically, and simply knowing examples from other countries is beneficial when considering investments.

Furthermore, I don’t think we can just understand Japan anymore. The times are different, and I believe VC investment businesses are relatively easy to expand internationally. Therefore, Japanese VCs and CVCs should be more proactive about investing abroad.

Especially for CVCs, which often serve as both a strategic new business development and intelligence department for companies, there’s no need to be restricted to the Japanese market, which has high homogeneity and is showing signs of reaching a ceiling.

- If you were to express the differences between South Korean startups and Japanese startups in a few words, what would they be?

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Starting with a global mindset and making decisions at a much faster pace—these two things stand out.

When I was at CA, I wondered why Korean ventures were thinking about the U.S. and Chinese markets from Day 1. I felt, "Why spread resources so thinly? Isn't it inefficient?" But more than 10 years later, it’s become clear that Korean companies have a clear advantage in global business. It’s the same as how Korean dominance in dramas and content is now considered the norm. Since the domestic market in Korea is limited, the mindset of expanding globally is naturally ingrained there.

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- Now that you've taken on the role of supporting South Korean ventures with a global market perspective, what aspects of your experience in Japan have been useful, and what aspects haven't been as applicable?

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When trying to apply the standard business management methods or mindset of Japanese companies, it was difficult. So, I made a conscious effort to understand the way Korean companies think and operate, and adapt to their approach as much as possible. As is often said, Japan tends to follow a "point deduction" mindset, where there is a demand for theoretical perfection. For example, even when it comes to a contract, we’d discuss clauses that simulate the handling of any potential issues that might arise, just in case. In Korea, the mindset is: "If it's something that’s unlikely to happen, then it's not that big of a deal." They move forward without worrying about small negative factors. This leads to a noticeable difference in aggressiveness. In reality, it's not just "unlikely" but more like "one in a hundred," and problems do arise (laughs).

On the other hand, evaluating the market size, trends, country-specific regulations, business customs, and the complexity of the business model during the investment evaluation process remains the same, no matter the country. The key is determining whether the entrepreneur and their team will really follow through and whether they can be trusted.

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- In South Korea, do startups tend to have a larger portion of funding coming from overseas investors?

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From my experience, I would say the overseas portion is typically around 20%, which is still larger than in Japan. Top-tier VCs like SoftBank Ventures Asia and Altos Ventures are foreign VCs with local operations in Korea. Even if they raise funds within Korea, the source of the money is often overseas, which might be more significant than it appears.

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- What led you to become a partner at PKSHA Capital after your time at CyberAgent Ventures Korea? 

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After 10 years of experience in venture investment at CAV, I started to consider going independent. I wanted more decision-making authority and a change in incentives. During my time at CyberAgent, even if investments were successful, the incentives tied to that success were very limited. When I was in Japan, I didn't think much about it, and didn't feel much dissatisfaction at the time. CyberAgent had its own unique values, and I resonated with them. However, after my four years in Korea, returning to Japan broadened my perspective, and I wanted to challenge myself with my own knowledge and compete on my own terms.

At first, I was seeking to create an independent VC and was reaching out to raise funds, but then the opportunity to join PKSHA Technology Capital to manage their fund emerged.

During discussions with PKSHA, it became clear that many startups were seeking technical advice, as there was a shortage of skilled technical talent. This led to various startups approaching us for investment or business partnerships. Ultimately, PKSHA Technology Capital, in partnership with SPARX Group—who had a long track record in managing publicly traded stocks—formed a joint GP and raised funds from several LPs. In 2019, they launched PKSHA SPARX Algorithm Fund I, a fund covering Japan, China, and Korea. I took on the role of managing the entire fund and handling investment operations in both Korea and Japan. After about three years, we've finally achieved one IPO from a Japanese company.

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Choosing "Investment" for "Business Development" and Taking on the Challenge of "Zero to One"

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- Could you tell us about the investment operations at PKSHA Capital?

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While working closely with PKSHA’s main body for value-up and due diligence (DD), our investment style is to pursue financial returns as an independent fund. We mainly invest in seed, pre-Series A, and Series A stages, focusing on businesses that are expected to grow by leveraging AI.

Currently, the fund is operated in partnership with SPARX as a joint GP, with investments from several external LPs, and we have fewer than 10 companies in the fund.

We don't have a strict preference between lead or follow investments; our investment strategy is aimed at maximizing fund returns. As a result, we tend to have a higher proportion of lead investments.

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- What kind of support do you provide to startup companies?

