Joi Ito's conversation with the living web.

In 2000, during the heyday of the first wave of incubators, I started Neoteny. Incubators such as CMGI and ICG were trading at huge multiples to the value of their portfolios and funds such as JH Whitney were backing incubators around the world.

Having been CEO of a number of startup companies, I was looking to transition into the investment side. I had develop a broad network in Japan and felt that I was more suited for managing a portfolio of opportunities than focusing on the operations of a single business.

I had been talking to a number of funds about joining as a venture partner, but the idea of building an incubator together with the readily available funding and favorable terms lead me down the path of setting up Neoteny. At its peak, Neoteny had over 40 people, a facility, a PR team, engineering, HR consulting and R&D. It was a full service incubator and was modeled after many of the large incubators around the world.

We made a number early stage investments and formalized our incubation process. Just as the incubator went into full swing, the Internet bubble burst and incubators around the world crashed and ended up trading at huge discounts to the value of their portfolios.

Some of my investors pushed me to cut my losses and return their money. This was one of the hardest business periods in my life and one where I would swear off ever being a CEO again. (Which was true until Lawrence Lessig and the Creative Commons board convinced me to take over CEO of Creative Commons.) I had to cut the staff down to nearly nothing, shut down the facility and figure out what to do with the future of the business.

As the Japanese Internet market continued to be disappointing to me in terms of the quality of deals, in the last days of Neoteny, thanks to Justin Hall, I discovered blogging and through blogging, I started using Movable Type and decided that we should dump our Japan focus and find a blogging company to invest in in the US.

The first meeting with Ben and Mena, the developers of Movable Type was friendly, but ended with them telling us that they just weren't interested in raising money. We continued to court them, but I really wanted to have a position in this space and I met Evan Williams and the team at Blogger and found them more open to the idea of investment since they'd already taken VC money.

As fate would have it, we sent Evan and his team a term sheet to invest in Blogger the day before they got the acquisition offer from Google, which they took. Soon afterwards, Ben and Mena decided that we weren't that bad after all and took our offer to invest in Six Apart.

I felt very happy (and still feel very happy) with our investment in Six Apart. Although many investors continued to support us, we had some investors who didn't like the shift in focus away from Japan and other investors had various conflicting agendas so we returned the remainder of our money and shifted the focus of Neoteny to be support Six Apart's expansion in Japan and exist primarily as a manager of the existing portfolio and a major investor in Six Apart.

Reflecting on Neoteny, I realize now that most of the best companies that we invested in such as Six Apart didn't really use any of our incubator "services". Really scrappy entrepreneurs found their own cheap office space, figured a lot of the stuff out themselves and knew what they wanted from us. It didn't seem like they needed an incubation "process". It turns out that large corporations trying to incubate ideas internally really liked our process and a spinout of the Neoteny team continued to use the incubation process that we created as a consulting product for large Japanese companies.

In retrospect, the performance of our portfolio of the investments themselves will probably be good. If we had been a fund it would have been a success, even during a tough investment period. However, when you factor in the build-out and the shutdown of the consulting/incubation arm of the business, we'll still need a very strong exit from Six Apart to be considered successful by our investors. (Go team Six Apart!)

After winding down the core of Neoteny, I started angel investing with Reid Hoffman. With Reid I invested in Flickr,, Technorati, The Sixty One, Kongregate, Rupture,, Wikia, Aviary and many other companies. I returned to Digital Garage as a board member, the company I co-founded with Kaoru Hayashi which had gone public and incubated PSINet Japan, Infoseek Japan,, econtext and other successful Japanese startups. Digital Garage invested in Twitter and is currently helping operate Twitter Japan.

I've been experimenting and thinking a lot about how to how startups should be incubated. Because of my trauma at Neoteny, I grew very skeptical of institutionalized incubation, feeling that there was an adverse selection which attracted entrepreneurs who wanted to be part of a club rather than scrappy entrepreneurs who were independent. I also decided that every country was very different and that in Japan, having a large operating company like Digital Garage was an important component of incubating companies because of the risk adverseness of employees and the difficulty of creating operating relationships for small companies.

Also, since the Neoteny days, because of the cloud, agile software development and the ecosystem of startups, the cost and speed of producing new Internet services has significantly declined and the markets have become more global. I think this significantly changes the value and nature of the incubation process - it makes it more feasible. Investment sizes are becoming smaller and everything is moving much faster. (More on the future of venture capital in another post.)

This year Reid Hoffman, my main angel investment partner joined Greylock and I have finally begun to get over some of my incubation and CEO phobias. I realized that it was the right time to take what I have been learning and the network that I have been creating and try to put some structure around the process that I'd been developing over the last few years.

My new theory is that incubator/accelerators probably make sense in Japan if/when they are tied together with a network of supporting operating companies. Recently, we launched the Open Network Lab which is a collaboration between my team at Digital Garage and Netprice. It's modeled after some of the more successful US startup and accelerator programs and we are considering working with similar programs to create a network, but we have tuned it for the Japanese context.

