This episode of Advantaged explores how DNX Ventures is pioneering the venture studio model within a traditional VC fund. Featuring Yuma Tanaka (DNX Ventures), Ryan Larcom (Alloy Partners), and Drew Beechler (Alloy Partners), the conversation covers why DNX launched its own studio, how Japan’s startup landscape is evolving, and what founders, corporates, and investors can learn from building startups within a fund.
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Drew Beechler: [00:00:00] Welcome everyone. To Advantaged an Alloy Partners podcast. I am Drew Beechler, our VP of Marketing here at Alloy Partners, and your host today of Advantaged. If you're unfamiliar Alloy partners, we are a venture builder.
We partner with leading organizations and entrepreneurs to help them create new startups. Through this process, we call venture building. And today, this is the first episode actually in our second season that we're kicking off of advantaged. And in season two, we are interviewing and having discussions with corporate innovators, founders and investors all around venture building startup and enterprise engagements, and telling the stories of how corporates and startups can win together.
And how this idea of startup creation is evolving, really. And so today we're gonna specifically talk a lot about a trend that we're seeing within kind of, I would say, quote unquote traditional venture funds and [00:01:00] VC funds that are starting venture studios in-house. And how these funds are embedding what we call advantage into these startups coming out of the studios.
And so. here today with me we have myself, but also our managing Director of studios at Alloy Partners Ryan Larcom. Thanks Ryan for joining. Great to be here. And then we also are joined in person by a very special guest all the way from Japan, Yuma Tanaka. Yuma is an investment VP at DNX Ventures based in Japan, and DNX is an early stage VC firm focusing on B2B startups.
they have an office in the US and an office in the Japanese market, though they're separate funds now. Today, we can talk about that too if we like, that evolution over the time. And they invest specifically in Seed Series A startups solving some of the biggest challenges for enterprise companies, SaaS, cloud, cybersecurity, deep tech hardware, retail, et cetera.
Arguably they are the leading SaaS vc, I would say, in all of Japan. And so I'm very excited to have Yuma joining us today. He's, we'll get into this a little bit more, been our conversation, Yuma, DNX, and Alloy. We've had a long history of working together in a variety of fashions, but most [00:02:00] recently we collaborated, to create and launch DNX Studio, A BDB, SaaS Venture Studio based out of DNX Ventures and Yuma as an Indie Indianapolis this week, speaking at the Global Entrepreneurship Congress. And so we thought we would just sit down to record this conversation today. While we're all together.
And so it's actually amazing timing as well. 'cause DX Studio just wrapped up their second, I believe second. Yeah. Very successful Sprint week in Japan. Last week Ryan was over in Japan, so we've got back and forth for both of you, which has been fun. So I'm super excited to have this conversation.
Talk about the creation of DX Studio and the evolution of kind of what we're seeing within the kind of the venture fund space. So maybe to start us off. Ryan and Yuma, could you share maybe more just about our work Alloy partners work with DNX, how this partnership came about? And even the decision to make in March of Venture Studio together came to be
Ryan Larcom: Yeah, certainly.
For those who might be new to the podcast, alloys history of venture building reaches back to leading B2B SaaS Venture Studio High Alpha. I was an employee early and Elliot Alloys. CEO was also an early [00:03:00] employee, and there we established this repeatable model for venture building.
Scott Dorsey, who's the managing partner of High Alpha, also founded ExactTarget which was acquired by Salesforce back in 2015. And he and the High Alpha team and his partners have experienced zero to IPO and acquisition B2B SaaS, and they've built over 60 companies in high Alpha Studio over four funds.
So we've had all of these fun kind of overlapping relationships over time uh, through the Salesforce acquisition. Met DNX ventures, managing partner Akira, AYA, and nearly a decade later we've been able to work with them which I'm really excited about. DNX is extending their capabilities into building new ventures and alloy partners, a natural partner as a result of our background in venture building.
Yuma Tanaka: Yep. Thanks Ryan. Thanks for having me. It's been an interesting journey so far. As you mentioned. DNX and Alloy have a long history together. Peter from ExactTarget is actually an advisor to DNX and he comes to our annual startup meetups. It's been a [00:04:00] great experience working with Alloy.
I was also a summer intern at Alloy during my MBA, which is an awesome time. DNX more broadly is, was interested in. A Venture Studio method that was created by entrepreneurs, right? Especially this wonderful team that has experienced in scaling a SaaS business. And so Alloy was a natural choice given our relationship and our mutual expertise.
