Post-Investment Challenges in CVC

The results of the JAPAN CVC SURVEY 2023 have highlighted the challenges faced by Japanese CVCs after making investments. In particular, challenges related to supporting the growth of investees and exit strategies are among the top concerns.

Key Post-Investment Challenges

1. Exit-related Challenges
The most frequently reported challenge was "Large investment deals or M&A outcomes are sometimes different from expectations, causing problems" (43%). This result highlights the difficulty of executing exit strategies.

2. Investment Scale Challenges
"Missing out on subsequent rounds due to valuation and scale issues" (40%) was also commonly reported, indicating significant constraints in funding for ongoing support.

3. Challenges Related to Investee Performance
"There is a gap between hypotheses and actual business progress and performance" (24%) was another issue reported. This suggests a significant discrepancy between initial investment forecasts and actual business developments.

4. Challenges in Follow-on Investments
"Lack of clear criteria for follow-on investments" (14%) was also noted, indicating issues with the decision-making process for continued investments.

5. Other Operational Challenges
- "The value proposition is not fully leveraged in subsequent rounds" (5%)
- "IRR is not aligned with expectations, and strategic objectives are not met" (3%)

## Characteristics and Impact of the Challenges

These challenges can be organized into the following three main areas:

1. Execution of Exit Strategy
- Unexpected developments in M&A or large investment deals
- Feasibility of the exit strategy

2. Ongoing Support System
- Participation in subsequent rounds
- Decision-making criteria for follow-on investments

3. Value Provision and Results
- Gap between business progress and forecasts
- Achievement of strategic objectives

Summary

It is clear that post-investment challenges faced by Japanese CVCs span a wide range of areas, from supporting investee growth to exit strategies. In particular, the following points are crucial:

- Flexible review and adjustment of exit strategies
- Clarification of criteria for participation in subsequent rounds
- Progress management through close communication with investees
- Establishment of decision-making criteria for follow-on investments

Effectively addressing these challenges requires planning for exit strategies from the pre-investment stage, as well as building a system for ongoing monitoring post-investment. Additionally, building constructive relationships with investees to quickly identify and address gaps between expectations and reality is key to success.

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