lowes, Editorial Director
There are no entrepreneurs in Japan. Japanese workers are bound to their companies for life. And besides, the Japanese culture stresses conformity and devalues creativity. Therefore, there are no venture capital opportunities in Japan.
Not so fast. That's a common perception of Japan, but Alan Patricof, one of the deans of the U.S. venture capital industry and co-chairman of Patricof & Co., isn't so sure that's right.
In fact, Mr. Patricof is leaning toward opening an office in Japan to seek out venture capital opportunities. Last week he headed for Japan to double check his gut feeling that the time might be right for the emergence of a serious venture capital industry there.
After all, this is the country of Sony and Honda, both started by mavericks who broke Japan's conformity rules. There must be more like them, and if they are there, Mr. Patricof wants to find them and finance them.
And times are changing, even in Japan. Mr. Patricof points to these changes as significant for the emergence of venture capital there:
* Japanese pension funds for the first time can invest in private companies. Until a year ago, a Japanese company could not go public unless it had three years of earnings. "Most startups in the U.S. go public without earnings," Mr. Patricof said.
* For the first time, people no longer think a job is theirs for life.
* Japanese banks are not lending to small companies.
* Stock options are starting to appear. "We couldn't do venture capital in this country without being able to give people stock options," Mr. Patricof said.
Mr. Patricof is a pioneer in institutionalizing venture capital in the United States. He learned the fledgling venture capital business by investing the assets of wealthy families in it.
"I realized that wealthy families had whole staffs managing their public investments, but they were getting into private investments only by accident, when someone from one of the Wall Street banking firms called to ask them to take a piece of a deal.
"I decided to start a business to run the private investments for a fee and a piece of the action." By 1969 he was in business.
In 1980 he decided the time was ripe for pension funds to invest in venture capital.
"I told them, if you make 20 investments you can have four or five that will go bankrupt, but you will have others that will give you back five or 10 or 20 times your money," he said.
It was a tough sell, but he raised $23 million for his first venture capital pool from the pension funds of Continental Oil Co., Sherwin Williams Paint Co., Grumman Corp., AT&T Corp. and NYNEX Corp.
When the Department of Labor released its "plan assets regulation" in 1982, easing restrictions on pension fund participation in private pooled vehicles such as investments in venture capital investments, the venture capital field took off. In 1984 Mr. Patricof raised a $109 million fund. In 1989 it was a $175 million fund, in 1995 it was $265 million, and recently a $410 million fund. Among the successes were investments in Apple Computer Inc., Office Depot Inc. and America Online Inc.
Mr. Patricof also took his U.S. pension fund clients into venture capital in Europe in the mid-1980s, starting joint ventures with venture capitalists in the United Kingdom, France and Germany, believing the time was ripe for the emergence of a venture capital industry there. Now the company and its partners are closing a $2 billion fund in the newly combined U.K. and German operation, a $300 million French fund and a $100 million Israeli fund.
If Mr. Patricof's gut tells him Japan might be ripe for venture capital, it's tough to argue with him, given his track record.