Invest Even with Weak Management Skills!? A High-Hit-Rate Star Investor Talks Startups

In this series exploring startups, our second installment focuses on venture capital (VC) firms that support startups financially and in business development.

This time, we spoke with Yohei Watanabe, Representative Director of B Dash Ventures, a prominent investor who has successfully funded numerous startups in social gaming, ad tech, and media. We discussed VC work, growing startups, and marketing and media from an investor's perspective.

Mr. Watanabe of B Dash Ventures (left), Mr. Nakajima of Dentsu Inc.

 

Nakajima: What led you to establish B Dash Ventures, Mr. Watanabe?

Watanabe: I originally worked at Sanwa Research Institute, a think tank, as a consultant and analyst for internet and IT-related businesses. Experiencing the 2000 IT bubble and the subsequent boom deepened my connections with entrepreneurs, investors, and financial institutions. I began wanting to be more directly involved in the businesses themselves, rather than just consulting. At that point, I hadn't decided whether to become an entrepreneur or an investor.

In 2007, I moved to Mitsubishi UFJ Capital, where I began investing in IT and internet-related ventures. I started with the determination to go independent within about three years.

Then, in 2010, after three years, I was called in as Head of Business Operations to revitalize the investment division at NetAge (now United). I managed to get the business on track much sooner than anticipated. Around that same time, the Great East Japan Earthquake struck. It made me realize how unpredictable life is and that it's better to pursue what you love sooner rather than later. So, I went independent in 2011.

Nakajima: So it's been three years since you became independent. Your post-investment execution is remarkably swift, Watanabe-san.

Watanabe: The performance is high too (laughs). Speed is everything for startups. You keep pivoting and changing the business until you find a successful model. Our role is to do that together with the management. And we commit to the exit of our portfolio companies. Whether it's an IPO or M&A, it doesn't matter. We believe our role is to produce many success stories, both for the sake of the management who trusted us and took our investment, and for the sake of the entire internet industry.

We can't invest in people who run away. If they can see it through to the end, we'll invest even if there are negatives.

Nakajima: Why focus your investments on media, games, e-commerce, and ad tech?

Watanabe: Games are definitely where the big hits come from. However, as fund managers, we need to broaden our portfolio a bit more. Ad tech is also a hot sector right now, and we actually succeeded in a scale-out M&A last year. Well, that's bragging, isn't it? (laughs).

Nakajima: Not at all, your track record is actually impressive. What criteria do you use to select investments? Is it the people, the numbers, the strategy...?

 

Watanabe: First and foremost, it's the people. Among founders, you occasionally find someone like a Super Saiyan—someone who's an absolute "must-buy" no matter what business they pursue. They have a proven track record, industry networks, business strategy, capabilities—it's a combination of many things. For example, Mari Murata of iemo is a classic case. She's a truly incredible entrepreneur. She required almost no hands-on management and was bought out by DeNA.

But such people are rare, so the next step is how well you can assess them. The most crucial factor is that they absolutely never give up or run away. You can usually tell when talking to them. If you sense someone who would flee when the pressure's on, investing becomes difficult.

 

We provide support not just financially but also in business. Only a few percent of projects make it to investment.

Nakajima: What do you look at next? The business structure?

Watanabe: That alone isn't enough. It's also about breakthrough capability and sales prowess. People like Koichiro Yoshida of CrowdWorks and Hirotaka Kunimitsu of gumi have incredible breakthrough power. Their companies are nearing IPO, but we can expect even more from them going forward.

Another example is Scaleout, which we sold to mediba, a KDDI subsidiary. Their technical skills were top-tier in Japan, but their business model and sales capabilities were quite weak. But supporting them in that area is also our role. Normally, we might not have invested, but we decided to invest based on the high capabilities of the engineering team and the unyielding, never-give-up personality of CEO Daisuke Yamazaki. We supported them from the seed level. At the time, we had them stop doing contract development for revenue and focus entirely on developing their DSP (Demand-Side Platform).

 

Nakajima: Of the deals that come to you, Mr. Watanabe, what percentage actually lead to investment?

