The MicroVision founder looks at the big picture, including licensing technology from Japan's universities, the investment climate, and the government's IT initiative. And, oh, if you think cellphone screens are too small now ...

Academic, inventor, technology guru, thinker, and business builder in both the US and Japan, Masahiro Kawahata embodies the Renaissance spirit many believe is required to build Japan's New Economy. Nominally engineering professor at Tokai University, he also holds positions at Stanford University and the Universities of Washington (UW) and Southern California. In the 1980s, he advocated a nationwide Cyber Japan plan based on optical fiber; a plan not unlike the Mori government's recently announced IT initiative. Later, he developed the technology behind one of the world's first and largest cable networks, eventually adopted by Tokyu Cable and other operators to power their cable TV businesses. He has worked at IBM (US) and Fujitsu. In the early 1990s, he participated in a study group at Southern California University focusing on the impact of information technology both in Japan and the US and drafted a scenario for fostering technology transfer across the Pacific. In 1993, he helped develop cutting-edge retinal scanning display technology with his colleagues at UW and established Microvision Inc. (Nasdaq: MVIS). Kawahata has received awards from MITI and other institutions. His current projects include scouting Japanese partners for Microvision and helping several other US ventures expand into this country, and he continues to help small and medium size companies learn from his experience. His passion is to bridge academia and industry, and promote technology transfer between universities and industry, and between nations. Chiaki Kitada and Daniel Scuka met with Kawahata at his Tokyo offices. A partial transcript follows. What started your interest in engineering and technology?

I guess it was an electric engine model I played with as a child. My father was an engineering architect working on power plants -- he helped build the first nuclear power plant in Japan. But he didn't encourage me to follow him. Once you become successful, it's a very good job. You can build all sorts of interesting things. But if you're mediocre, it's difficult to make a living. I always wanted to work in an interdisciplinary area between business and academia, which I did both in Japan on the CATV development project and in the US with Microvision. When I work for universities, I'm always conscious about business, and vice versa. However, in Japan, there's no equivalent industry-academia bridging as there is in the US, so [here] I've been extremely frustrated. How did you first get involved with US venture business?

With my colleagues at UW, I was researching new graphical information interfaces for PCs. One idea was to project an output image directly into the retina, which would eliminate the need for large, expensive, and energy-consuming LCDs or CRTs. It's very difficult to reduce the [physical] size of the screen -- we wanted pocket size -- so we decided to totally eliminate the display screen. With direct projection, you achieve a clear display with a very high resolution, full color, and good portability. Later, some VCs suggested forming a company to commercialize the idea. They were very happy to provide equity financing, and the university would license the rights to the new venture. The licensing fee was about $5 million; now I think that was a little too cheap. [Laughs.] The money was paid to the university, so they were very happy. At this time, 10 years ago, licensing like this would never happen in Japan -- this was before the TLOs [Editor's note: "technology licensing offices" are helping bring ideas developed in Japan's universities into the commercial realm], so I was very excited to get involved and work together with people who were trying to make the company grow. UW provided graduate students and research assistants to help develop the technology; some of them later moved to the new company, Microvision. It went public on Nasdaq in 1996. I am an advisory board member of Microvision and continue serving as a bridge between the company and UW. Interestingly, if you're kind of successful at making a public company, you start receiving many proposals from various parties. I was asked by quite a few investors, entrepreneurs, and other academics to work together on new commercial projects. Have you accepted any offers?

One of the new ventures is eCharge Corporation. It's a Web-based financial settlement software development company founded three years ago. I helped them come up with ideas and fundraising. At the same time, I was asked to join a new company called Terabeam, which is very successful now. I'm one of the founders and shareholders. Events have just unfolded in front of me without my asking for it; I had no intention of trying to find new business ideas. With Microvision's retinal scanning display (RSD) technology, we understand you first looked for investment from Japan, but had no success. Now you're back. Why the change?

In 1993, Microvision's product was only a fairly large prototype, only showing future possibilities. It was not a practical working model. We presented the idea to Japanese investors, and most said, "The idea is great -- come back when you're ready." So nobody was interested in investing. But the situation is very different in the States. There, they bet on potential and [future] possibilities. I've come back to Japan because Microvision has been very successful at developing military and medical applications and other professional uses. Also, RSD has been sold to companies like Boeing for pilot training. Microvision is sure that the technology is very stable and practical and does not affect the eyes. Now, it's trying to make very small integrated circuits; there's a possibility of making the circuits cheaply, which would allow RSD to be incorporated into a small cellphone or a PDA.



Are Japanese investors risk averse?

The mechanism for assessing investments here is very different from the way it's done in the States. Here, there are few people who can evaluate the market potential and "investability" of new technology, even if the ideas are good. VCs don't want to make investments based solely on a business plan; they only listen to entrepreneurs after they start making money. You can't incubate venture businesses in this kind of environment. It's a Japanese mindset; there's no room for losers to recover from [a failed venture]. That's why people are afraid of taking risks and don't accept challenges. Therefore nothing happens. This is a very conservative society. For example, if you graduate from Tokyo University, you receive a full score [from society]. Your life is thereafter measured against how many points you lose by the time you retire from your job. Why come to Japan for partners now?

Japan is the best country in the world for making small devices. Several companies have shown a keen interest, but they are still very slow at making decisions. They're now in the process of checking into [our technology], and they're asking a bunch of good questions. How can Japan boost the transfer of research technology to industry?

