Venture Investments and the Public Stock Market: Evaluating Them Through the Same Framework—A Capitalist’s Perspective from an Analyst Background

Masahiko Maekawa

Managing Director, DG Ventures Inc.
Director, DG Incubation Inc.

‍Graduate of the Faculty of Economics, Kyoto University. After gaining broad experience in roles such as economist and analyst at both domestic and foreign banks, securities firms, and asset management companies, he joined Japan Post Co., Ltd. He contributed to the preparation for the listing of three Japan Post Group companies and efforts to acquire and execute sponsorship rights for the Tokyo 2020 Olympic and Paralympic Games. In 2017, he led the establishment of Japan Post Capital, where he served as Executive Director. As the head of the investment division, he worked on building internal and external relations, handling large deals such as Mercari, Sansan, and SmartNews. To further promote the venture investment industry, he joined DG Ventures in August 2020.

He is also a director at DG Incubation Inc., which manages pioneering Japanese acceleration programs such as Open Network Lab and the joint CVC with Yokohama Bank, Hamagin DG Innovation Fund, and leads investment execution.

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Witnessing the Birth of Japan's Unicorn Companies

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- Mr. Maekawa, you led the establishment of Japan Post Capital (JPC), supporting the creation of Japan's representative unicorn companies like Mercari and Sansan as a VC, and you joined DG Ventures in August 2020. To start, could you share your experience from that time?

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As a founding member of Japan Post Capital in 2016 and having served as Executive Director, I had the opportunity to manage a fund worth approximately ¥20 billion, which was one of the largest at the time. Thanks to this, I was able to meet and invest in unicorns like Mercari, SmartNews, and Sansan before they went public. Fortunately, in all the investments I was involved in, I never experienced any unrealized losses on a fiscal year basis, and I believe I was able to contribute as a capitalist.

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- When identifying and investing in companies that could become unicorns, what areas or business models did you focus on?

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Rather than focusing on specific areas or business models, I place importance on investing in businesses that are creating new value. When I invested in Mercari, the company was challenging various spin-off businesses, and naturally, there were unprofitable ventures at that time. However, the core Mercari business, the smartphone-based flea market service, was already delivering sufficient value to customers and was becoming a profitable service.

There are many startups whose services offer efficiency improvements or cost reductions to customers, but I believe that these alone have their limits. The difference between “creating value by increasing efficiency or cutting costs” and “creating new added value” is significant. If a business can create genuine new value, it has the potential to raise its unit price in the future.

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The Importance of “Numbers” in Venture Investment

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- Do you have a way of identifying businesses that “create new added value”?

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It may sound like fortune-telling, but for me, I unravel it through numbers. Some people may think of a startup’s business plan as an uncertain future vision, like “pie in the sky.” However, even if the numbers seem outrageous at first glance, if the plan is well thought-out, it may actually be feasible. It is important to calmly analyze how likely it is that this potential could be realized.

Since business is ultimately about numbers, I believe that quantitative analysis is essential, even in venture investment. From my experience as an equity analyst, I became accustomed to reviewing the figures behind research reports that form the basis of business plans, assessing their roughness, finding more accurate statistics, and making reasonable estimations.

For example, revenue is simply “unit price times quantity.” Regarding this “quantity,” I independently estimate the market size, verify whether the numbers are achievable, and check if I can convince myself. Using such calculations, I create my own forecasts, communicate and discuss them with the startup team, and assess whether the business has high added value and whether the investment can be justified, in terms of market size, competitiveness, and valuation.

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- I see, in venture investment, numbers are often overlooked. Why do you think this is an important factor in investment?

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When we founded Japan Post Capital, my colleague was a strategist for listed stocks, and I myself was an equity analyst. As a result, both of us invested while considering stock valuation points in the market, particularly focusing on “EPS (Earnings Per Share)” as an important factor in venture investment when thinking about exit strategies. Looking back at the results, I can confirm that this approach was, to some extent, correct. This is a significant reason why we place importance on it.

It seems that there is a general perception that “VCs are only involved until the company goes public.” However, few capitalists consider stock market trends after the company’s listing. I feel that this is a key differentiator for both myself and our fund.

Venture investment is exciting because it involves betting on the qualities and talents of entrepreneurs. However, if the exit period coincides with a market downturn, we cannot expect a satisfactory valuation. No matter how talented an individual or how great a company is, the power of one person cannot overcome market trends. I always keep this fact in mind and make sure that my investment activities and communication with portfolio companies reflect the perspective of how they will be valued in the stock market. I continually watch the public stock market and share actions with investees that will help them be valued highly even after going public.

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A Strong Sense of Numbers Developed as an Economist and Analyst

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- Could you tell us about your life before becoming an investor? What kind of child were you like when you were younger?