What we like, especially about alloys approach versus different ways of creating super early stage startups is. The ability to approach a problem and diving really deep into one specific domain or an idea versus what we see a lot happening where you host a batch of entrepreneurs hoping that something comes out.
Hoping for the best. We wanna back ideas where we can build conviction alongside our entrepreneurs. [00:05:00] And so this approach, this laser-focused approach was really good for us as well.
Drew Beechler: I love that. Ryan, you alluded to this, both of us going back a decade now, which is wild in in Venture Studio land you even, I think it was two, three weeks ago, attended the Global Takeoff Summit, which is a summit hosted by Vault Fund all around kind of venture studios and what we're seeing kind of trends.
Both, both there and even back over, over the last decade, we've seen a growing, this growing trend of venture funds increasingly moving into what I would call this idea of venture building or even operating full on venture studios. Venture building being, in my opinion at least, just simply the act of creating a standalone startup from scratch rather than just investing in, an existing startup.
And then Venture Studio, the definition of that being just a repeatable process of systematically doing that that creates a portfolio of these startups. And I think we've seen even goes back to early days like Sutter Hill where it wasn't even systematic or [00:06:00] structured, but.
A venture fund that they have an entrepreneur and kind of pre idea, maybe even where they develop this together, and they've done this. Snowflake is like the prime example, but also pure storage. Some even argue Nvidia in some ways. These are decades old kind of companies now that, I mean, creating this approach.
But I think we're starting to see more and more funds do it in a. Structured way at least now of like how do we tap into, and to you ma your point, it's a lot about the talent pool of kind of these entrepreneurs. May maybe just there, like why are we starting to see more and more of this interest shifting of resources, people even creating kind of standalone funds and side venture funds around venture building and creating venture studios themselves.
Curious, kinda just from your perspective and even going down this route with DNX, how did that kind of come to be?
Yuma Tanaka: Venture building is definitely a big trend in Japan now. A couple of our competitors also have a. I wouldn't call it quite venture building, but really early stage accelerator programs.
Interest from overseas Alchemist Accelerator, which is a [00:07:00] prominent B2B focused accelerator, has entered Japan this past year after probably 10 years of thinking about it. Antler from Singapore has joined as well. And so this is. Really a big trend here. As for us, I think it comes on the back of a huge trend of VC funding.
A lot of VC funds are being funded, especially in early stage. And so you have a lot of competition, especially in early stage deals. And we were starting to see a lot of companies that have great potential, but that were not ready to be series A backed. Essentially what that brings is this this ticking time bomb of you have to scale quickly
Drew Beechler: Yeah.
Yuma Tanaka: Before a company's ready. And it does not do great for the entrepreneur. It's not great for the company. And so we wanted to go earlier and earlier. To essentially find entrepreneurs that we really have conviction in and start working with [00:08:00] them in building and go to market strategy together for example.
And so that's the backdrop of why we were interested in doing Venture Studio as a firm. We've also matured, I think with over a decade of SaaS investing, we've seen. A hundred or so SaaS companies in our portfolio. We feel more confident in giving firm guidance to entrepreneurs in terms of where they want to be at a particular stage.
Our team has grown to include a lot of operators, multiple ex startup CEOs, including myself. So we felt comfortable in. Delivering that advice through our investors as well.
Ryan Larcom: Is there anything that you learned through the process, Yuma, of going through building ventures that ultimately then accretes to the investment thesis you have as well?
Like sometimes just going through the process of building things, you actually figure out maybe it's better to invest in an area.
Yuma Tanaka: We take a thesis driven approach. When you go [00:09:00] top down into a certain area, certain companies as competitors or rising competitors that we would like to invest in rather than create our own.
And so from a VC perspective, this whole practice of doing a deep dive an industry into a specific problem or a customer. Really helps us build a robust investment thesis that's actionable. So that's been a great thing for us. One other thing I'd say is that through looking at early stage startups, before there were even startups, has given us a lot of visibility into kind of how entrepreneurs think about creating a product or attacking a market.
So when we look at earlier startups, we can essentially track their thought process and look at that and contrast it with, say, the alloy method of venture building to understand how [00:10:00] deeply an entrepreneurs thought about this space. So before we see a product, before we see revenue, I think we are able to assess startups in a way that we haven't been able to.
Ryan Larcom: Do before. Oh, that's super cool. I love the way you think about like supporting entrepreneurs and finding the gaps because you have built things too, and you can help them to spot the gaps in what they build. Yep. One of the things that stuck out to me just as an American's kind of perspective on Japan was like to see the differences in our entrepreneurial cultures, right?
