Chapter Summaries

Nakayama Takuya and his team secured a $930 million offering valuation for Silicon Valley Online after Goldman Sachs accepted their demand to raise the price. As the company prepared to go public, its investors reflected on their returns and Nakayama explained why Sega had shared ownership with American venture capital firms.

• Nakayama Takuya accepted Goldman Sachs's $930 million valuation after the firm raised its offer by $70 million, and the team began finalizing the prospectus for the March 21 listing.
• Donald Valentine and John reviewed the pricing confirmation and calculated that their and KPCB's investments had grown to stakes worth nearly $140 million each.
• Donald asked Nakayama why Sega had given Sequoia Capital and KPCB thirty percent of Silicon Valley Online, and Nakayama said their backing helped the company gain credibility and access to Wall Street.
• John and Donald praised Silicon Valley Online's virtual goods business, noting that users spent an average of $12 a month in ICQ Hall at almost no marginal cost.

Nakayama Takuya, Frank Marshall, Tom Kalinske, Donald Valentine, and John prepared Silicon Valley Online’s Nasdaq debut and agreed to pursue acquisitions after the IPO. At the March 21, 1995 listing, Frank and the American investors rang the opening bell while Nakayama stayed out of sight, and the company presented itself to the press as an American startup backed by American venture capital.

• Donald Valentine and John said Sequoia and KPCB would create or adjust funds to invest more in internet startups after Silicon Valley Online’s financial success.
• Frank told Nakayama Takuya that Goldman Sachs had agreed to the pricing and that the Nasdaq bell-ringing ceremony was scheduled for the next morning.
• Nakayama Takuya locked away the pricing confirmation and said Silicon Valley Online should acquire promising technical teams and expand beyond WeBlog and ICQ; Donald Valentine and John agreed to support reasonable acquisitions.
• On March 21, 1995, Frank Marshall, Tom Kalinske, Donald Valentine, and John rang the opening bell as Silicon Valley Online began trading at $9.30 per share.
• Nakayama Takuya watched from the second-floor VIP area to downplay the company’s Japanese capital connections.
• Frank Marshall, Tom Kalinske, Donald Valentine, and John told reporters a story emphasizing California entrepreneurs, Silicon Valley innovation, and American venture capital, while describing Sega North America as an early investor.

Silicon Valley Online's first day on Nasdaq ended with its stock up 84 percent, while Nakayama Takuya and the investors celebrated the company's soaring valuation and discussed its next moves. Nakayama left the celebration plans to the American executives to avoid portraying the company as Japanese-controlled.

• Frank Marshall told reporters Silicon Valley Online operated independently from Sega's Tokyo headquarters.
• SVOL opened at $12.50 and closed at $17.13, giving the company a market capitalization of $1.713 billion.
• Frank Marshall, Tom Kalinske, Donald Valentine, John, and Nakayama Takuya celebrated the listing and discussed using the new funding for acquisitions.
• Nakayama Takuya told Tom Kalinske they could discuss Microsoft's ICQ preinstallation partnership without paying a fee.
• Nakayama Takuya declined Goldman Sachs's celebration dinner, explaining that his attendance could fuel headlines about Japanese capital taking over Nasdaq.

After Silicon Valley Online went public, American and Japanese newspapers celebrated its success, while Nakayama Takuya urged the company to manage its image and keep expanding. Two days later, the IPO's valuation drew a flood of investors and aspiring entrepreneurs to Redwood City, leaving the company overwhelmed by attention.

• Tom, Frank, and Donald read newspaper coverage praising Silicon Valley Online's listing and its prospects.
• Nakayama Takuya dismissed Japanese claims that Sega had led the Internet transformation and told Frank to promote Silicon Valley Online through university lab sponsorships and startup funds.
• John praised Nakayama Takuya for understanding business, and Tom said the company should grow until it reached Microsoft's level of influence.
• Two days later, investors crowded Silicon Valley Online's campus after its market value reached $1.7 billion and its IPO created a new wealth story.
• Frank described investors besieging the company, while Tom recounted calls to Sega North America and locals eager to start online businesses.

