The "Right" Relationship Between Large Corporations and Startups

A series of interviews visiting venture companies developing innovative businesses originating in Japan, exploring their passion for their ventures and their vision for the future society. The final installment focuses on venture capital firms investing in startups. In the second part of the discussion between Mio Takaoka of Monex Ventures (the corporate venture capital arm of Monex Group) and Tomoya Okutani of Dentsu Inc., they explored the conditions for startups to scale and the establishment of open innovation.
*Part 1: "The 'AQ and Ten Commandments' Necessary for Ventures"

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Should you invest in the top students? Or in a team that's risky but has outstanding passion?

Okutani: In the first half, we discussed the resources Monex Ventures provides to its portfolio companies and the three key points emphasized in investment decisions ("Can we maintain a good distance?", "Can we complement each other?", "Do they have passion?" – see Part 1 ).

Even with these perspectives, do you still find yourself hesitating when selecting ventures?

Takaoka: Honestly, yes. No venture perfectly meets all criteria. We often have to weigh whether to prioritize business viability and objective capabilities or passion.

About five years ago, I happened to meet two companies that had just started up in similar fields. Company A clearly had a team of outstanding individuals; every answer they gave made perfect sense. Company B's team, on the other hand, seemed pretty shaky (laughs). But their passion was incredible. They had a clear vision of how they wanted to change the world and insisted, "We will absolutely make this happen."

Both companies still exist today, but there's a noticeable gap in their name recognition and sales. In fact, Company B has completely dominated the market and grown to such an extent that it's now a major corporation—so much so that it's hard to even recall how things were back then.

Okutani: I see. So, for an organization to become strong, the human capabilities of the founding members are truly put to the test. They need to inspire investors and those around them to think, "I want to work hard for them."

Takaoka: Even if just one founder is outstanding, they can't win without building a team. Understanding that and acting on it makes a huge difference.

Three Conditions for a Venture to Scale

Okutani: I agree. I think this applies to the two companies we just discussed. Passion is a given, but what do you think are the essential conditions for a venture company to scale?

Takaoka: I believe there are three. First is smarts. Not just academic intelligence, but what's called "street smarts" in English – the kind of intelligence that allows you to make flexible judgments on the spot. Creating a market that doesn't exist yet never follows a textbook, so street smarts are essential.

Second is market sense. It's about facing customers, reading the room, or being attuned to their needs. No matter how confident you are in your own service, it's pointless if only you evaluate it. Conversely, simply turning surveyed, explicit market needs into a service isn't enough for a startup. Whether you can identify the essential customer needs will determine your ability to scale later.

Third is flexibility. We touched on business pivots earlier, but it's crucial to accept when things aren't working and pivot mid-course. This involves not just management decisions, but also convincing the staff who developed the service—engineers and others—to buy into the change.

Okutani: I see. I really understand the second point about balancing market sense. Digging deep into consumers through surveys alone won't spark new business models or innovation.

Takaoka: Exactly. They don't. What truly excites us is disruptive innovation that makes the world go "Wow!" – that doesn't emerge from a needs-based approach. Yet, if an idea is completely off-base, the market won't follow. The question is how to draw out latent needs... This ultimately tests whether you have the sense to grasp the essence of customer needs and the focus to think it through thoroughly.

Okutani: Even if a business plan is a bit rough around the edges, we often support ideas that feel like they could grasp the essence and completely disrupt existing rules. We believe our role is to design how their ideas can be accepted by the market.

Takaoka: Exactly. It's about having collaborators polish the rough gems we couldn't refine ourselves. As someone on the supporting side, I understand the desire to bet on ventures that feel like they hit the core, even if their future trajectory is uncertain, rather than those with predictable outcomes.

Okutani: As an advertising agency, Dentsu Inc. has always worked to change preconceptions and fixed ideas, helping new products and services gain acceptance. This shares common ground with polishing venture ideas and launching them into the world. In that sense, our existing business and venture support overlap.

How closely can management and engineers work together?

Takaoka: While large corporations investing in startups might seem like one-sided support, our approach considers whether they can simultaneously fill gaps in our own capabilities or provide stimulation. As mentioned earlier, we prioritize complementary relationships, aiming to elevate each other.

Okutani: Fundamentally, I believe people derive joy from growing through exposure to new phenomena and environments. I get tremendous stimulation from our collaborations with startups. They're passionate, so we engage with equal fervor.

Takaoka: I find myself thinking about it constantly too. It's hard to tell if it's work or a hobby anymore (laughs).

Okutani: I also resonate with the flexibility you mentioned third. I think it's crucial whether you can steer the company in new directions. Maintaining close internal communication daily, and when the time comes, whether the founder or management can lead with their personal strength.

From your perspective, Takaoka-san, are there any tendencies you see in startups that successfully unify their internal teams?

Takaoka: While not absolute, I often see success in ventures where the CTO is positioned close to the top decision-maker. They effectively bridge the gap between management and the engineering team. That's where the sheer volume of communication you mentioned becomes incredibly important.

Okutani: I see. Indeed, no matter how much drive the CEO has, especially in tech ventures, the source of competitiveness lies with the engineering team. So, how well the CTO can share the company's mission and vision with them is crucial.

In our own support work, we frequently run facilitation programs centered around engineers to invigorate the company internally.

Takaoka: I think that's very effective. I feel Japan is lagging in this kind of support. In places like Silicon Valley, it's common for venture capital firms to facilitate or for consulting companies to step in and provide support. Especially since engineers aren't necessarily the most proactive communicators, that kind of support is significant.

How can CVCs contribute to society?

Okutani: We've touched on differences with overseas markets. Finally, I'd like to ask about Japan's venture ecosystem. You mentioned that having Mr. Matsumoto serve as a mentor is highly valued as a unique strength of Monex Group's CVC. Yet, surprisingly, we don't often hear about mentors or angels in Japan. Part of this might be that there are fewer people with the kind of success experience needed to become mentors.

Takaoka: That's right. Recently, Singapore's financial authorities announced a collaboration with the UK's financial authorities to promote mutual expansion for venture companies and investors. It seems possible to leverage London's network for elements lacking in Singapore's ecosystem, including mentors and angels.

Okutani: Japan needs initiatives like that too. Of course, the first step is consolidating the necessary elements for the ecosystem domestically.

Takaoka: That's right. Our company also supports ventures as a strategic business to create synergies within the group. Given Matsumoto's vision, we hope to contribute even more to establishing a venture ecosystem going forward.

However, while there are challenges, I also feel that precisely because Japan is still developing, there are significant opportunities for its ventures. First, there are fewer rivals compared to the US or China. Furthermore, with technological innovation advancing so rapidly, anticipating future needs is extremely difficult, making large corporations more open to collaborative open innovation with ventures.

Okutani: That's right. We're also increasingly supporting collaborations between large corporations and startups. However, there's often a significant difference in mindset between the two, which makes the communication we discussed earlier crucial. I believe it's important for large corporations to approach startups with both a guiding and accepting mindset – essentially embodying both paternal and maternal qualities – and to steadily build a track record of open innovation.

Once open innovation becomes commonplace, I believe we can sustainably generate startups and new industries, contributing to Japan's growth.

Takaoka: Transcending positions to elevate each other toward a shared goal—this mirrors the relationship between our company and the startups we invest in. While financial returns and business viability are important, I want to continue creating exciting ventures alongside startups that share a vision I strongly resonate with.