Today’s show guest is Sae Min Ahn who is the managing partner of Rakuten Ventures. Rakuten is often referred to as “the Amazon of Japan”. It’s the largest e-commerce and internet company based in Tokyo. Sae Min used to work in Google beforehand and now serves as the managing partner and head there. He goes pretty deep into how he looks at investments as a VC and offers some pretty sound advice to young founders who are looking for funding. Let’s get on to the show.

Jay: Sae Min, how you doing, my man? Welcome to the Jay Kim Show.

Sae Min: It’s very, very good to be here. I am fine. How are you, sir?

Jay: I’m doing great, man. It’s coming up to the end of the year, and we’re really excited to have you on. I had the good pleasure of hosting a Startup Grind event with you not too long ago. The crowd really, really enjoyed what you had to say, so I was like, “Hey, I gotta get this guy on my podcast.” So, thank you for agreeing to come on the show.

Sae Min: No worries. I think it was one of the best interviews that I really had. For me, I like the content so much that when people ask me what Venture Capital is, what I think that Venture Capital is, I definitely just send them that link. It’s a really good 40-minute rundown of how I thought about investments and the overall landscape. I thank you for being such a good host.

Jay: No worries. We’re going to spread the wealth of knowledge here today, as much as we can on this show. Why don’t, for the audience tuning in, you give a little bit of introduction of who you are and what you do for a living.

Sae Min: My name is Sae Min Ahn. I run a Venture Capital arm of an e-commerce conglomerate called Rakuten in Japan. Well, not e-commerce, a conglomerate. We do a lot more. We do have a giant fintech center. We also have a travel vertical. But for me, specifically, I run the Corporate Venture Capital arm of that company. We started out about four-and-a-half years ago, now rounding five, to understand how to do investments in a synergistic way in Southeast Asia. Then, we realized that if we could actually build this out into a full-out business, there could be a way for us to be not only disruptive but add very nice economic value to the businesses that we are running in tandem by being a pure financial vehicle. It’s now running into 2018. I’m happy to say that we have some amazing companies that we hope will do very well in the coming future.

Jay: Great introduction. Let’s take a little bit of a step back. How did you come up? What did you study in school? How did you become an investor, to begin with? I know that you had a background in tech. Were you always a tech-interested type of guy or did you stumble upon it by chance?

Sae Min: For me, if I were to start it at college—actually, I wanted to become a journalist. I had actually majored in broadcasting and journalism in a Korean university called Sogang University. The more and more I did this, I also wanted to learn about business. Naturally, I double-majored. As my time progressed in college, I started to wonder about what business was, why business was, much more philosophically than people would like. I wasn’t watching my books, or I wasn’t looking at spreadsheets. I was looking at: why would a company do A-B-C-D? Why would a company do X-Y-Z? As I entered the workforce, I ended up working at two to three startups in Korea and moved on to Hyundai Card, which is the Hyundai credit card company.

Then, after a year of that, I ended up moving to Google. I did about five good years at Google covering things related to hardcore telesales to looking at publisher relationships. Later, moving on to business development. Then, looking a little bit more at how you would do corporate development for Southeast Asia and looking at things related to actual investments. That kind of daisy-chained into an opportunity for Rakuten Group. They were looking for, again, as mentioned before, a way to do investments in Southeast Asia. Really, it was Sam’s your uncle. It was good timing. For me, my biggest opportunity cost was that if this didn’t work out, I probably would have moved back to Google and kept on doing what I loved.

Jay: Right. Rakuten, right now, you’re based in Japan or in Korea?

Sae Min: That’s a really good question. I’m based, actually, in Singapore. Rakuten’s home office is based in Singapore. Our headquarters is Singapore. We actually have a satellite office in our HQ. We have two employees working out of there.

Jay: Right. Got it. So, for the guys listening in that are not familiar with Rakuten as Sae Min explained earlier, they are a large Japanese electronics e-commerce/internet company, also known as “the Amazon of Japan.” Of course, they have a huge corporate war chest behind them. Maybe you could explain a little bit how Rakuten Ventures is organized underneath the umbrella of—is it Rakuten Capital that is above you?