The US is built effectively by entrepreneurs, people who have left their home countries to come to a place and build new things. Japan is a very different culture, and the ability to have a place where people can come build that is safe, well directed, perhaps even a place where after you have gone on to build a company you can come back to and relaunch a company from, seems like a really unique way to get access to top tier talent.
Because with fewer entrepreneurs coming through the ecosystem you wanna attract as many great ones as you possibly can by giving them a best of breed place where they can come and work as well.
Yuma Tanaka: Yeah. It's [00:11:00] definitely a characteristic of the Japanese market, right? A lot of entrepreneurs that we back are first time entrepreneurs, which is not the case in the US I think people who have maybe not founded a company, but I've had leadership positions in startups.
Going on to, start new startups. That is still less common in Japan. So we're picking people from Japanese traditional companies and training them to become entrepreneurs.
Drew Beechler: Yeah. , I wanted to dive a little bit deeper into your talent strategy, yeah. How do you find mostly the entrepreneurs that you all are working with and what are some of the traits
that you are looking for, that they have the grit or they have that there are gonna be a successful entrepreneur, a successful founder as well.
Yuma Tanaka: Our founder sourcing is still pretty early stages, so we rely on our network a lot at this point. Former employees of portfolio companies are a great target.
Also just referrals from our network of CEOs. They [00:12:00] get people from, let's say companies that they've worked for come to them asking about entrepreneurship. People would be like, Hey, I want to start a company. Where do I start? And now that we have this program, instead of them doing the mentoring and getting them ready for seed stage investment, they are referred to us as a way of starting a company with a person.
An entrepreneur who knows that they wanna start a company but hasn't decided on what exactly to do yet. So those have been two great channels so far. How do we assess entrepreneurs? I think we, as a VC fund through, again, a decade of investing, we've come to a conclusion that the entrepreneur. And the qualities of the entrepreneur are the most important thing when investing.
And we look for founders who are enraged by some injustice in the system [00:13:00] or has an itch to right or wrong. Someone who is looking at making the world better. Rather than self-actualization, for example. So when we see those traits in a founder we're really excited and we're confident that we can create a go to market strategy with them and figure out what to do.
But that's the one thing that you can't change about an entrepreneur. And when we find that seed, we go all in on it.
Drew Beechler: Yeah. Could you talk a little more about SPR as well
Yuma Tanaka: so spr came to be a great community of early stage entrepreneurs.
It initially started out as a conversation of our, we have main investments that we invest in, maybe like upwards of 10, 20 million per company. And then we have seed stage investments that we want. To become main investments. And they are on a 500 k check. We can't use the same time and resource.
Uh, [00:14:00] One day we thought, why don't we have them all in one place? So what happened is that we have a floor in an office building in Tokyo where about 20 of our portfolio companies, all seed stage are residing. And so that has become a great community seed stage. If you work at a seed stage startup, you're the only marketer, or you're the only customer success executive, but then when you have 20 of those companies, you have knowledge sharing between companies.
And so that has become a great way for us to support early stage companies to arrive at best practices faster, and to avoid reinventing the wheel essentially.
Drew Beechler: That's so powerful to be able to work in community with those other people that are part of the portfolio. And just back to your talent strategy as a whole.
I think just how you think about people and talent and kind of the attraction and what does it take to attract to the best kind of entrepreneurs. I think that just plays a lot [00:15:00] into like that thesis and that ethos that you have. And so that, that's what I thought it was interesting just to highlight maybe to for kind of, maybe to take this in a little bit of a different direction, but more specifically, I wanna talk about just like Japanese entrepreneurship and the startup and VC kind of landscape as a whole. What makes it so attractive and maybe some distinctive just opportunities right now that you're seeing in the Japanese market for entrepreneurs and startups?
That I think broadly across the globe, we're sitting at a pretty interesting time, but I think from a. What are the opportunities? A lot of change usually brings big opportunities, and so I'm curious kind of what are you seeing in the Japanese market in the moment?
Yuma Tanaka: I think it's very different from what you're seeing in the us the US being a mature market.
You have the ebbs and flows of the market, but Japan is still an emerging VC startup ecosystem. So more than the market trends, we have this. Macro trend of [00:16:00] the industry itself growing and becoming an industry. So we have a lot of funding both from institutions and government as well. I started a company in 2017 where you could not pay a competitive salary. Because of the lack of funding. Now startups are offering competitive comp oftentimes higher than a traditional Japanese company would. There's more recognition that startup is a thing and it's becoming an industry.