Nakayama Takuya pushed Silicon Valley Online to acquire promising technical teams before the dot-com bubble burst and proposed using a Dungeons & Dragons license to build a 2D online role-playing game. He left Frank and Tom with a plan for handling slow connections and player disconnections.

• Nakayama Takuya told Frank to raise pay and use stock options to retain engineers targeted by headhunters.
• Nakayama Takuya gave Frank an acquisition list and authorized high-premium cash-and-stock offers for teams with strong technical foundations.
• Nakayama Takuya asked Frank to contact TSR about securing exclusive Dungeons & Dragons game adaptation rights.
• Nakayama Takuya proposed a 2D, turn-based multiplayer online role-playing game linked to Silicon Valley Online accounts and monthly fees.
• Nakayama Takuya explained that the game should use server-side hosting during disconnections and restore players to their original positions when they reconnected.

Nakayama Takuya assigned teams to develop an online RPG project codenamed D, while Hoshino and Sugiura refined Sega’s investment targets amid Silicon Valley Online’s soaring valuation. The chapter left the company preparing to expand from social networking into a virtual world and invest in internet infrastructure.

• Nakayama Takuya directed Frank to hire protocol specialists, assess billing with analysts and actuaries, and pursue a TSR license for the RPG.
• Nakayama Takuya assigned game development to Sega North America and told Tom to ensure the project could run on mid-range computers expected within four years.
• Tom agreed to gather Sega’s RPG veterans, while Nakayama Takuya designated the game project D until the development team evaluated its scale.
• Nakayama Takuya asked Hoshino and Sugiura to reassess investment targets as Silicon Valley Online’s stock surged.
• Hoshino recommended Cisco and leading ISP operators, while Sugiura argued that AOL’s costly expansion warranted placing it on a watch list pending its next quarterly report.
• Nakayama Takuya praised Hoshino and Sugiura’s investment judgment and said their acquisitions and investments had built Sega’s industry ecosystem and barriers.

Nakayama Takuya visited Blizzard to review Black Tide's progress and reassure Mike Morhaime that he would shield the team from outside pressure. He approved unusual creative-material expenses and left Blizzard's development work in Mike's hands.

• Nakayama Takuya declined Hoshino's suggestion that he return to Tokyo for a strategy meeting and asked Hoshino and Sugiura to coordinate Silicon Valley Online's follow-up work with Tom Kalinske.
• Nakayama Takuya visited Blizzard, praised Mason's worldbuilding work, and told Mike Morhaime that Black Tide's progress could follow its own rhythm.
• Nakayama Takuya asked Mike Morhaime to make three employees shower before the end of the workday, then urged Mike to take care of the team's health.
• Grant reported several hard-to-classify purchases, and Nakayama Takuya approved them as creative materials while telling Grant to report unusual matters to Tom Kalinske.

Nakayama Takuya visited NVIDIA and urged Jensen Huang to begin researching triangle-rendering graphics alongside NV1, offering Sega as a potential future customer. Jensen agreed to arrange a preliminary feasibility study, while NV1’s fate remained uncertain as its test results came in.

• After visiting Blizzard, Nakayama Takuya traveled to Santa Clara and met with Jensen Huang at NVIDIA.
• Nakayama Takuya asked when NV1 would launch, and Jensen Huang said it was scheduled for May with testing and production preparations underway.
• Nakayama Takuya urged Jensen Huang to continue NV1 while starting preliminary research on triangle rendering, since Microsoft and Silicon Graphics were moving toward that standard.
• Nakayama Takuya offered the prospect of phased research and procurement agreements with Sega if NVIDIA developed technical reserves for future graphics chips.
• Jensen Huang agreed to hire two people to study triangle-rendering architecture, while postponing a formal project decision until after NV1 launched.
• As Nakayama Takuya left, he saw two engineers carrying an NV1 test board to report its latest data.