Sae Min: Yep. So, that’s a really good segue. In terms of when I first started out, we didn’t have Rakuten Capital. As our company matured and got more comfortable with the act of investments, we formed an umbrella corporation on top of what I’m working and running, which is Rakuten Ventures. So, on top of Rakuten Ventures, there’s something called Rakuten Capital. There are about three pillars of investment departments. One is Rakuten Ventures, which I’m running. There’s a fintech fund, which there’s a guy called Oscar running, and there’s an EC Fund which is run in tandem, which does synergistic investments for e-commerce-theme startups in Japan. These are the three large pillars of investment departments that exist inside Rakuten. For me, specifically, I run a true-blue financially-driven investment vehicle.

Jay: Interesting. You mentioned that when you had joined, the mandate was basically to expand into Southeast Asia, as they weren’t interested at all within Japan, itself. They were more interested in spreading out to Southeast Asia?

Sae Min: Yep, definitely. That’s also a really good segue. When we were looking at Southeast Asia, at least Rakuten Group, they saw a lot of opportunity not only in Singapore. Singapore was more of a staging ground for what they wanted to do in places like Thailand, Malaysia, and Indonesia. In parallel to that, they also wanted to do—if we were actually to inject strategic liquidity into specific companies or specific entities, would this enable us to do business 4% to 5% better, 10% better. That was the genesis of how the Rakuten Strategic Investment Group came to be, which I took over.

For me, the reason why I tried to turn the key in terms of calibrating the company to a different direction is that we started one or two investments as the Rakuten Ventures but still looking at more synergistic and strategic needs. It turned out that we could add so much more value for the group if you were to look at this at a much more transparent perspective of “We simply want to invest in this company because in the mid-to-long term we believe that it will do well. Doing well will also add financial value for the company.”

We started to slowly increase a geographic scope of the investments until people were uncomfortable. The good thing is that people never got uncomfortable because, in the end, I made sure that if this was a mistake to be made, it would be made by the single crazy Korean person running a Japanese Venture company, a venture capital company in Singapore.

Jay: I have to ask you, man… Again, obviously, you have a background from Google and Hyundai Card and a few of the other places. How in the world did you land this job, as you just said, a single Korean guy, basically running the venture arm of one of the largest corporate funds from Japan?

Sae Min: I mentioned this early on, before, but I have an insanely low perception of what opportunity cost is. Going in, I really didn’t understand what the costs were or what the risk appetite was here. But, I also have to give full credit to Rakuten Group and also Mikitani-san because it’s the kind of a group where if you can step up — and in many ways the moniker sink-or-swim is very succinct with hiring top talent in Rakuten in that, if you can perform, we will give you as much girth and berth as you want as long as you bring in the promised KPIs, OKRs or overall performance that the group expects of you. In that perspective, those two ran in parallel, analogous to each other very, very well. It’s just been five years after that.

Jay: That’s pretty cool. Obviously, you are doing quite a good job there because they’ve progressively given you pretty much the keys to the car, the kingdom, if you will. Let’s get into some of the investing side now because I’m sure a lot of our audience wants to hear. Give us a little bit of a background on how you look at investments. What is the methodology that you have concocted when you look at companies to invest in?

Sae Min: Sure. It’s always a mixed bag when I actually look at this. Definitely, starting in 2013 and now, how I look at investments has changed so much. When I look back as some of the investments that I made, they were thankfully the right investments, but they were done with so much blindness it makes me actually nervous just to look at old investments.

I hope that people listening to this podcast understand that I never really started out with a full deck.

But, what I came to realize is that we simply want to invest in businesses that make sense to us. What does making sense mean to Rakuten Venture? It really means: does this business have some asymmetrical informational advantage? Some sort of sourcing advantage? Where is the actual relationship arbitrage coming from? I made this comment when we were doing the Startup Grind, but in that perspective I was saying, look, if you were a person that was trying to  build the next Trojan condom in Malaysia and it happens to be that your father’s also one of the biggest exporters of latex, it made sense that this person would try to build that kind of business inside Malaysia.

If you were trying to look at how to build the next generation of artificial intelligence for a computer vision, what was so important and a lot of people actually missed out on was the creation of the right kind of business model and the right kind of cost-of-goods-sold mixed. A lot of people don’t understand that a lot of the AI companies coming out right now will have and consistently have a hard time making bank just because all of their engineering force, no matter how high quality, is too expensive to actually develop a profitable model out of.

