CVC Capitalists Actively Engage in Innovation and Creation

Keita Yamashita

Hakuhodo DY Ventures

Born in 1987. While attending university, he founded a venture business and, after securing funding from a venture capital firm and gaining about 2 years of business experience, he worked in business development, investments & M&A, and corporate affairs at two major internet-based companies after graduation.

Since 2017, he has been involved in the establishment of a new company in the fintech and Web3 fields (cryptocurrency exchange business), where he was responsible for business development and corporate affairs.

Currently, he works as a manager at Hakuhodo DY Ventures (HDYV), the CVC of Hakuhodo DY Holdings, where he is involved in venture investment operations, supporting portfolio companies, and business collaborations with group companies.

‍

‍

The Beginning: The Desire to Start a Business Myself

‍

- Mr. Yamashita, you have had various experiences from founding a venture in your student days to working in business development, M&A, and more at major internet companies. Could you tell us about the transitions that led you here?

‍

My parents were both civil servants, and while my grandparents ran a small business, there wasn’t a clear inspiration for me. However, I’ve always been interested in new businesses, and I've always had the feeling that one day I would want to start my own business.

In the background, when I was in high school, Takafumi Horie from Livedoor was gaining attention and appearing on TV, and his story made me think, "Venture businesses are cool!" He became a role model for me at that time. Additionally, Shin Fujita, the founder and CEO of CyberAgent, is from Sabae, Fukui Prefecture, which is next to my hometown in Ishikawa Prefecture. He was a local celebrity for being the youngest entrepreneur to list his company in the internet age, and I admired him and felt a sense of closeness because of that.

One day, I saw an announcement on Fujita’s blog about a "new business contest" that was open to the public, including students. I decided to boldly submit a business plan I had been thinking about. In 2005, as a 17-year-old high school student from a rural area, I put together a PowerPoint presentation with a business plan and Excel sheet numbers, printed them at school, and mailed it to CyberAgent in Shibuya. Looking back now, it was clearly a strange document...

However, out of many applicants, my submission stood out as "coming from a high school student," and I received a call saying, "How about coming to talk in Shibuya? We’ll send you a plane ticket." I skipped school that afternoon and flew to Tokyo.

‍

- That’s an incredible turn of events! What happened when you went to Tokyo?

‍

When I visited their office in Shibuya’s Mark City, I was greeted by one of their executives. The business I had submitted was a system for an electronic money service that could be used both in stores and online. It allowed you to charge or pay via barcode at convenience stores and drugstores, and make payments or transfers using an associated account or email address online. Nowadays, QR and barcode payments at stores are common, but back then (15 years ago), such services didn’t exist, and I explained it as "a combination of a store barcode loyalty card and PayPal’s online payment system."

While discussing the business with the executive, they said, "Fujita’s schedule is open for 30 minutes, do you want to meet him?" This led to an opportunity to meet with Fujita in his executive office. He asked me, "You’re in your third year of high school, so what are your plans for next year?" Until that point, I hadn’t really thought about it, but on the spot, I said, "I’ll be going to university in Tokyo, so please let me work at CyberAgent." He agreed, and about six months later, I successfully entered university.

‍

- So, you actually started working there?

‍

Yes. I was hired as a part-time employee while attending university, and I was seconded to a newly established subsidiary. At that time, the company had only been around for two months, with just four full-time employees (including the executive) and me as the fifth part-time worker. It was truly a startup. The business focused on Web 2.0, which was gaining momentum at the time, specializing in bus marketing (advertising through blogs and word-of-mouth) as an agency.

I worked three full days a week, and during the summer and winter breaks, I worked five days a week at the Shibuya office. My tasks included managing advertising projects and launching an influencer network service, where we connected influential bloggers and gave them PR projects. I was involved in everything from service planning to directing system development.

The people I worked with back then were full of vitality, and the environment was one where everyone worked passionately and freely. More than half of them are now successful startup founders or investors, and looking back, I feel incredibly fortunate to have worked with such passionate people when I first moved to Tokyo and knew nothing.

In my second year of university, I also started working at another internet company within a group providing payment services. This company, which was in its second year of listing on the Mothers market, continued to grow and eventually reached a market capitalization of over 1 trillion yen. During that time, I worked under an executive and was responsible for web marketing, managing around 1-3 million yen per month in listing ads. Since the executive also worked as a partner at the group’s venture capital firm, he suggested I start my own venture, and as a result, I received seed investment and, in my third year of university, took a leave of absence and founded my own company in 2008.

‍

- What motivated you to start your own business?