Netscape’s reported $7 million profit sparked a rush among investment banks to secure its IPO underwriting, while Nakayama Takuya followed the news on his way to inspect E3 preparations in Los Angeles. He reviewed the convention center’s layout and pressed IDSA coordinator Kevin to prioritize crowd flow and exhibition logistics, then asked about the space reserved in the West Hall.

• Netscape announced that its cumulative profit had exceeded $7 million, drawing investment bankers to its Mountain View office and intensifying interest in its IPO.
• Nakayama Takuya heard reports of the underwriting scramble and George Fisher’s visit while traveling to Los Angeles.
• Nakayama Takuya toured the E3 central hall and told Kevin that the main aisle needed to support the audience’s movement between press conferences and the south hall.
• Nakayama Takuya inspected the south hall, noting the positions of Sony, Sega, Nintendo, Atari, and 3DO, then continued to the west hall.
• Nakayama Takuya pointed to an area in the west hall and asked Kevin how much space had been left around it.

Nakayama Takuya inspected the Los Angeles Convention Center and finalized preparations for the upcoming exhibition before flying back to Tokyo. After reaching home, he went to the Haneda main house and found Kazuki and Nakayama Hayao building an Ultraman secret base out of sofa cushions.

• Nakayama Takuya reviewed the convention center’s exhibition areas and told Kevin to manage EA’s booth boundaries, merchandise foot traffic, and coordination with exhibitors.
• Nakayama Takuya praised Kevin’s venue planning, then chose the earliest flight back to Tokyo after finishing his U.S. business.
• Nakayama Takuya arrived home early, learned from Nakayama Miyuki that Eri and Kazuki were at the Haneda main house, and headed there.
• Nakayama Takuya found Kazuki and Nakayama Hayao building a fortress from sofa cushions while Kazuki held his limited-edition Ultraman Taro figure.

Nakayama Hayao praised Nakayama Takuya’s leadership of Sega and announced his plan to hand over authority and make him the next president. Nakayama Takuya worried about the timing, but Nakayama Hayao insisted he was the better person to steer the company.

• Nakayama Takuya returned from the United States and joined his family for breakfast after playing with Kazuki.
• Nakayama Hayao invited Nakayama Takuya to the study to discuss Sega’s strategy and Silicon Valley Online’s strong first day of trading.
• Nakayama Hayao credited Nakayama Takuya with improving Sega’s finances, coordinating its departments, and building successful partnerships.
• Nakayama Hayao said he was sixty-three and planned to transfer front-line business and personnel authority to Nakayama Takuya over the next one to two years.
• Nakayama Takuya questioned whether a leadership change would be too rushed, but Nakayama Hayao declared that he would become Sega’s next president.

Nakayama Takuya agreed to Nakayama Hayao’s gradual retirement from Sega and watched Wall Street rush to underwrite Netscape’s IPO. As Sega prepared for E3 and pursued DND licensing, Takuya began handing Hisao Oguchi more responsibility and headed to CSK Group.

• Nakayama Hayao told Nakayama Takuya he was willing to give up power, and Takuya agreed to a one- or two-year handover while keeping Hayao involved in major strategic decisions.
• Nakayama Takuya reviewed a fax about Netscape’s IPO and learned that Morgan Stanley and Hambrecht & Quist had assembled a 26-bank underwriting syndicate with preliminary pricing of $12 to $14 per share.
• Nakayama Takuya told Frank that Netscape’s valuation was too conservative and warned that Microsoft could threaten its browser business, while Silicon Valley Online had stronger cash flow from its social features and item sales.
• Hisao Oguchi reported that the ventilation upgrade for Kentia Hall at the Los Angeles Convention Center was 11 percent over budget, and Nakayama Takuya approved the expense for the E3 event.
• Hisao Oguchi told Nakayama Takuya that Sega of America had begun DND licensing talks with TSR, and Takuya instructed Tom to seek an extended exclusive term or a buyout.
• Nakayama Takuya told Hisao Oguchi to delegate non-core work and take over some of his cross-department coordination duties, then left for CSK Group.

