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Dr Tsuji's search for a new "partner company" will end up in failure

Japan has a very poorly developed venture capital sector. There are venture capital investment firms in Japan but it’s a very small sector and they only work in a very tight network of cronies in certain industries.

Instead of building a startup and seeking investments from venture capital firms, when most Japanese entrepreneurs want to start a new business, they seek partnerships with one or more bigger, established companies. Usually the partner companies are in the same market sector but very often they’re not. The same is true when foreign entrepreneurs try to establish a new business venture in Japan. Instead of seeking Japanese VC investment - which is extremely difficult to almost non-existent - they almost always are forced to “partner” with an established Japanese company.

For instance, Aderans (a Japanese wig manufacturer) went into a partnership with Bosley Medical (a HT surgery brand from the US), to form the failed “Aderans Research Institute” and they went on to a spectacular failure with clinical trials of an early hair multiplication method.

Likewise Shiseido (a Japanese cosmetics company) went into partnership with Replicel (a Canadian biotech company) to develop a hair multiplication method which is sill languishing in long-drawn out (and underfunded) clinical trials. What the heck does cosmetics have to do with hair cloning? The connection is quite remote. Not only is the synergy between the companies dubious, but this partnership has already had major internal problems with Shiseido suing Replicel because Replicel didn’t deliver on its contractual promise to report Phase 2 clinical trials results – because the trial was carried out very late. So, despite the fact that the two companies are still technically in partnership, they aren’t really even friends and Shiseido managed to get part of the contract changed, forcing Replicel to forfeit its rights to revenues from Asia - whenever revenues start, which may be never. The whole thing is a disorganized mess, I suspect MUCH worse than they’re letting on.

Another major example is Dr Tsuji’s partnership with Kyocera and Organ Technologies to develop his own hair multiplication or hair cloning technology. Dr Tsuji is an employee of RIKEN, the Japanese government’s premier government-subsidized scientific institute. RIKEN is where he did his research and made his discoveries regarding cloning hair follicles with epithelial and mesodermal cells. Kyocera, on the other hand, is a company that manufactures OFFICE COPIERS, as almost everybody knows. A very unlikely, and bizarre partnership, I would say!

Kyocera’s entry into 3D printing is an experimental offshoot of the main company, not their main business line. Their main business line is regular OFFICE COPIERS AND PRINTERS. Supposedly Kyocera’s “expertise” that they are bringing to Dr. Tsuji’s table is their knowledge of printing technologies. But biotech 3D printing using cells is NOT THE SAME as regular 3D printing using molten plastic, etc. It’s already a stretch for Kyocera to form a partnership with another company to do 3D printing. But to do 3D printing of HUMAN CELLS, that is a much bigger stretch for Kyocera. It is very far away from their main line of business.

Dr Tsuji and Kyocera also had third partner in their hair growth venture - Organ Technologies - a Japanese biotech firm which has now gone bankrupt, and therefore has left the partnership without their portion of the funding and technology.

Often in these Japanese inter-company partnerships, it’s very hard to determine what the different companies’ roles are. To some extent, I think they just “play it by ear”… the different roles of each company are not certain, not set in stone, and can remain fluid and changeable… For instance, a partner company’s role might involve offering a little bit of financing… some office space… some lab space if they have it. It is not very well-organized and prone to breakdown. Such partnerships are often only as strong as the weakest partner, and now as we’ve seen with Organ Technologies going belly-up and filing for bankruptcy, Dr Tsuji’s entire venture is adrift floating aimlessly on the sea and looking desperately for money. They don’t know what to do so now they’re trying - in a rather disorganized fashion - to raise money from the general public.

I think this is a big reason why Japan’s economy has been very stagnant for about the past 30 years or more. We think of Japan as an ultra-modern country, and yes, they are great at certain things, but as far as modern methods of quickly finding great opportunities and rapidly financing companies, like the VC industry which was born in Silicon Valley, Japan is absolutely TERRIBLE at this. They are still using an out-of-date, obsolete corporate “partnership” model like the Keiretsu partnerships of the 1960s.

With this kind of approach to financing, they will totally fail, 100%, even if Dr Tsuji has a great technology.