So that has changed the perception of entrepreneurship in Japan. Comes. At a time where there is this huge shift from lifetime employment. So we're seeing high caliber talent entering the startup ecosystem. People with experience and talent that we didn't see frankly 10 years ago. So that's great.
And then we also have a couple of unicorns in B2B space now. Employees of those companies are coming [00:17:00] around starting a new startup. Our next entrepreneur that we're looking to fund right now is coming from a Japanese SaaS unicorn. And so that cycle has started.
In terms of macro trends, Japan is in. High need of innovation. We have not only an aging population, but a shrinking one as well. And so the lack of labor is pretty significant. Just to give an example, rice prices in Tokyo are at a record high. And that's that's a compound problem.
A lot of it is structural. But a big part of it is that there's just not enough people to tend to the crops. And when rice prices are high, it really hits home. And so people are really starting to feel this lack of labor affecting everyday lives. What else? Japan is a unique market in that it's big enough to create a unicorn and that it's been proven. So you can build a sizable company [00:18:00] there. Unfortunately, we haven't seen any decacorns yet. I think when you get to that scale, you're looking at a tam that is the size of the Japanese population, and so you have to start creating compound startups.
Second products, third products frequent conversation in our growth stage startups as well, which is interesting again, for venture model, venture studio model, because you need to be continuously launching new initiatives and bringing those to market even as your company grows.
Ryan Larcom: I think some of those things add up in a really interesting way though.
When you think about shrinking population, fewer workers the need to have a solution be so prolific to be able to hit like Deca decacorn status like it feels like AI creates some really unique opportunities there, right? Agent AI can actually offset hold jobs rather than just subscription revenue.
I wonder if that creates some opportunities where you can price in a different way, go to market in a different way. Maybe ultimately grow up and handle larger and larger job [00:19:00] level work instead of just task level work at a software level.
Yuma Tanaka: That's definitely a big part of our thesis going forward.
I think the technology is getting there to be able to actually replace humans. The difficulty in that is in Japan. A lot of SaaS companies have to market to traditional companies, whereas in the US you can build a sizable company within tech savvy Silicon Valley or tech savvy companies. So that's gonna be a challenge.
But the upside is that we can look at what is happening in the US and. Strive to emulate that because there will be a time lag. I don't think there's a time lag in terms of information now like it used to be two decades ago. But we will definitely see a time lag in terms of market adoption and market readiness.
So a lot of companies will be able to take opportunity and take what's starting to be successful in the us, [00:20:00] maybe even see through one hype cycle. And then bring that to Japan when the market's ready.
Ryan Larcom: When you think about like the way that, alloys thesis is around building advantage startups alongside corporations and alongside entrepreneurs.
And from what you're talking about from a corporate perspective, I think there's a real ingredient there of what does it take to build alongside a corporation who is traditionally, I. Using, on-prem software, right? To be able to migrate them to the cloud, help 'em to adopt brand new solutions.
I think that the types of problems that Japanese corporations face are world problems, right? They have supply chain problems, they have labor problems, they have finance problems, and any of those could get solved through startups. And for the ones that don't exist on the market, I think it creates a huge opportunity from a venture building perspective for, to go about building them.
The trick is figuring out a way to do that with. Kinda a relatively small pool of entrepreneurs in a relatively tech kinda laggard set of corporations. But for anyone who can crack that with the capital and credibility to do that, there's a real opportunity to move startups forward.
Yuma Tanaka: [00:21:00] I think it's a unique opportunity. Every time we look into an industry, there's so many things that we find that could be better still. And so that's definitely a blue ocean for a lot of SaaS entrepreneurs. And you mentioned a good point is that we are dealing with a smaller pool of entrepreneurs and a more conservative buyer's market.
And so what we've seen through the past two studios that we've run a real. Value in having founder market fit and experience in an industry because you're selling to lifetime professionals in that industry. And I think it's true everywhere in the world, but you have less of those buyers that are willing to take a chance on a new technology or a unproven entrepreneur.
In Japan than you have in the us. You're gonna have to sell to pretty traditional Japanese buying process. Purchasing [00:22:00] process. Founder fit goes a long way in building conviction in a more conservative market.
Drew Beechler: I'd be really curious as we wrap up a little bit here, but could you share a little more around last week, sprint Week, and I think this kind of lays into a lot of the conversation we had of the problem that you all were tackling The Amazing Entrepreneur with this idea that you all working with last week.