‍

At first, my motivation was simply the desire to run my own company and business. I think the influence of my boss, who was an entrepreneur himself, played a role as well. After founding the company, I started outsourcing web marketing and production tasks through connections from my part-time job, and over the course of a year, we shifted to focus on our own services. Although we created media and services for the mobile phone market, which was booming at the time, it ultimately didn’t succeed. As we reduced outsourcing, cash flow became increasingly tight, and the global financial crisis around 2008 also affected our business, leading to the company’s closure and my return to university with my dreams unfulfilled.

‍

- After that, you joined an internet company as a new graduate, right?

‍

When I was thinking about my next steps after my startup didn’t work out, I realized that I had failed to monetize the business, and I wanted to gain experience in a business model that could actually be profitable. Another factor was my desire to work in an environment with people from various backgrounds. The company I joined began aggressively expanding its business scale around 2011. When I joined, it had about 300 employees, but by the following year, it had 800, and the year after that, it reached 1500 employees. This rapid growth attracted talented people from many different companies.

Business-wise, the company was transitioning from an SNS focused on its own game content to an open platform for gaming, and after joining, I worked as a director for the platform, responsible for API/SDK specifications, data analysis, and business development, including international markets. In my last year and a half at the company, I moved to the investment and incubation division, where I was responsible for investing in three startups in the medical and sharing economy sectors.

‍

- You were at that company for about 5 years and then transitioned to another for around 2 years, correct?

‍

Yes. The company I joined as a new graduate shifted its focus to game content, but I had originally wanted to look at the broader internet business, which led me to move to a new company.

The company I joined was also a large internet firm known as a "mega venture." After their original game titles became hits, they were able to invest in new ventures, and at that time, I joined the corporate planning department. There, I helped execute business ideas based on internal ideas, organized offsite meetings for smooth communication between executives and staff, and handled investment tasks like M&As and LP investments in venture capital funds for new business ventures.

‍

- After that, you became involved in the launch of a fintech venture.

‍

The opportunity came when I met members of a startup team. They had been acquired by a major internet company but lacked someone to handle the business side of their plans for the next phase. I had been working at my current job for only two years and hadn’t considered changing jobs, but I was very interested in fintech, especially with the rise of Bitcoin and cryptocurrencies at the time. I felt there was great potential in the idea of a mobile app offering both a crypto wallet and exchange service.

It felt similar to the emergence of WEB2.0 when I was a student, and looking back, I believe that intuition was correct. In the summer of 2017, I decided to join, and from then on, it was incredibly busy. I was mainly involved in the process of acquiring a license for a cryptocurrency exchange (currently called crypto asset exchange) from the Financial Services Agency, as well as setting up internal regulations, business plans, and various systems related to anti-money laundering and security.

By the end of 2017, we had successfully submitted the application, and by February 2018, we had completed the registration process with the authorities (the Financial Services Agency and Ministry of Finance, Kanto Regional Finance Bureau), allowing the business to launch.

‍

- It's impressive that you were able to prepare everything in a short time in a new business area that requires approval from the Financial Services Agency.

‍

It was really tough, but I think it was a valuable experience. My past involvement in new businesses and corporate divisions (such as IT systems and legal affairs) helped me a lot, and it was a moment when I realized that my positive approach to unfamiliar areas had paid off.

However, just before the approval process was completed and the service was about to launch in January 2018, the "Coincheck Cryptocurrency Outflow Incident" occurred. This caused a significant drop in the price of crypto assets, which led to a major slump in the performance of similar exchanges. Not only did the industry itself cool rapidly, but the Financial Services Agency's approval process also almost came to a halt, and the future regulatory climate became even stricter. As a result, the parent company decided to focus on its earlier, more financial-oriented services (such as cryptocurrency leveraged trading). In 2019, the business was withdrawn and the company was dissolved (absorbed and merged), and I also left the company at that time.

‍

‍

Empathy with the Commitment to CVC

‍

‍

- What led you to join Hakuhodo DY Ventures (HDYV)?

‍

After leaving my previous job at the beginning of 2019, I worked as an advisor for several startups, meeting with various people I hadn't had a chance to meet recently. During that time, I was approached by Urushiyama, a partner at HDYV, who said, "Hakuhodo DY Group has established a Corporate Venture Capital (CVC) unit. We’re building it internally, but we need to reinforce the team with external expertise. If you're interested, would you like to join?" This was the trigger for me.

Although I had an interest in open innovation at large companies, I knew that investing in startups and seeking business collaborations requires a long-term commitment. Based on my previous experiences, I believed it was difficult for a business company to maintain this long-term perspective. However, when I heard the following:

• "After two years of discussions and feasibility studies, we reached the conclusion of establishing a CVC."
• "We’ve set up a fund (investment limited liability partnership) to implement this and have established a structure where decisions can be made through an investment committee."
• "CVC's activities are clearly positioned within the group’s medium-term business plan."

