Japanese Firms Fill Funding Gap For US Start-Ups
WHEN Gary Kraidman started a company on a hunch that seashells crushed to powder could be made into a powerful new adhesive, he was confident that the United States would live up to its reputation as a place where new ideas can find funding from high-rolling investors. Like many entrepreneurs, he believed a search for money overseas was unnecessary.
But that was in the mid-1980s. Today he faces a chastened America, where banks, venture capital groups, and large companies are no longer eager to invest in risky experiments. Mr. Kraidman's response, in part, has been to look to Japan.
He found some help in a new Japanese television show that asked his company, Margaronics Inc., to be a feature. He jumped at the chance.
The attraction for Kraidman is that the show is exclusively about high technology in the US, and is aired on a private channel with an audience of Japanese corporate and university subscribers, including conglomerates like Toshiba and Hitachi. The show, called High Tech Shower, is produced in New York by Technology Transfer Institute (TTI), a Japanese not-for-profit company with ties to that country's powerful Ministry of International Trade and Industry. Video on a wide variety of technologies - from re adily available computer software to products in preliminary research stages - is gathered together at TTI's offices in New York and beamed by satellite five days a week to Japan.
Interest in the program in Japan demonstrates that Japanese companies, in addition to their interest in buying technology outright, are willing to invest for the long-term in research in the US.
The long US slump dealt another blow to many struggling companies by prompting cutbacks in state funding. Kraidman used to rely on Innovative Partnership Grants, a New Jersey program through which university professors who have won pledges of investment for their research and products from a New Jersey company are eligible for matching financial support of up to $250,000 from the state. The grants were recently eliminated.
High Tech Shower, not surprisingly, has had little trouble finding US companies that want to talk about their new technologies. One of the program's researchers says that most companies have been cooperative. Many have been eager to take advantage of the free advertising targeted at potential investors in Japan, he says.
Japanese companies began pouring money into US high-tech start-ups in the second half of the 1980s, reaching a peak of 60 minority-equity investments for a total of $320 million in 1989, according to Venture Economics, an industry newsletter.
Soon thereafter, as real estate and stock prices dropped, Japanese investments fell sharply. In 1990, 48 investments totaling $230 million were made. Only 18 totaling $97 million were concluded in the first six months of 1991.
The Economic Strategy Institute, a Washington think tank, argues that current law, which allows the government to bar foreign investment only if it involves defense-related technologies, should be broadened to include any technology that, if tranferred abroad, would weaken American competitiveness in high-growth industries.
Free-trade proponents emphasize the importance of maintaining a free flow of capital and technology between countries. They say the best way to avoid a sellout of US high technology is to create incentives for US companies to increase investment. John Kristy, vice president of corporate development at Battelle Memorial Institute, suggests that investment tax credits will accomplish that goal. But the reality of today's investment situation demands that many US start-ups use every means available to attra ct foreign investment.
"When people ask in five years where all our technology went, I'm going to say, 'Where were you when all this was going on?' " Kraidman says.