Watanabe: We review several hundred proposals annually, but only invest in about ten. We decide by balancing high-probability opportunities with riskier ones. Companies with less established business models and their founders carry higher risk, but also offer the potential for higher investment returns.

Nakajima: Are there common characteristics among companies that actually achieve growth?

Watanabe: The market accounts for 80% of it. If you choose a growing market, you can win. Even if the management's capabilities are slightly lacking or the business model is somewhat flawed, if you enter a growing market early, the chances of success are high.

Right now, we're heavily focused on smartphones, and investing in areas growing within that space generally allows for growth.

Nakajima: I hear you're launching your second fund in November.

Watanabe: Fund 1 primarily focused on seed/early and later-stage investments. Fund 2 will center on seed/early, Series B (investing in businesses in the growth/expansion phase), and later-stage. We'll cover quite broadly, but we still plan to build the portfolio around seed/early investments.

How startups can drive growth through advertising campaigns and app × TV integration

Nakajima: How do you view overseas expansion, particularly into Asian markets?

Watanabe: Overseas... Hmm, what should we do? (laughs). We've invested in about seven or eight companies in Asia and America. From an investment perspective, the markets where smartphone apps and internet-related businesses really take off are Japan, America, and China. China is difficult to enter, so America becomes the focus, but we don't plan to invest heavily enough to establish a local company there. This is because, just like Tokyo, Silicon Valley has its own distinct network, and you can't operate as an investor without penetrating that network.

Of course, there are growing companies in Asia, and places like Indonesia are getting attention. But considering investment performance, it's still too early. It feels like they're 5 to 10 years behind. For typical e-commerce businesses, we're at the level where we might consider investing. I think the real game starts after 2020.

Nakajima: What are your expectations for advertising and marketing, Watanabe-san? Recently, startups like Gunosy and gumi, which are also your portfolio companies, have been rapidly increasing their large-scale TV commercial campaigns.

Watanabe: The approach to TV advertising versus online and app growth has clearly changed over the past year. While there's still no definitive solution for how to integrate TV ads with apps and drive growth, Gunosy and gumi have thoroughly researched this and identified some direction.

Also, when considering how to make an app penetrate the market, we need to fundamentally change our marketing methods. The approach differs completely depending on the service or content. Should we focus on growing the app itself, or boost page views through SEO as smartphone web content, and then figure out how to guide users to the app from there? For example, news curation services like Gunosy need to reach a massive audience, so they use TV commercials to get widespread recognition and encourage app downloads. On the other hand, "MERY," a popular curation media for girls, hasn't been made into an app. However, by leveraging SEO, it seems to have significant page views as web content. I imagine they'll eventually guide users to an app and monetize it. For vertical media like "MERY," this approach offers higher cost-effectiveness, right?

Nakajima: Watanabe-san, you possess remarkable talent as an investor and deep marketing expertise.

Watanabe: Our job is to invest money, but it's also crucial to collaborate with founders on marketing and build/adjust the business model's KPIs. However, after working together for just six months, the young founders often become more knowledgeable, and before you know it, they're teaching me things (laughs).

Nakajima: Finally, how do you think media will evolve going forward?

Watanabe: The advent of smartphones has changed the concept of media. It's not just news media anymore; e-commerce services like Mercari are also becoming media platforms. People aren't looking at them with the intent to buy; they're browsing them like a magazine they happen to have nearby. Going forward, whether it's e-commerce or anything else, the key will be becoming an accessible media that people constantly engage with. Whether it's just killing time or whatever, increasing touchpoints is what makes it viable as media. That's media in the smartphone era. Within that, the crucial question is how to monetize it through purchases or advertising.

Nakajima: I'll be watching Mr. Watanabe's investment activities closely. I also strongly sense that B Dash Ventures and other VCs will become more active.

As startups ramp up their advertising and marketing efforts, including TV commercials, I sense increased interaction between ad agencies and VCs to accelerate company growth and business expansion. There also seem to be many potential projects where both sides can leverage their expertise and areas of activity. Thank you very much.