Nakayama Takuya met with CSK Group founder and Sega shareholder Okawa Isao to make the case for his succession as Sega’s next president. Okawa approved the transfer of power, while Takuya framed content and market share as Sega’s defenses against Sony.

• Nakayama Hayao told Nakayama Takuya that Okawa Isao wanted to judge whether he could lead Sega, and they went to CSK Group headquarters.
• Nakayama Takuya defended Sega’s broad strategy, including its cooperation with Bandai, overseas promotion, and internet investments, to Okawa Isao.
• Nakayama Takuya said Sega would use exclusive games and third-party partnerships to compete with Sony, and Okawa Isao raised no objection to his becoming president.
• After the meeting, Nakayama Hayao said Okawa Isao’s approval would prevent other shareholders from obstructing the succession.
• Nakayama Takuya’s rise within Sega had already reshaped its internal power structure and prevented the company from bringing in outside executives to direct its transition.

Nakayama Takuya aligned Sega’s arcade and console R&D funding, arguing that arcade experiments should help advance the company’s home systems. He won Takahashi’s support for his coming presidency by promising to resolve technical staff’s concerns and curb internal conflict.

• Nakayama Takuya discussed Sega’s management changes with Nakayama Hayao, who agreed to speak with David Rosen after Takuya consulted the other shareholders and directors.
• Nakayama Takuya met Takahashi at the arcade testing laboratory and presented a plan for the home console and handheld divisions to cover 40 percent of arcade platform experimentation costs.
• Nakayama Takuya argued that arcade R&D produced technology and games that supported Sega’s consoles, and proposed making the arcade division the company’s technological front line.
• Takahashi asked whether Nakayama Takuya was preparing to become president, and Takuya confirmed that he had settled the matter with Chairman Okawa Isao.
• Takahashi agreed to support Nakayama Takuya if he resolved Yu Suzuki’s complaints about rendering efficiency and prevented internal wrangling from disrupting technical work.

Nakayama Takuya proposed adding a custom NVIDIA graphics chip to Sega's Model 2 board to solve the performance problems delaying Virtua Fighter 3, and Yu Suzuki agreed to begin toolchain changes. The chapter ended with Nakayama directing Sega's DND licensing negotiations and E3 preparations.

• Nakayama Takuya found Yu Suzuki struggling with Model 2's inability to handle Virtua Fighter 3's terrain physics and graphics at a stable frame rate.
• Nakayama Takuya rejected adding a coprocessor and proposed an independent graphics chip for rendering.
• Nakayama Takuya told Yu Suzuki that NVIDIA, led by Jensen Huang, was researching a triangle-rendering chip for Sega's boards and next-generation console.
• Yu Suzuki accepted the plan, agreed to start modifying the toolchain, and learned NVIDIA engineers would arrive in Tokyo the following month.
• Hisao Oguchi told Nakayama Takuya that TSR wanted electronic-game derivative rights in the DND negotiations, and Nakayama ordered Tom to hold firm on exclusive authorization.
• Nakayama Takuya instructed Hisao Oguchi to recheck the E3 promotional videos for errors.

Nakayama Takuya proposed that Sega move beyond low-cost manufacturing and secure upstream chip and memory supply. Terauchi agreed that investing in TSMC made sense, while Nakayama left potential Korean memory investments for Director Hoshino to explore.

• Terauchi met with Nakayama Takuya after inspecting semiconductor capacity in Taipei and praised his past supply-chain strategy.
• Nakayama Takuya argued that Sega should move upstream into chips and memory as the benefits of low-cost manufacturing diminished.
• Nakayama Takuya proposed gaining a stake in TSMC by leveraging Sega’s and NVIDIA’s future orders during TSMC’s planned expansion.
• Terauchi warned that building a fab would be risky, and Nakayama Takuya said Sega should seek an investment rather than take on the burden of jointly constructing one.
• Nakayama Takuya rejected investing in struggling Japanese DRAM makers and said he would ask Director Hoshino to watch for opportunities with Samsung or SK.