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In a word, I think I was a "weird child" (laughs). When I was little, I was always with my older sister, who is two years older than me, and I had no problem playing among 10 girls as the only boy. I remember in second grade, when the teacher taught that the kanji for "sky" was "ウかんむり" (the radical for "u"), I corrected her by saying, "It should be '穴かんむり' (the radical for 'hole')," and thought to myself, "Maybe I'm smarter than the teacher?" (laughs)

I also loved history. I was passionate about Japanese history and the Three Kingdoms period, and even in middle school, I would point out mistakes the teacher made during history lessons. I wasn't the type to get close to teachers, but I did like a PE teacher who had graduated from Nippon Sport Science University. He hit me several times, but that was normal back then. Still, I was the type of person who could honestly apologize if I was wrong. I remember respecting him because, when we exercised together, he had incredible athletic ability and was a super player.

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- What kind of job did you want to have in the future?

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When I joined the bank as a new graduate, I had a clear goal of becoming an economist. Since I often read history textbooks as a child, I thought, "How can I become someone who appears in textbooks?" I then imagined that I could either become the Prime Minister or win a Nobel Prize. I wasn't really interested in politics, but I thought, "If I could win the Nobel Prize in economics, which no Japanese person had won yet, that would be interesting."

I think I’ve always liked and been good at analyzing things, discovering the factors and principles behind what’s working well, and then developing reproducible methods myself. Because of this, by the time I graduated from university, I had come to the conclusion that becoming an economist or analyst would suit me.

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- What kind of work did you do in your early career?

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After joining Sanwa Bank, I was assigned to handle "problematic clients." Back then, if there was even a single yen lost in a loan, I had to write a report to the branch manager, and since I was handling the "problematic" clients, I ended up writing a lot of reports.
However, it wasn’t a difficult task for me. I would analyze why a loan ended up going bad by digging through all the past internal approval documents and fully understanding the financial situation of the client company, even to the point where I could create my own cash flow statement. Sometimes, I would even visit the locations where the approval documents for the loans had been stored before the jurisdiction moved to our branch, and I would analyze them. This was an excellent experience in developing the ability to understand the actual business situation numerically.

After that, I moved to the research department and became an economist analyzing financial markets from a macro perspective. Later, I joined UBS as an analyst, covering mid- to small-cap stocks with market capitalization ranging from a few billion yen to 500 billion yen. I was engaged in stock price evaluation and analysis based on fundamentals and individual company situations.
In 2006, I was handling venture companies listed on the stock exchange, such as GMO, Watami, and Goodwill, directly talking with the founders and management teams to understand the company’s situation and analyze stock prices. This experience helped me develop the perspective that having a market outlook is important even in venture investing.

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- What was the path that led you to become a venture capitalist?

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After UBS, I moved to Nomura Securities, where I shifted from the equity world to work in the corporate bond market. In this market, large companies issue bonds, and institutional investors trade with them, making it a more closed industry with fewer participants compared to equities. It was a complete change of perspective.

Once I figured out how to succeed in this market, it became enjoyable, and I even thought this might be my true calling. However, after a while, I felt like I had accomplished what I could, and around that time, I was invited to join Japan Post by a senior from my research department who was working as an executive at Japan Post.

After joining Japan Post, I was responsible for M&A deals with major real estate companies and financial management of nearly 30 related companies. When a major M&A deal fell through, I proposed, as a new growth initiative using Japan Post's cash and assets, the establishment of a venture capital firm, which was approved by management. Once the green light was given, I quickly moved forward with formalizing and assembling the execution team, bringing in a friend who had been a strategist and had a similar background.

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- How did you establish a venture capital firm with no experience and no internal structure?

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At the beginning, I started with personal connections. Startups often have management teams that are well-connected with one another, and as I dealt with one project after another, I started being introduced to other startups by counterparts in those companies.
This is how I met companies like Mercari, SmartNews, and Sansan. I remember passionately debating the accuracy of parameters and working together on Excel models for their business plans, discussing the numbers intensely.

JPC was a fund of over 20 billion yen, which was considered relatively large at the time. Therefore, the fact that there were few VC firms capable of continuously supporting the growth of promising domestic unicorn startups worked to our advantage in sourcing deals.

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Solving the Challenges of CVC Through Innovation

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- Why did you decide to join the Digital Garage Group?

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Around 2018, the term "DX" (Digital Transformation) rapidly became a buzzword across Japan. There are various definitions and perspectives on "DX," but from my standpoint as someone who has been involved in venture investing, I thought that industries and sectors that had not yet adopted "cashless" and "digital marketing" were likely the areas where DX was lagging behind.

While thinking about this, I encountered Digital Garage (DG). DG Group is a rare company that has strengths in both "cashless" and "digital marketing". I felt that, in the context of the rapidly accelerating trend of DX, it would be possible to create new businesses and value through CVC investments. I thought this could be the right environment to put my new perspective as an investor into practice, and that's when I decided I wanted to take on the challenge.

