A conversation with John "Jack" Wadsworth, Jr., Honorary Chairman of Morgan Stanley Asia.

• Author: Li, Zhan
• Position: Interview

JABS: Morgan Stanley is very active in the venture capital investment business. How did Morgan Stanley get involved in this business in the first place?

A: Morgan Stanley, in the United States, started the venture capital business in 1982. It was driven by our entry into the high tech investment business. Our first deal was the IPO for Apple Computer. We learned a lot. We recognized that venture capital investment, if successful, can make a lot more money than underwriting an IPO. We also learned that financial organizations and investment banks are not equipped to do start-ups. The companies that can do start-ups are the specialized tech venture firms. These companies are comprised of engineers and people who have run start-up companies and people who are experienced in the venture capital business. The best way for Morgan Stanley to participate in that opportunity would be to link up with a handful of leading specialized startup firms. So, we entered the venture capital business in the United States, and raised a $15 million fund for Kleiner Perkins in 1982. This earned us a small stake in their general partnership and a friendship that still exists today. We probably have done 45% of their IPOs. That strategy paid off.

JABS: Morgan Stanley's first entry into Asia was Japan. Could you elaborate on differences in entrepreneurial culture and environment among the U.S., Japan, and other Asian countries?

A: When we went to Japan in 1987, we had a dream that, since we were newcomers to the Japanese market, a way to dive into the equity business would be to use the same formula we used in the United States, We started up a venture capital business to get in early into the IPO business in Japan. After 6 months, we realized that this approach would not work because there were many critical differences between Japan and the U.S.A.

Japan has the technologies and market size. It also has plenty of big companies that you would normally expect to spin off teems of entrepreneurs. But, risk taking is not a big part of Japanese culture, and failure is not well accepted in Japanese society either. In Silicon Valley, if your resume shows that you have run a company that went into bankruptcy, it could be seen as a good thing, as it gives investors some confidence that you have been through the cycles of a company. Additionally, the Japanese education system could place more emphasis on liberal arts and MBA education, to encourage risk taking and entrepreneurial behavior. Nonetheless, there are a handful of entrepreneurs who are well known in the Japanese history.

Across the rest of the region, you would find that Hong Kong and Singapore have plenty of risk taking entrepreneurs. But their small economies limit the potential of creating large companies that have upside opportunities. Australia is similar. It is a very interesting place and has many of the cultural attributes you would expect to encourage venture capital and risk taking. But again, its small economy limits the potential of the venture capital business there.

JABS: Could you elaborate a bit...