Nakayama Takuya secured Terauchi’s support for Sega’s potential investment in TSMC, then shifted his attention to preparing for the first E3 expo. As the exhibition approached, he reviewed the event plans and the participating manufacturers’ representatives before turning to Sega’s own lineup.

• Nakayama Takuya explained that Sega would have to wait for new storage technology, since flash memory was costly and the available suppliers were inaccessible.
• Nakayama Takuya promised Terauchi a seat on TSMC’s board, and Terauchi agreed to cast his supply-chain vote for him while warning that he still needed to persuade Hatano.
• Nakayama Takuya set aside meetings with other directors and focused on preparations for the first E3, less than two months away.
• Hisao Oguchi presented the IDSA handbook, exhibitor list, and Sega’s booth plans, and Nakayama Takuya checked that Sega’s placement and promotion were on track.
• Nakayama Takuya reviewed the manufacturers’ representatives, including Shigeru Miyamoto, Ken Kutaragi, and Yoshiki Okamoto, then turned his attention to Sega’s own offerings.

Nakayama Takuya and Hisao Oguchi finalized Sega’s preparations for E3, then Takuya met with Hoshino and Sugiura after their successful work on Silicon Valley Online’s Nasdaq listing. Hoshino and Sugiura pledged the investment department’s support as rumors spread that Takuya would join Sega’s board and possibly become president.

• Hisao Oguchi briefed Nakayama Takuya on the MGS2 demo, game trailers, endorsements, and exhibition merchandise, and Takuya approved the plans.
• Nakayama Takuya ordered a final internal acceptance review, directing Sega to cut any games that still failed after an additional half month.
• Nakayama Takuya and Hisao Oguchi spent seven days completing E3 preparations, after which Takuya added visits to Sega’s major directors to his schedule.
• Hoshino and Sugiura returned from New York after helping complete Silicon Valley Online’s Nasdaq listing and reviewed the resulting financial reports.
• Hoshino and Sugiura told Nakayama Takuya they would support him in the boardroom and back his rise to leadership.

Nakayama Takuya assigned Hoshino and Sugiura to investigate Southeast Asian economies and pursue a stake in TSMC. He then visited Sega Galaxy, whose licensing operations Hattori had successfully developed.

• Nakayama Takuya told Hoshino and Sugiura to research Thailand, Malaysia, the Philippines, and Indonesia for signs of financial vulnerability and potential investment opportunities.
• Hoshino agreed to assemble a team to gather detailed economic and foreign-exchange data on the four countries.
• Nakayama Takuya instructed Hoshino and Sugiura to seek an equity stake in TSMC, using Sega's orders and TSMC's need for funding and long-term clients as leverage.
• Nakayama Takuya assigned Director Terauchi to provide business leverage and Hoshino to handle funding and equity-transfer arrangements.
• Nakayama Takuya visited Sega Galaxy and reflected on how Hattori had managed its core and secondary character licensing without oversaturating the market.

Nakayama Takuya visited Hattori to thank him for supporting his appointment as president and presented agreements involving NEON GENESIS EVANGELION and Rurouni Kenshin. Hattori learned how Nakayama had secured the deals, while the conversation ended with Nakayama explaining Watsuki’s unusual idea for a live-action adaptation.

• Hattori told Nakayama Takuya that he supported his becoming president and believed the promotion should have happened sooner.
• Nakayama gave Hattori an agreement covering Gainax equity cooperation, copyright development priorities, and the NEON GENESIS EVANGELION production committee.
• Nakayama explained that Hideaki Anno had asked him to help protect Anno’s control over EVA’s core copyright amid disagreements with Gainax management.
• Nakayama showed Hattori agreements for Rurouni Kenshin game and live-action adaptation rights.
• Nakayama told Hattori that Nobuhiro Watsuki had proposed filming Kenshin with the feel of a China wuxia drama rather than a traditional Japanese sword-fighting film.