One of my colleagues in the US has pointed out that technology transfer relates to personnel transfers -- the movement of professors from universities to industry, which is a core part of technology transfer [in America]. In other words, tech transfer is the same as human transfer. There's no such concept in Japan. Once a professor leaves a university, [there's no going back] -- it's one way only. Also, the gap between academics and industry is zero in the US. In Japan, there's a gap. The university is an ivory tower. A professor who is interested in making money is [thought to be] no good. Conversely, if someone in industry is keen on [pure] academic work, they're [in trouble because they're] not making any profit. In the past 30 years, America has developed a fairly well-established model for technology transfer -- the now-famous Silicon Valley venture model. I don't think the best idea for Japan is to follow the Silicon Valley model. One idea [for here] is the TLO; it's a bridge between universities and industry. But the TLO should belong to the university itself. The most important thing is to support [academics] who are interested in following up on commercialization, not to regulate them. So with TLOs, if you come up with an interesting idea, the university will help you; for example, offering legal help. What do you think of the TLOs in Japan?

I don't have any prejudice against the government-backed TLOs, but the government officials tend to think something will happen, as long as they prepare some kind of system. Under the TLO system, you cannot get away from government control if you accept support from them. You have to submit full reports to the authorities and sometimes provide positions to retired government officials. I was turned off by these constraints. [Editor's note: In Japan, in a practice called amakudari, some bureaucrats actively canvass companies formerly under their supervision to provide cushy post-retirement jobs in return for favorable administrative oversight.] The good ideas that professors and researchers develop at universities should be freely commercialized through external funding. The TLO is supposed to play a role as a booster to make this happen. Are Japanese academics actively working to commercialize their research?

Only a very small number, as far as I know. This may be increasing, but [there's still] not so many. Even when they are interested in starting venture businesses, people around them discourage the idea, as they think it's better not to take risks. I'm hoping their attitude will change drastically. It's a lot easier to work together with American academics than Japanese, because there is a tradition in Japan -- and I'm not saying whether it's good or bad -- that a professor shouldn't make money. Here, if you make money, people look [down on] you, although this attitude is [starting to] change. At first, people looked at me and thought, "Raising money? He's not a real professor." But at recent university meetings, department and faculty heads have been saying, "What Professor Kawahata is doing is right." But there are still people who look at me as if I'm a different kind of being. I'm still feeling uneasy.



What about fiber-to-the-home being promoted as part of the national IT initiative?

The government is pulling in its horns, isn't it? They don't think they can pursue it. This idea already existed 15 years ago. If it had been implemented, all the homes would have been connected to fiber by now. [In the 1980s], I actually did the calculation and submitted a plan called Cyber Japan. At that time, fiber was more expensive and the technology was different. It's not an easy project, because you have to upgrade all the network switches. Otherwise they'll be overloaded due to the sheer amount of data carried by the fiber optic cables. So, it's not just a matter of installing fiber. People don't quite understand that. Is FTTH the best approach to getting broadband into Japanese homes?

I don't think so. I won't say it's bad; however, first of all, it costs money. Also, there's no grand design for building IT infrastructure in this country. None at all. Furthermore, there's no discussion about how it will become useful to people and make them happy. What the government wants to do is to install fiber optic cable to each household so that people can receive all sorts of information at high speeds. But the government hasn't told us what will happen to our lives as a result, and how much it will cost to do so. How should existing infrastructure -- such as TV, telephone, and video -- be integrated with the proposed fiber network? This hasn't been laid out clearly. Will the fiber network be separate? Will [the average home user] still need to install an antenna for digital TV? The CIA has reported that Japan's economic power and influence will decline by around 2015. What do you think?

It won't happen if everybody makes an effort to avoid it. In the past, Japanese used to work harder. But now, people seem to [take it easy]. Fifteen years ago, everybody said Japan had serious problems, but we really didn't; we made great progress. We Japanese tend to hold pessimistic views toward ourselves. We tell ourselves we're not good enough, and that [traditionally] has pushed us to work harder. Today, if you told students that Japan will lose its economic power [unless everyone works hard], they might say, "So what?" Today, the Japanese outlook has changed. People are rich; they're enjoying their lives. We have very nice restaurants. People have lost the hungry spirit. Of course people complain about low economic growth, but they are not seriously suffering from poverty. Five years ago, people were warning that Japan would go downhill, but it hasn't. People now can live with the fact that our country belongs to the upper middle or lower top class in the world, and they question whether we have to become No. 1 in the world, or even No. 2. They think, "It's fine, it's OK." Does the Japanese education system foster innovation?

Every human being has the ability to invent something, to be creative. Education determines the character of human beings. The educational system in this country has to change. Japanese students are capable, but they are not trained to become creative. They are educated from very early stages to be capable of performing given tasks. However, when you ask them to come up with new ideas and solve problems, they're not used to it. The Japanese school system overemphasizes equality and nips potential talent in the bud. There's no fostering of creativity or mental toughness. How can Japan maintain its position in the world?

In my opinion, Japan's strength is manufacturing and engineering technology. It can survive with manufacturing technology. Toyota is a good example. It's not outstandingly innovative, but it is able to manufacture excellent cars. That's how we survive. The invention of new technology can occur any place in the world, and Japan can still make good use of it. We don't need to insist on [Japanese] nationality for technological innovation. We don't have to pressure ourselves to become [overly] creative and inventive. If you put too much emphasis on a national project supported by the government, it will hamper technological development.