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- Recently, in January 2021, you launched a joint CVC fund with Yokohama Bank, called "Hamagin DG Innovation Investment Limited Liability Partnership."

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The CVC with Yokohama Bank began as a challenge driven by my interest in the impact that business collaborations and service innovations could achieve through startup investments. However, as I’ve mentioned before, I believe that even in CVC investments, it is crucial to consider financial returns when thinking about investment activities.

I focus on how to find deals where I can expect sufficient financial returns and how to make those investments happen, even in the context of CVC. Purely financially viable projects that also create business value are rare, so I wanted to engage in a platform where each investment would have a significant impact. This is why I paid attention to regional banks.

Regional banks are key players in local economies and are deeply connected to the lives of people in their communities. I believe that if we can create an impact on Yokohama Bank's business and services through investments, the effect on the regional economy and people's lives would be substantial.

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- At JPC, you led a venture capital firm conducting pure investment activities under a corporate umbrella, but now you are a CVC capitalist. Is there a difference?

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When people think of CVC investments, they often associate them with the expectation of business synergies, but since it is still an "investment activity," I believe that financial returns should be emphasized when making investments, so there is no fundamental difference.

Creating new businesses through CVC investment with multiple startups is a highly challenging task. There are many bottlenecks, such as the scale of investments, the collaboration with business divisions, and the cost-effectiveness of projects.

When a CVC fund with a few billion yen is investing tens of millions to a hundred million yen per deal, the primary targets tend to be early- to mid-stage startups. However, at this stage, since the product is often not fully developed, it's difficult to find synergy with the business divisions. If CVC members try to bridge this gap, it requires a significant amount of manpower. Additionally, when the investments are focused on early- to mid-stage companies, the exit timeline becomes naturally longer.
Handling a situation where the business is immature, it's hard to evaluate synergies, and the exit timeline is lengthy, is quite a challenging mission.

Therefore, we’ve come up with two strategies from an investment perspective. One is vintage management, which helps diversify stages. While this is a basic concept in venture capital, instead of focusing on a specific stage, we cover a wide range of stages—from seed to pre-IPO—while assessing the characteristics of each deal, and we manage the portfolio in a way that spreads out the exit timeline. The second is flexible investment sizing. Although the DG Innovation fund is 3 billion yen, we also have an eye on collaborating with mid- to late-stage startups that have developed excellent products, and we are considering investments in the range of a few hundred million yen, which is the ticket size they are looking for.

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Even in CVC, the Growth of Startups Comes First

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- What kind of role should investors aim to play for startups?

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The value of an investor to a startup ultimately comes down to "providing funding," in my opinion. When considering an investment, we analyze and evaluate the business content and plans, but the entrepreneur and the management team are the ones who are most familiar with their business and company. Therefore, after making an investment, interfering with business strategies or decisions does not always lead to good results.
This might sound a bit unusual coming from someone in CVC, but investors should resonate with the entrepreneur's plans, who is dedicating their life to starting and expanding the business. After thoroughly examining these plans, we should believe that success is possible and invest accordingly. Our role should be to provide the necessary funds to support the vision and offer effective assistance when required, without imposing the business concerns of the investor company. For business collaborations, these should only be promoted if they genuinely contribute to the startup's growth.

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- Mr. Maekawa, what do you find interesting about the job of a "CVC Capitalist"?

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Since we deal with the future, it is impossible to perfectly foresee both the "flow" and the "results." No matter how much analysis you do, the interesting part of being a capitalist is that you can work under the assumption that there is always something wrong with your own thoughts or perspectives. Since you don’t have certainty, you take actions such as diversifying your investments or reconsidering the investment scale. As time goes on, you start to notice discrepancies between your initial assumptions and the actual outcomes. Analyzing what these discrepancies mean and why they happened is exciting, as it helps you improve your approach for the next deal.

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- As a capitalist, what kind of entrepreneurs would you like to meet in the future?

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Regardless of the phase, I want to support startups with "entrepreneurs who have a high-level perspective."

Entrepreneurs with a high-level perspective are always sensitive to whether their business model is creating new value and are keenly interested in the formation of stock prices after an IPO. I want to meet entrepreneur teams with a long-term vision, ones who are focused not only on the present but also on the future. If entrepreneurs have a clear goal and understand the distance to it, the phase at which I get involved becomes less important. What matters is the direction of the goal and the timeline to reach it. From there, the only difference is when I can get involved.

In terms of business models, while it has become standard to bring overseas businesses to Japan and localize them, I am looking forward to seeing innovative ideas and products from Japan that break out of this mold. I hope to see businesses that can be accepted in Asia and globally, and I want to support entrepreneurs with these types of ideas.

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