A lot of these things in relation to how can you actually make sense of business and how does that make sense to the investors amalgamated into our investment thesis and looking at how does this scale meaningfully? When I say scale meaningfully, one investor might say that scaling meaningfully is getting to 100 million-dollar revenue run with. For me, I would say that if I had a choice, I would rather scale to $50 million, make sure you are able to manifest profitability, and work from Plan C. These things definitely were a little bit different in terms of how I looked at venture capital compared to other shops.

Jay: Right. That’s interesting. It sounds like you pretty much had free reign, but I’m curious as to was there or have you since implemented any metrics or guidelines when you look at companies, sectors, exposure in different areas, ticket size, and this sort of thing. What is your formulation?

Sae Min: Just to look at what we normally do historically, we do investments anywhere between one million to ten million USD. We do this, and we don’t actually put a lot of emphasis on nomenclature, like, “Oh. We only do early-stage investments.” “We only do growth-stage investments.” We don’t put a lot of actual emphasis on that because a lot of times, by different verticals the liquidity needs are so different. If you’re trying to build out an advertising technology stack that is very, very next-generation SSP ad server, you would need anywhere between $8-  to $14 million dollars to actually scale that to a point where you can sell that to the next Snapchat or the next Facebook to actually buy it as a SaaS product.

At the same time, if you’re just trying to build the next OfferUp, which is a very popular C2C platform in the US, then it will cost you as little as $1- to $2 million just to build out a working, feasible platform that people get on and to sell their used items. So, in that perspective, we just have a simple range of about $1- to $10 million that we would invest in.

Looking at more about what sectors we focus on, we have naturally gravitated, at least for now, towards various strong technical bended companies. So, things related to artificial intelligence, advertising technology, data transferal formats, and whatnot.

We’re starting to look at how do you actually do wireless transfers of data and information a lot more cheaply? For example, can we actually utilize some of the technology coming out of Starry which is a short-wave, the 5G replacement platform that one of the founders in the US is building out? Is there a way to replicate that in different parts of the world and actually implement that in the right way?

I guess the shortest answer is, is that for us, our biggest strength is that we are always open and opportunistic to specific behaviors and specific movements in the market. To that, I’m even starting to look at biotech companies. There’s such a cool company out in the US, in Boston, called Vaxess. What they do is they actually utilize a silk protein so that when you actually inject that into vaccines, the vaccines become much more resistant to temperature change and also inertial damage so that you don’t need to actually have cold-chain and don’t need to worry about cold-chain breakages. It really goes and kind of overlaps and reaches far from gamut to gamut.

Jay: As far as stage, are you stage gnostic or you tend to veer towards the earlier rounds like Series A and above? I don’t know.

Sae Min: Yep. Because we’re looking at $1- to $10 million US dollars, we would be considered more of an early-stage investor. We utilize the rest of the money that we have as dry powder to make sure that our existing investments are doing well. One thing that we want to make sure we do with Rakuten Venture is, along with all the other stuff that I talked about, I really want to focus on not keeping too many portfolio companies in the stable. In my mind, I do not want to invest at one time and have in the stable more than 17 companies. I just want to make sure that we have a really good stable portfolio and the dry powder is left for those 17 companies to grow and become more meaningful.

Jay: Right. Interesting. At this point, you’ve made a handful of investments I’m sure and you’re constantly evaluating internally, from above. Are there certain growth metrics or targets that you have to hit? Are there plans to launch further funds if this one does well and this sort of thing?

Sae Min: Yeah, sure. If you’re looking at what our growth metrics are, what do we view as good, good performance, how does HQ actually ascribe a score to us and whatnot… Ideally, we want to look at—we do have internal metrics in terms of what kind of IRRs we want to hit and what kind of WACC we should be hitting above. But, outside of that, we just want to make sure that in our mind and with the founder, we have an agreed-upon metric that we say that these metrics are important. As long as we hit them, we are doing a good job and we can continue to actually build out a relationship.

Dovetailing that into your question about: what do we want to do… Definitely, we want to actually develop really, really great exits and, at the same time, develop different financial levers to be able to play more meaningfully in the markets.