I could sense their commitment and the maturity of the approach.

The fact that Hakuhodo DY Group has a long history, social credibility, and substantial resources gave me hope that by leveraging these strengths, I could apply my own experience and contribute to new achievements. I joined in the fall of 2019. From within the company, I truly feel that this is an environment where we can take a long-term perspective and compete without being constrained by short-term goals.

‍

- How is HDYV positioned within the large, integrated advertising company that is the Hakuhodo DY Group?

‍

‍

According to the medium-term management plan announced by the Hakuhodo DY Group, the basic strategy is to lead the evolution of corporate marketing and innovation creation beyond the framework of an advertising company, while continuing to create new value and impact for consumers and society. One of the key initiatives for this is accelerating innovation through external partnerships. The group has set a goal to invest 10 billion yen in venture capital over the next five years, and HDYV is responsible for executing this strategy.

Additionally, we continue to make investments aimed at creating business synergies within the group, as well as pure investments. Our role is to make investments in companies that have the potential for business collaboration with the entire group, from a medium-to-long-term perspective. Since we are an organization directly under the listed parent company (Hakuhodo DY Holdings), one of our strengths is that our portfolio companies have access to the group’s entire business and resources.

Since the Hakuhodo DY Group’s core mission is to deliver new value to clients, the employees have been very supportive of our efforts to collaborate with external startups. Initially, I was concerned that joining from outside would be difficult, but I was pleasantly surprised by how open and cooperative the environment was.

‍

- Who are the partners and capitalists at HDYV?

‍

‍

Currently, there are two partners (Takeda and Urushiyama) and six capitalists, making a total of eight people. Takeda came from an audit firm and worked in M&A advisory at a securities firm before joining the Hakuhodo DY Group over ten years ago, where he handled the group’s M&A and business strategy as part of the management planning division. Urushiyama, on the other hand, started his career at a major travel company, then moved to a large human resources service company, gaining business experience before becoming a partner at a venture capital firm focused on seed investments.

The capitalists responsible for investments are a mix of people from Hakuhodo DY Group and external hires like myself. Within the group, we have people who have handled national clients, managed digital marketing, and conducted research in new business areas. From the outside, we have people who have worked at foreign securities firms in retail and underwriting, as well as capitalists from financial venture capital firms.

‍

- Does HDYV offer any unique support for startups?

‍

Yes, we select specialized personnel with clear know-how and capabilities from across the Hakuhodo DY Group to act as “catalysts” (facilitators), and we have created a system where they can collaborate with our portfolio companies in support. These catalysts, along with the HDYV team dedicated to venture capital work, meet regularly to exchange ideas. Recently, we've had discussions around themes like creative strategies and branding.

‍

‍

- It's rare to see such a robust internal support system. Is there support in the areas of advertising and marketing, which are the group's main business fields?

‍

For our portfolio companies, the investment team, which deeply understands the business model and challenges, can quickly set up a team to offer tailored proposals. As a result, we are able to provide high-cost performance support. In fact, we have worked on several projects involving mass marketing, including TV commercials, for our portfolio companies.

‍

‍

Balancing "Return" and "Synergy" Requires Collaboration with the Business Divisions

‍

- Can you tell us about the process you follow for investment decisions and the key points you prioritize?

‍

There are three major points I consider when deciding whether to make an investment:

1. Is the "timing" of the investment appropriate?

2. Is the "business model and strategy" of the target company excellent?

3. Is the "price (valuation)" reasonable?

Just like independent and financial venture capital firms, we simulate the business plans of potential companies internally, build convincing case models and stories, and conduct thorough due diligence (DD) on the business.

Additionally, one key point from the perspective of corporate venture capital is the business synergy. While aiming for a certain level of investment return, we have a mission to nurture companies that can collaborate with the Hakuhodo DY Group to create the future together. Therefore, we have in-depth discussions about the potential for collaboration and how we can work together.

In the short term, for example, we may work on cases where we plan a service package together with the approximately 400 companies within the Hakuhodo DY Group, or where we implement solutions provided by startups and apply them to the management of various Hakuhodo DY Group companies. Additionally, in cases where we anticipate long-term collaboration, we may invest even without short-term activities, trusting that there will be value in the future.

Depending on the case, we sometimes have discussions with the respective business divisions from the early stages of considering investments. We ask, "We’re considering investing in this company, do you foresee any synergy?" and based on their responses, we engage in further discussions with the startup and work on specific post-investment support. These cases have often developed into fruitful collaborations.

‍

- Can you tell us about your sourcing activities for investments?

