Sramana Mitra: This exit that you are talking about in Japan, a $25 million to $30 million revenue company, what kind of market gap do you see for this?
Miko Matsumura: The market gap range is $100 million.
SM: And what is the range of the multiples you can get on something like this in Japan?
MM: The rate of return is about 18-fold.
SM: What I am trying to gauge is if you put half a million dollars into a game or a mobile app, how much more money does it take to bring that to an exit? My observation is that there are very large companies like Electronic Arts or Zynga. But toward that short head there are also entrepreneurs who are playing. Then there is a long tail, which is very small stuff. Somewhere in the middle is where the entrepreneurs are playing. Is that observation correct?
MM: Yes, I think so. There are certainly apps that were never intended to be much of anything, like people making apps for their soccer teams, for example. Those are all down the way on the tail of things. What we find is there are a lot of traction apps where the entrepreneurs are quite surprised because they took off and continue to take off. What becomes magic at that point is having an entrepreneur who has the skill to hug the curve – who has the analytic perspective, who understands how to deal with things like retention or engagement, and who understands how distribution works. Even with monolithic distribution channels like an app store, there are still all kinds of things that matter, like app store optimization. If you look at something like Google Play, there are app stores that popped up in China that are separate from that, as a function of Google being mostly unavailable in China. There are all kinds of nooks and crannies around distribution or internationalization that can dramatically effect user acquisition. What we tend to look for in our entrepreneurs is not necessarily experience, but rather a strong inclination toward product and who have a strong sense of what it means, not necessarily a strong fixed point of view.
SM: How often do you find those?
MM: It is a proprietary process. We analyze quite a bit of data, and we look at traction metrics from available as well as private data sources. We have hundreds of meetings with lots of entrepreneurs. The thing that tends to happen is that the pool tends to continue to screen itself down. But we are still actively investing, and the rate is maybe one or two deals per quarter.
SM: Are all your portfolio’s companies building on top of the Kii platform?
MM: That is our intention. We have a few exceptions. The gaming company was mostly built before we had the public access to that. But going forward, that is our intention.
SM: This way you can measure the result of things, because it is happening on your platform.
MM: Of course. And it gives us a better ability to help in certain ways. Our success is contingent on the success of the people we are with.