My advice is to look outside of Japan and try to pitch his technology to US-based (or UK-based) venture capital firms. Stemson received money from a UK venture capital firm - Fortunis Capital.

Even if the regulatory climate has improved in Japan and is now better than the US, and would likely get the product to market sooner, nothing can be done without secure financing in the first place.

Dr Tsuji needs to give up this traditional, old-fashioned Japanese-style quest for a Japanese “partner company” – which will definitely fail – and seek FOREIGN VENTURE CAPITAL FUNDING , even if he wants to develop his product in Japan and put it on the market in Asia first.

Correct me if I am wrong but in the first phase of clinical trial they prove safe and effective. How much would the first phase cost? In a 10 billion dollar a year industry lets say he proves both. How many VCs do you think would jump at this opportunity? If he is confident of his technology, he would have VCs jumping at this enormous opportunity. But he does not have the confidence needed. I’m very skeptical!

@superhl Well, you’re talking about VC funding in two stages of the venture. What Dr Tsuji needs FIRST is startup funding from a VC firm to carry out the trials. Carrying out successful clinical trials anywhere - Japan, the USA, Europe - takes millions of dollars in itself. The initial investment from a VC firm should cover that - it should be around 5-10 million USD. That would cover the lab costs and administrative costs of preparing the application and filing the legal paperwork.

The second stage is AFTER clinical trials. If the trials are successful - and we have reason to believe they would be - then additional funding is needed to “scale up” the enterprise so they can start offering the treatment to the public. This requires investment because once a trial is successful and the treatment is approved, you can’t just jump right into business and start treating patients off the bat. You need infrastructure. Where will you provide treatment? Do you have the necessary amount of lab equipment, materials, etc. to treat a lot of patients?

The problem with Dr Tsuji is that he is not seeking VC funding, he’s seeking these “partnerships” with Japanese companies. As I said above, that is the old, obsolete way that many Japanese business startups work. It’s something out of the 1960s or 70s. Someone has a great idea and the talent and knowledge to carry it out. What do they do? Here in the USA and in Europe, they pitch it to VC firms. In Japan, they seek “partner companies”, usually large or medium-sized, very established businesses, sometimes in the same or similar sectors, and sometimes in a completely different sector. This is the Japanese business model based on the old “Keiretsu system” that worked so well for them in the 1960s but is absolutely obsolete now.

In Japan, VCs don’t just jump up all over the place when someone proves they have a great new idea or technology. The VC sector in Japan is very small, weak, and narrowly-focused. It’s not an open VC market like we have in the USA.

I think that because Dr Tsuji works for RIKEN, which is a very old, established Japanese research institution, there are very heavy expectations on him to do everything the “Japanese way”. Here is some information about RIKEN:

Riken (理研, stylized as RIKΞN , English: /ˈraɪkən/[1]) is a large scientific research institute in Japan. Founded in 1917, it now has about 3,000 scientists on seven campuses across Japan, including the main site at Wakō, Saitama Prefecture, just outside Tokyo. Riken is a Designated National Research and Development Institute,[2] and was formerly an Independent Administrative Institution.

Dr Tsuji is expected to find “partner companies” to help him to bootstrap his hair regeneration technology. The initial 3-way partnership they put together was Dr Tsuji (representing RIKEN), Kyocera, and Organ Technologies.

These corporate partnerships often tend to be unstable. Very often they’re a forgotten side-venture for the bigger partners. They put a little bit of money into it, make some promises, and then largely forget about it. If it doesn’t develop quickly enough or fails, the bigger corporate partner may hardly notice and just take a tax write off. They’re not seriously invested in the idea. They may have a dozen or more of these small side-ventures going on at once, in different industries and market sectors, and it’s not something that’s very big on the radar screen of a large, bureaucratic Japanese company like Kyocera. Once the partnership is formed, they provide just barely enough money and resources for the partnership to survive, but not thrive and not launch a successful product.