‍

For sourcing investments, I’ve focused on building relationships through consistent networking. When we first launched our corporate venture capital unit, we had no track record, so we communicated our stance, investment policy, and support system to various venture capital firms, gathering information about their portfolio companies and expanding our network. As a result, we were introduced to potential investments and have gone on to make co-investments. We also attend and sponsor startup conferences and pitch events to expand our reach.

Additionally, a number of investment opportunities have come from personal connections, such as entrepreneurs who are former colleagues or acquaintances of our investment team members or employees within the Hakuhodo DY Group. This is an area where the strength of the Hakuhodo DY Group’s network has been particularly valuable. Recently, we’ve also seen a rise in referrals from CEOs of our portfolio companies, which is very encouraging. I appreciate these introductions as they are a direct result of our ongoing partnerships and mutual trust.

Furthermore, we also receive inquiries from startups via our corporate website, which provides a direct pipeline for new opportunities. Through these inbound inquiries, we can sense the trends and new business areas entrepreneurs are exploring. Even if we don’t invest immediately due to reasons such as mismatched investment phases, we still stay in touch for future rounds, and we have made investments based on those conversations.

As a result, in 2021, we made 19 investments. We have announced a goal of making venture investments totaling 10 billion yen over five years, and so far, we are progressing smoothly toward that target.

‍

- Can you share more about your responsibilities as a capitalist?

‍

1. New investment considerations

2. Communication with existing portfolio companies

3. Reporting and liaison activities within the group

These three areas are about equally divided in my role.

Regarding communication with portfolio companies, I actively participate in board meetings and management discussions. I am responsible for about 15 companies, and through regular monthly meetings, I exchange opinions on business challenges. When there are needs such as considering investments in marketing or potential M&A opportunities to support growth, I ensure that we can respond as necessary. Sometimes, I also arrange meetings with VC firms for future fundraising rounds, or in some cases, I even receive personal messages from CEOs on Facebook for informal consultations.

‍

-How would you evaluate the corporate venture capital activities of HDYV?

‍

Venture capital activities generally take 2-3 years before tangible results emerge, so we won’t be able to evaluate returns from investments for a little while longer.

One unique aspect of corporate venture capital is how we contribute through collaborations within the group. I believe our efforts are being evaluated on how well we can provide feedback on startup trends and emerging business areas, whether we are serving as liaisons between our portfolio companies and Hakuhodo DY Group, and whether we are helping to build networks that may lead to future M&As.

‍

- How about career progression? Is there a set rotation period for HR or team members?

‍

The activities of HDYV have been ongoing for just under three years, and we are still in the phase of expanding our team. In the future, when members return to other companies within the Hakuhodo DY Group, they will likely play a role in linking portfolio companies with the group and clients, creating synergy and adding value to the group’s businesses.

This is a position where you can closely work alongside startup management teams, gaining business insights and honing skills in information gathering and analysis. For those looking to grow as capitalists or in new business development roles, I believe this environment offers excellent opportunities for growth and career progression.

‍

‍

M&A as a Startup Exit Route is an Exciting Trend

‍

- What are the highlights and challenges of working in CVC that you’ve experienced?

‍

For me, the greatest appeal is being involved in the development and growth of cutting-edge businesses. While contributing to business and company value growth can be done in various ways, being able to watch how business ideas transform into business models and grow with the support of finance and partners, and also being actively involved in that process, is what makes this job exciting.

In addition to my experience at mega ventures, working in corporate venture capital has allowed me to gain a deeper understanding of supporting startups. This kind of know-how and experience is often quite individual, so I am also focused on sharing this knowledge with my team members to ensure we all continue to improve together.

‍

- How do you think about exit strategies for your portfolio companies?

‍

Exit, or the method of recovering investments, typically targets an IPO for most venture capital firms, but in the case of corporate venture capital (CVC), exits can also happen through M&A within the group, or through M&As between startups themselves.

In Japan, more than 1,000 companies are preparing to go public, but the annual number of IPOs in 2021 was only 137. I believe that M&A between startups, forming stronger companies, and aiming for global expansion, as well as creating new businesses and innovations, will be accelerated by corporate venture capital, and that’s an exciting possibility.

In the U.S., M&As are far more common than IPOs, but in Japan, IPOs are generally seen as the ideal, and M&As have a somewhat negative connotation. I hope that positive cases will emerge, changing the mindset not only of startups but also of large companies about M&As.

‍

- How do you view collaboration between different CVCs?

‍

At the initial stages of setting up a corporate venture capital unit, it’s difficult to see the strengths, investment strategies, and specialties from the outside. But over time, as our efforts become more visible, these aspects will become clearer. We believe that by exchanging information actively with other business corporations, we can uncover interesting opportunities and possibilities.

An open and positive relationship like the FIRST CVC community is very important, and we hope to build good relationships with other CVCs by contributing and collaborating with a "give and give" mentality.

‍