When we say that, in the future, in my mind I don’t only look at the private-sector markets. I want to actually understand: how can our liquidity also affect the public sectors and whatnot? How does a financial vehicle in an investment company actually become much more holistic within itself? I think when you look at a 500-million-dollar venture capital fund, in my mind, I’m also thinking that, oh, my goodness. If you can actually build this out into maybe a half-and-half of private and public-sector investment vehicles, this could be a lot more value-driving.

Jay: Right. That makes sense. As far as VC and interacting with the founder which you mentioned briefly, what kind of a VC are you? Are you one that usually leads around? Do you demand a board seat? How proactive are you in steering the company and working closely with the founder providing resources and this sort of thing for their success?

Sae Min: That’s a great question. For me, historically we have ended up leading a lot of the rounds that we’ve invested in, but it never has to be that way. I mentioned this even before in our talk, but there are situations where us leading is less of a benefit if there is actually a stronger player on the ground that can be the lead and can also help and give advice actively in proximity to the founders.

We’ve had situations where we had to make a choice. Of course, we love the company and we want to take the lead and more equity, but definitely, we said that we should let the current proximity-base leads take the overall board seat and make sure that they can support the company the best they can.

Secondarily, we work with founders as much as the founders want to work with us. That’s the best way that I can put it, in that some founders know exactly what they’re doing and they really want us to take a step back and simply give them advice when it’s needed. For us, we’ve always been happy about that. There are also some companies that actively want our participation because the way that we talk about their company is really, really thought-provoking to them and, in many ways, value added.

It always runs a gamut, but again, it’s really dealer’s choice. We really follow the founder’s lead in making sure that—I strongly believe that a founder performs well when he’s the most comfortable with himself. That’s my number one priority.

Jay: Got it. Well, that’s quite insightful. Thanks for sharing that and thanks for opening the kimono deep into your process. I think a lot of listeners will find it fascinating.

Let’s use that and segue now into another question about—this would be for founders who are in the room. They’re waving their hand at you or doing their elevator pitch. What advice do you have? What things do you look for? Any quick items that you look for? Any red flags that you immediately eliminate prospects from when a founder is trying to pitch funding from your company?

Sae Min: The immediate red flag for me is when I look at a discouraged or very tired-out founder in that I can see from our interactions that he’s done this pitch so many times that it’s motorized and it’s not about him being excited to meet me but just trying to get through and go through the motions. One of the red flags is: the person is much more focused on completing the action rather than having an interaction with me.

Inversely, one of the biggest, important green flags, I would say — “Oh, my gosh, I love this company” — is a company, number one, he’s working on an industry that I’m interested in, but also, he masters his whole industry. He knows exactly what’s going on, and he knows exactly what’s going on in his company. But, at the same time, he’s able to break down all those complexities and really, really explain to me like I’m like I’m either a Golden Retriever or I’m a five-year-old, which is the best feeling in life, because it actually makes me feel smart for once when I’m dealing with people who actually manhandle GPUs and are trying to look at optimizing their TensorFlow units.

Definitely, those four or five red flags and green flags are very, very important to me. A person who exactly knows where he or she wants to go in an industry that I’m interested in and that I want to learn more about. But, again, a very big red flag is when the person is simply trying to complete the action rather than trying to have a meaningful discussion with me. Because I’m also there to learn something.

One thing that I want people to know if you’re a founder who is trying to get funding is that investors, at least the meaningful ones that I understand and look up to are trying to get something from you. They’re also trying to learn something about the industry. When they try to interact with you, please regard this as a two-way street.

Jay: Right. That’s true because sometimes funders have companies that are doing the exact same thing as you are and are just mining data as well.

Speaking of which, what are the areas of growth, the opportunities, the segments in the market that do interest you right now?

Sae Min: For me, right now, the biggest area that I’m interested in is artificial intelligence, but more so in the region of how does a neuro-network unit actually live on IoT devices and edge devices without taking too much power, with being actually efficient with output. There’s a lot more discussion going on right now where yes, mobile-processing units are becoming very, very powerful, but at the same time, we’re still not there yet where we don’t have to rely on centralized orchestration. There’s been a lot of talk going on among the investors and also the industry people where you try to understand, hey, by 2030 most of the cars that we see on the highway will have supercomputers. People really don’t understand that you’re going to have at one point, maybe 10, 15 years later, a highway full of cars that have processing units and storage units that would normally be on supercomputers.