Having spent the last year or so trying to understand the market in the Middle East, I came to the conclusion that basing an incubator in the Middle East might be a bit early and I found it difficult to get my network in the US and Japan to connect directly with the network I was developing in the Middle East. After visiting Singapore a few times and running an un-conference there, I realized that Singapore made the perfect hub to bring my European, Arab, Israeli, Japanese, Chinese, Indian, and American contacts together. The Singapore government is super-supportive and receptive of immigrants unlike most Arab countries or Japan. I decided to raise a small startup fund in Singapore and have received a special deal with six other incubators from the National Research Foundation of Singapore which is providing us a significant financial incentive.

The investment focus of the fund, called Neoteny Startup Fund 1, will be Asia, Middle East and maybe even North Africa. Singapore will be the hub because it is so entrepreneur friendly but I will be creating a network of co-investors, incubators and corporate contacts across the region to try to build companies that are global from the beginning and embrace the multi-cultural mishmash that my network has become.

I'm very excited with what I think will be the beginning of a new phase in my life. I will continue to live in Dubai and I believe that creating Arab entrepreneurs and empowering startups is the most significant contribution to peace and that I can make right now in that region. I'm also interested in trying to see if I can connect to Africa where I believe there is also a tremendous amount of potential.

Only a few years ago, I wouldn't have believed that a network as broad and diverse as this could hold together or that I could rally the support of the diverse network of mentors, investors and partners that I currently have. Having said that, I wouldn't be able to maintain this network without the help of my team at Digital Garage together with Mika, James and Sean.

The initial pipeline of companies and entrepreneurs that we have been meeting has been encouraging.

I will still spend about 50% of my time in my role as CEO of Creative Commons and the remainder of my time working on the new fund in Singapore and the portfolio companies and the pipeline of new opportunities including the Open Network Lab at Digital Garage. Digital Garage will still to be my operating base in Japan. I will keep my current commitments such as my advisory role at Twitter and particularly trying to help with the Twitter activities at Digital Garage and in Japan.

I will continue to serve on the boards of the great for-profit and non-profit organization that I am currently on, but will retire from the ones where I don't think I'm able to contribute significant value.

I realize that I haven't done a good job of making my life any simpler or any easier to manage, but I really believe that I have the opportunity and the responsibility to try to make an impact right now and this current configuration feels optimal to me.

I'll follow up with more detailed posts about Singapore, ONL, the future of Creative Commons and Twitter Japan.

Update: I Made a few edits about Neoteny, my original incubator, to be a bit more accurate. Originally, I said that the investment performance was good, but that includes the value of the Six Apart stock so I changed it to "will probably be good". Also, some investors continued to support us and only a few big investors pushed us to return their money so I modified that section to reflect this.


Excellent blog post. I like your thoughts and I'm glad you're retiring from boards you're not really contributing to. It should free some time for your other more important projects. I wish you continued success!

Very interesting story. I enjoined the reading specially because your life is completely different and distant from mine, that's the main reason I follow this blog and your twitter account. It gives me a totally different point of view :)

Anyway you talked about almost the whole world except Central and South America. Do you have plans to invest there or to start something there? I think that there is a huge potential in those countries and the cultural barriers are easier to surpass.

Yeah. I was going to add Latin America but I still need some place to go to "relax". ;-)

Just kidding, yeah, I am very interested in Latin America but I don't have much traction there yet. We'll see!

Great post Joi! I am very excited about all the projects that you are working on! I am also very excited about working on Open Network Lab with you. I will do my best and I wish you all the best!

Thanks for updating your plan. I have understood your new idea finally.
- hm

Great post, Joi. Thanks for sharing :)

Best of luck Joi, truly believe in your vision !

I'd be happy to apply for the position of your SVP of Frequent Flyer Mile Management.

Looking forward to great things!

When are you writing a book about your life? ;)

Kirai: You know you're getting old when a book about your life starts sounding like a long book. ;-)

Oh come on, you old? You 'maintain' yourself so well that you can pass off for a 35-year old.

You're just too busy ;-)

Very happy to see this update, Joi. I don't know what the social web would've done without your catalyzing influence. I have deep admiration and respect for you and the work you've done so far.

So, I gather you're leaving Dubai?

No, I'm not leaving Dubai. I still see a huge opportunity in the Middle East and Dubai is still my base. Initially, I'm bringing my Arab contacts to Singapore to try to connect them with my contacts from the rest of the world. I am still looking for opportunities in Dubai and the Middle East and I think that the next iteration will have a stronger focus on the Middle East.

In fact, I have several deals in my pipeline in the Middle East with one term sheet already on the table.

It's funny how seeing someone reflect and put things in perspective can sometimes help you do the same. This post helped me make sense of quite a bit, much appreciated!

Great post Joi. I am based in KL but i remember vividly how the craze was when i was working with an incubator called Techpacific for 2 years in HK. We were publicly listed and had money from Draper, Fidelity and we had a 10,000 sq feet incubator in the middle of central HK. To be honest, the ecoystem, physical space thing sounded cool but did not make economic sense. Nowadays, I run my projects from home and with my ROR programmers scattered around the country. Incubation today will work even better but it's really leveraging on quick and cheap failures on the development side and white hair experience in the corporate side of things. Btw, hope to see you in Singapore in the Echelon event. take care.

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