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As a fund, we differentiate ourselves by offering technical advice and support from PKSHA's main body. On a case-by-case basis, PKSHA’s engineers may temporarily join projects to support algorithm implementation. Additionally, based on the individual experience of each capitalist, we actively share case studies, act as sounding boards for entrepreneurs, and provide advice on fundraising (including introductions to other VCs or business companies).

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- What are your thoughts on the role of venture capitalists as shareholders in startup companies, and the potential for cooperative investments such as co-investing? 

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By working with various investors, I believe it broadens not just the VC’s knowledge, but also that of individual capitalists. We each have our own strengths, and I would love to continue co-investing with others who have different expertise.

Some business companies select “investment” as a means to achieve “business development,” and I’d like to try my hand at using investment as a way to pursue “zero to one” ventures through those companies. For example, we might bring a business model from overseas and have a business team from a company in Japan set up the local version. I think we will see more of this kind of collaboration in the future.

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- What are your thoughts on the appeal and challenges of investment activities within a corporate entity?

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My previous role at CAV was in a corporate venture capital (CVC) division. One of the advantages of being in a CVC is the opportunity to meet entrepreneurs and startups, as well as access a wide range of information, not just from startups but also from the corporate headquarters and through inter-company connections. Using the company’s brand and credit to source deals provides leverage in investment negotiations, which is often a big advantage.

Because we could discuss business aspects, I found that we were able to get closer to the entrepreneurs and teams we supported. It might just be a matter of perspective, but the experience of being involved in the process of building a business and running alongside the entrepreneurs is something that CVCs offer, which is hard to find elsewhere. As I mentioned earlier, from an economic rationality standpoint, it might be better to keep a distance from the investee companies. However, if you commit and get involved, the experience and insights you gain, as well as the satisfaction, become much greater.

Many companies today are focusing on “business development” or “collaborations with the main company,” and while that’s a worthy goal, it can also create challenges if you treat it as an overarching objective. Even at CAV, where we were focused on building businesses, we mostly ignored business collaborations with CyberAgent itself. Of course, it’s not impossible to find cases where collaboration fits well, but such opportunities are rare, and you don’t come across them often.

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Meeting Entrepreneurs with Strong Imaginations and the Ability to Make Their Visions a Reality

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- From a global perspective, how do you view the Japanese market and companies?

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The domestic market in Japan is still large and attractive, so I believe that relatively good companies will continue to emerge. However, when it comes to companies that can scale globally, I feel that, particularly in internet-based businesses, it’s going to be quite difficult. I think that’s just the way it is. In that sense, it might be better for foreign players to come in and change things. That is, foreign companies and funds acquiring Japanese ventures.

For example, it’s quite difficult for Korean companies to enter the Japanese market from scratch, but through M&A, they can directly access the market. We’re seeing more of these types of inquiries. It’s an entry ticket to the Japanese market, so it doesn’t necessarily have to be a company that is already doing well. In the internet space, I think Japanese companies are becoming somewhat like a field for foreign companies to harvest.

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- Companies like Shiseido, Tutor.com, and Taisho Pharmaceutical have been acquired by foreign private equity firms in the last 1-2 years. What’s your view on that trend?

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That’s true. On the other hand, markets like the silver economy and tech areas related to manufacturing have environments and accumulated knowledge that are hard to match in the U.S., China, Korea, and other parts of Asia. In those markets, it could be interesting if Japanese companies that have won in those spaces start to take on a more global role.

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- Do you have an image of the startups or entrepreneurs you’d like to meet and invest in going forward? 

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For me personally, the biggest incentive for being involved in venture capital is intellectual curiosity. The excitement of discovering new business models, wondering if a certain plan will succeed, brainstorming with the team to come up with action plans, executing those plans, and then verifying the results—all of that is incredibly rewarding. And seeing companies grow is something I find very fulfilling. I believe I’ve been deeply influenced by people like Saijo-san and Tajima-san (currently CEO of Genesia Ventures), who was the former head of CAV.

In that sense, I don’t really have personal likes or dislikes regarding individual entrepreneurs. However, when forming partnerships, I do seek entrepreneurs who have high aspirations, a strong passion, and the ability to imagine a future and create a business that aligns with that vision. I want to meet entrepreneurs who have strong imaginations and the ability to make their vision a reality.

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- Could you share your views on the investment holding policy and exit strategy, and your vision for the future? 

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As a fund, our goal is to sell at the most opportune time to maximize fund returns. So, we make decisions on a case-by-case basis for each company. However, our investment isn’t just in stocks as products like managing listed company equities. We’re also investing in the vision and passion of the entrepreneurs, so I think we should graduate from the relationship between the VC and the investee company at the appropriate time, while taking into account the intentions of the entrepreneur and what role the VC is expected to play.

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