What happens when you get 200 to 300 cars running in one direction and have basically an aggregate computing power as a small server firm. You’re able to actually make a lot of siloed individual cluster decisions that don’t actually have to go back to the central server to ask for certain commands.

That’s a really, really big thematic change because a lot of the computing themes that we see today are on the cloud. The cloud is essentially orchestrated. But now, you’re going to have enough computing power on the ground separately that will be able to make comparable decisions. That’s actually a very big theme that I’m looking at these days that will be very, very important.

If you dig a little bit deeper in terms of the microeconomics, you can see a lot of the companies that we’re doing autonomous vehicle driving, a lot of the LiDAR-based technologies, you see that there’s been a lot of acquisitions and consolidation in the market.

Now, what’s going to be really interesting in the next one to two years is: what happens to the guys who are going to get picked up? What happens to the guys who are pitching a 200-million-dollar evaluations off of four Power Points on a couple of lines of code, and they weren’t the guys who were bought for a billion dollars. Now, all the investors who back those guys are looking for a great exit. There’s actually going to be, definitely, a large consolidative folding of these companies that are happening. It happens in every cycle. Just because now private-company liquidity becomes so much easier to come across once the risk profile goes down and opportunity costs go down. Definitely, those are going to be very interesting.

A lot more stuff is going to come with biotech. What happens with CRISPR? CRISPR is the gene-editing technology which allows you to actually develop a specific toolset to actually augment your genetic makeup. Now they’re getting to a point where they can do it on live animals without adverse health effects for the short term. But, at the same time, these things are ready to go to test on human beings. That is crazy. We are getting there.

We are getting to the future, and it’s all coming to a head. We have AI, we have genetic modifications, augmentations, and at the same time, we’re getting to a stage where the medical advancements are dramatically increasing human life. Even the people who live in the most developing frontier markets, are having much higher quality of life and dramatic lifespan than people ever did 50 years ago.

All of these things really turn back to: how does science actually help? You always look at science helping out in terms of, “Oh yeah, we’ll make people live longer. We’ll make people much healthier. Blah, blah, blah.” But, what happens when there is so much positive effect that there are so many people living and consuming so much more? There are a lot of these cyclical discussions that happen that will be really interesting topics to handle within the next maybe coming 10 to 20 years.

Jay: Man, it’s both exciting and frightening to me as I sit here and listen to you say it. Everyone talks about singularity and this sort of thing, but when you actually hear someone else saying it and the way you described it, it’s like, “Oh, gosh. You’re right. What are we going to do? We’re doomed.”

Sae Min: And lest we forget blockchain… Right now, this thing is consuming more than 134 countries’ worth of energy.

Jay: It’s absurd.

Sae Min: We even did not really talk about this, that this thing is completely not what it was meant for. It’s, number one, completely centralized in China. Number two, nobody is using it to buy anything. And number three, it is the most expensive currency to transact to it. The three monikers of what it was supposed to be no longer is relevant here. There are so many weird stories around blockchain and Bitcoin, specifically, that everyone actually forgets to ask. They just keep on looking at: what are the short-term financial gains.

Jay: Exactly. That’s really scary to me, right now. Especially, all this hype. It’s like literally what you said, no one even knows what the actual underlying business model, if there is any, of any of these ICOs, are. They’re just literally betting that tomorrow is going to be worth more than today. So, they’re jumping in. It’s scary.

Sae Min: Look. Let me go Area 51 on you right now.

Jay: All right. Let’s do it.

Sae Min: Number one, what is Bitcoin solving? Can you tell me that?

Jay: In theory, it was supposed to be a decentralized—

Sae Min: No, no. What I’m saying is that it’s 256, 256 encryption, SHA. What is it solving right now? What equation is it solving? For Bitcoin miners, then they would say, “Oh, Sae Min, you don’t get it. This is just about trying to get to hash and zero,” or, something like that, to figure out the NAS. Once you figure out the NAS, a Bitcoin pops out. Do you know what that is? Do you know what that looks like? Do you know those orangutan people experiment on? Where they press the right button and the celery pops up?

Jay: That’s that.

Sae Min: That is basically that. You’re a Bitcoin monkey. That’s what it is. Right?

Jay: Yep.