How do I know all that? You can easily see the writing on the wall. They announced a partnership with Kyocera. Here is some information about Kyocera:

Revenue ¥1.577 trillion (2018)| (USD 14.7 billion)
Net income(https://en.wikipedia.org/wiki/Net_income)|¥81.79 billion (2018)| (USD 765 million)
Number of employees 70,153 (March 31, 2017)

So, if Kyocera is a partner and has all that money to put into Dr Tsuji, then why is Dr Tsuji begging for “donations” from the public?

The reason is because these Japanese “corporate partnerships” are done largely for publicity. Yes, there is some expectation of results, but the bigger corporations in the partnerships are often not fully “invested” in the project. They put maybe $10-20,000 of funds into it (if that), maybe assign 1 staff member, like a 3D printing researcher, part-time to work on it, they may set up a small “skunk works” at Kyocera where this guy can futz around with some 3D printing devices, they make a few vague promises, put out one press release, and then they just sit back and wait to see what happens. If nothing happens in 5 years they may just silently back out of the deal. I mean just forget about it and move on. It’s like they’ll say “Dr Tsuji who?” That’s the extent of their “commitment”.

Whereas a VC fund would pump dedicated funds into Dr Tsuji’s idea and ensure that he has everything necessary to prepare for and conduct clinical trials.

Is it really fair to compare Replicel/Shiseido to Tsuji and whoever? Replicel’s product has not been shown to work real well because they have not dealt with the inductivity issue. Tsuji claims to have solved the inductivity issue, which should result in a breakthrough treatment.

There have been a lot of failed hair loss treatments. I think this is playing a role in why Tsuji is having trouble finding a funding partner. If Tsuji’s treatment includes a fix for the inductivity problems and he proves that his treatment is the breakthrough treatment the world is waiting for, I think he will have a lot of suitors.

I’m not equating Dr Tsuji’s technology with Replicel’s. Dr Tsuji’s is more advanced and based on much sounder science.

I’m equating their business strategies, which are both based on the traditional Japanese pattern of finding “partner companies” which I think is obsolete in today’s era because it’s a very poor and unstable way to finance a startup project.

Dr Tsuji needs to go to exclusively venture capital firms with his pitch. That is, firms that do nothing but venture capital financing. Preferably outside of Japan.

NOT industrial firms, manufacturing firms, biotech firms, cosmetics firms, etc.

Don’t know about US or Japan but in Europe it is a very common practice for smaller size biotech firms to develop their prototypes and then sell patent or license to bigger pharmas that have got resources and infrastrcture to put that into mass production.
We have to understand that Mr. Tsuji is not a businessman. He is a scientist. Just like not every great NBA player became a great manager, not every scientist managed to sell his or her great idea to a businessman. And this is why, I think, Tsuji seeks a partner with logistics rather than a partner with just money. And venture capital, as far as I understand, can provide you with money but not logistics. In fact, in some countries in Europe like Germany, they have state institutions that support and to a degree fund transitions of ”laboratory size inventions to put that on conveyer in a factory”.
I don’t think money would be the biggest issue for Tsuji, if he had what he says he’s got. In the last year of this pandemic banks around the world whether in US, Europe, China or Japan recorded record breaking incomes. Today banks have got so much money that they don’t even know where to dump it.
But I agree, if Tsuji was American or British, he would be a lot more courageous in his attempt for entrepreneurship.

Sure, Dr Tsuji needs infrastructure but seeking it now, before clinical trials have even started, is putting the cart before the horse.

What Dr Tsuji needs right now is seed money to get through the first steps. A common mistake is to focus too much on things like “infrastructure”, too early in the game when you have no approved technology. Aderans Research Institute already tried that. That is a classic road down a blind alley to failure.

A “partner company” is unlikely to make clinical trials and approval happen. In Japan these “corporate partnerships” often do not come with a big commitment of money. They are more like a symbolic alliance – like, “if and when the technology is approved, we will provide what you need to scale up production a network to sell it”. It puts all the risk and all the work on the “little guy” up front, to do everything, and finance everything.

Dr Tsuji needs to run his own working company and get it financed by a venture capital firm.

Infrastructure is a secondary concern right now, not his first concern. The people who can provide infrastructure will line up at his door once he clears the first hurdles, which is conducting clinical trials, proving the process works and getting it approved.

great comments roger. This was a good read that cleared up a lot of confusion for me

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