Could you maybe just share a little bit of last week and how some of these kind of wrapped together Agen AI the evolution of some of the Japanese market and the kind of traditional corporations, and even changing, laws and regulations that have caused a lot of this opportunity too.
Yuma Tanaka: Sure where to begin. So last week we wrapped up Sprint week for our second batch ui. Our entrepreneur spent seven years at a non-life insurance company, went for an MBA and came back. Started talking to us telling us that he's not gonna go back. He's gonna start a company. And so that's how that came into form.
And we worked with him for the past four [00:23:00] months interviewing a lot of insurance agencies and distributors. We ended up trying to. Tackle a huge problem in the Japanese insurance market in that the agencies and distributors are fragmented and they are under Increasing pressure from regulators to consolidate and to and to be more compliant in their operations, right?
So, uh, UI essentially is his long-term play, is to try to replace a lot of these agencies through ai. And by automating the sales process, which again. Technol technologically it's possible, but because a lot of these companies have existing client relations is going to be difficult over time. We created a company that [00:24:00] automates. Unnecessary customer interactions to start with. And that was phone calls, inbound phone calls. When we went to interview, UI actually interned at three different agencies. Spent like a week and a half in total with these three agencies and just could not and just was surprised by the number of phone calls that there were in a day.
Even with a small team of three people, they'd get 20, 30 phone calls. Sometimes they can't return their phone calls because these are consumers. And so this was a huge pain in kind of their daily operations. So we decided to tackle that with an eye to gradually shift communication to.
Online versus in person and on phone calls. What that will enable us to do is to automate all of the back office work. And once we do that, we can create a digital native insurance agency that will ultimately aim to disrupt this whole market. [00:25:00]
Ryan Larcom: This is what I love about the venture building approach, right?
VC perspective looks at the world, says there's a market failure that exists inside insurance. And the most obvious solution would be, shoot. We just need to go build a digital first insurance broker and just gobble it all up. That's not the way the market works because of these kind of entrenched solutions, these entrenched broker networks.
Then you bring in an entrepreneur from the other direction who builds bottom up and says, shoot, how do we get to this big vision of online digital broker? And the answer is, you solve whatever pain people will pay for immediately. Yeah. And by solving that first piece of pain, you then get access to whole back office.
And you can hire AI instead of hiring people. And since you're in the back office, you get access to data and that lets you move to sales. And since you're in front office, then you can move to online. I think it's just a really interesting model that takes what look like top down gaps and then find the beginning places of where the incision point is and where to begin building along the way, which is such a perfect marriage of how DNX and DNX studio work so well together.
Yuma Tanaka: Yeah, it was a [00:26:00] really interesting process starting from a bird's eye view approach, looking at regulatory changes and really identifying that the system is broken. But then when starting to create a company, going to ground zero and interning at these companies, taking these phone calls and trying to find an incision point that's real and tangible and valuable to the customer.
Ryan Larcom: It was a real pleasure to be part of Sprint Week with Yuma and the team to see how much work you each had put into this and the amount of traction he managed to get inside of just 12 weeks, right? Of work early customers on the phone, great early understanding of what products should look like, and then to see DNX Studio team come alongside him and support.
It's just a real delight. I can't wait to be launching more of these companies together.
Yuma Tanaka: It's great um, Yi's experience as a insurance salesman doing cartwheels to please his clients in rural Japan. Really kicked in.
Drew Beechler: Yeah. So as you're heading into the [00:27:00] next cohort what types of entrepreneurs are you seeking?
How can we help even share the word as well around, how entrepreneurs should get in touch with DNX if they're interested.
Yuma Tanaka: Sure. So we're pretty confident that we can coach someone on the how, so we don't necessarily require startup exposure. Uchi is a great example of that.
But we do want someone who is a hustler and that has that kind of founder mindset. Increasingly we're looking at founder market fit. Because it really does accelerate customer discovery. Anyone with experience in the industry if they want to improve I think we're a great fit. And we have a website, DNX studio.
So if you can look us up, we're there. Please reach out wherever the world you are. If you are interested in the Japanese market please let me know.
Drew Beechler: That's wonderful. Thank you Yuma for being here in Indianapolis this weekend and for sitting down with us. Thank you Ryan, for joining me as well.
Very [00:28:00] excited by this and happy we got to have this conversation.
Yuma Tanaka: It's a pleasure. Thank you so much.