Sae Min: Think about this. If it’s encrypted, then we should be able to break the encryption.

Jay: But, the thing is that that celery is worth $16,000 a pop now.

Sae Min: Yeah, that’s a really nice piece of celery, but why has nobody broken the encryption?

Jay: Yeah.

Sae Min: This is supposedly generated from—what is it?  — fifteen years ago, a .pdf, that an unknown Japanese person wrote.

Jay: A white paper.

Sae Min: A white paper. Right?

Jay: He might not even be Japanese.

Sae Min: Yeah. So, now you’re telling me that something built 15 years ago as an encryption module is immune to five to seven generations of computational cryptography-solving technology. Right?

Are there no question marks that turn the people’s heads? Is there no contradiction in life that we looked at here? For me, as an investor, that’s what’s really weird to me. As the core tenants of cryptocurrency, the core tenants of Bitcoin is contradicted at every turn, still, nobody asks the question. That is something that really makes me look back and say, “What is actually going on with this?”

Jay: Absolutely. I 100% agree with you. As an investor myself, not on the actual tech side, but just from a fundamental basis, knowing that it is literally backed by nothing, it’s just really difficult for me to justify the price action that we’re seeing these days. So, thank you for going a little bit deep there. I appreciate that. The last couple of questions. Look, crypto’s so funny these days. I literally cannot go anywhere without having a conversation. Unfortunately, 99% of them know hardly anything, unlike yourself who knows what you’re talking about when it comes to crypto.

The last couple of questions I want to ask for you, Sae Min—thanks again for your time. What is either one mistake that you’ve made as an investor that you could help caution any investors that are listening in, or maybe just one piece of advice for investors that are looking to maybe dabble in early stage?

Sae Min: I make mistakes every day. When I say that, I’m talking about—you know, 20/20 hindsight is so very much more prevalent in venture capital to me. It’s because that you sit on the board and the latency between the decisions and the effect are so very low.

In that perspective, I think one of the mistakes that I consistently make—actually, when I was just getting into venture capital, one of the biggest mistakes that I made is, I was afraid to speak up with other board members. I assumed that the other board members knew better. When I look back at it, the actual board members didn’t know better than me and they were actually also looking for guidance. So, one of the biggest things that I understood is that when you have something to talk about, it has to be really meaningful, and it has to be really important to the founders.  But, you should never hold your tongue. That is something that I think I was a lot more shy to do, but now I just make sure that I talk about that very often.

For me, I think one of the biggest mistakes that I made early on is take the role of the board member for granted. I’ve seen board members take that role for granted. It disgusts me now. But now, I have so much more respect for what a board member should be, and I make sure that if I am one, I fight tooth and nail for everything that I could do for a founder and the company. That’s very, very important to me. It kind of bores into the fundamentals of Rakuten Venture, also.

Jay: Right. Awesome. That’s sound advice. That actually transcends to more than just being a board member, because I think a lot of people listening have probably never been a board member. Even just in life, in general, in entrepreneurship, if you’re an investor and this sort of thing, a lot of times—look, investors pride themselves on being the smartest person in the room, but a lot of times they just aren’t. There’s a lot of smart people out there, and it’s always important to voice your own opinion.

Last question for you, Sae Min, I’m sorry because this might just unleash an onslaught of inbound requests to you. Feel free to give a fake contact point, here. But, where can people find you, follow you, or connect with you if they want to learn a little bit more about Rakuten Ventures?

Sae Min: Sure. You can find me on Twitter. My Twitter is @saemin4655. A lot of people ask me questions, and I try to answer those questions as best as possible. Another good place to find me to ask me questions is places like Quora. I’ve been a long follower of Quora, and I really like interacting with the community and answering questions there. Definitely, if you have questions based on investments, if you have questions based on the industries that I’m investing in, I would be happy to give my two cents.

Jay: That’s awesome, man, and thanks again. I apologize if you get inundated with pitch decks and this sort of thing.

Sae Min: No, no.

Jay: Listen, we really appreciate your time and thanks for imparting your knowledge to my audience. We’re looking forward to reading about you more in Newsflow and investments that you make and wish you the best of luck, man.

Sae Min: Thank you so much for having me.

Jay: Yeah, all right. Take care, man.

Sae Min: Thank you.