What “CVC Pivot” Taught Us About the Role of CVCs and How to Approach Startups

Yuichiro Kishi
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‍Corporate Venture Capital, General Planning Office

‍Graduated from Doshisha University, Faculty of Economics.
Joined POLA Inc. as a new graduate in 2014, where he was involved in the promotion of the cosmetics business. In 2018, through the company's internal venture system, he launched the corporate venture capital "POLA ORBIS CAPITAL."
He has invested in 23 companies so far.
Key investments include SHE, Trico, DINETTE, Moderato, SUPER STUDIO, etc.

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POLA ORBIS's Sustainable CVC Activities: Creating a "New Growth Engine"

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- Mr. Kishi, you proposed and led the establishment and expansion of the CVC just four years after joining the company as a new graduate. Could you first tell us about the overview of POLA ORBIS CAPITAL?

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Since starting CVC in February 2018, we have invested in more than 20 companies. The investment size is typically around 50 million yen per company, and on average, we invest in 6 or 7 companies annually.

POLA ORBIS CAPITAL operates under the project name within the strategic planning function of POLA ORBIS HOLDINGS, and the investment scheme uses the balance sheet of POLA ORBIS HOLDINGS. We also have members who handle M&A within the strategic planning function, enabling seamless strategic discussions that create win-win outcomes for both investees and the company.

In terms of investment areas, one axis of our investment focus is the D2C (Direct-to-Consumer) space, where we can clearly offer value. In addition, we are also very interested in consumer sectors such as beauty, healthcare, food, fashion, education, and tourism, and we are actively considering investments, mainly in the post-Pre-Series A stage.

Japanese consumer products are of high quality and have great potential to succeed globally, so we believe there is a strong foundation to support startups in this space. By backing their technology, ideas, and enthusiasm, we hope to create new value in these sectors.

We also invest in B2B startups where there is potential for collaboration along the manufacturer's supply chain.

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- Could you tell us about the strategic positioning and goals of CVC activities within the group?

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The external environment is changing every day, with factors such as diversifying consumer needs, the rapid advancement of the digital society, and the increasing awareness of SDGs. Considering these factors, the entire company shares the necessity of creating "new growth engines" outside of our core brands, POLA and ORBIS, and we see our CVC as one of these activities.

For example, in April 2021, we participated in the acquisition of Trico, a company offering personalized supplements under the "FUJIMI" brand. Our initial connection with them began through a minority investment, but expanding our group with brands that provide new value aligned with the times is an important role we expect from CVC from a business strategy perspective.

However, while creating business synergies is a priority in our CVC activities, it is not the only focus. While we aim to generate business synergies, including through M&A, we also conduct investments with an awareness of financial returns as a key performance indicator (KPI), in order to ensure the sustainability of CVC. Even if short-term synergies are not apparent, we actively engage with startups that have ambitious business plans or advanced technologies that lead to innovation.

We focus on obtaining strategic returns in the medium to long term, while ensuring stable financial returns. Since CVC activities can often be difficult to measure in terms of immediate results, we try not to overly focus on short-term business synergies in individual cases. By ensuring a certain level of financial return as an investment business, we aim to enhance the sustainability of CVC activities.

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- Could you share the strengths and support offered by POLA ORBIS CAPITAL?

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We have invested in about 10 companies in the D2C space so far. This area covers a variety of products such as cosmetics, food, and apparel, but many of the challenges in the supply chain, such as ordering from factories, securing warehouses, and negotiating with agents, are common across these businesses. Since our group companies have experience as manufacturers, we have accumulated know-how and knowledge that is more specialized for startups. By partnering with us, startups can achieve better transaction conditions, and we have seen economic benefits arise from multiple investee companies placing orders with the same suppliers.

Initially, we focused on investing in D2C, but we have increasingly collaborated with B2B startups that enable e-commerce, and we have recently expanded our investments across a variety of startups.

With such companies, our business divisions, including myself, are involved in business development alongside the startups and facilitate collaboration.

Our approach is centered on the "give & give" spirit, where we support the growth of our investees and are fully committed when there is a need for us to assist in any way.

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The Launch of CVC by a New Graduate

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- Why did a new graduate employee propose CVC as a new business initiative?

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The idea for CVC came from my experience during university. From high school until the first half of my university life, I wasn't particularly passionate about anything and was more focused on having fun. However, when I started thinking seriously about my future career, I began to question whether this was enough. Around my third year in university, I had the chance to meet entrepreneurs, and I started attending events like IVS, which gathered startups.
It was then that I was inspired by the passionate entrepreneurs and those working in startups. I learned about startups and venture capital for the first time. When considering new business ideas, that memory resurfaced, and upon researching, I realized that while overseas consumer goods companies were actively developing CVC, few companies in Japan were doing so, which made me feel that there was an opportunity.

That said, when I first joined the company, I didn't have the same level of motivation as I do now, and I didn't think of myself as a person who would work hard. However, after joining POLA in 2014 and being assigned to the North Kanto area in Takasaki after about six months, I found myself enjoying work immensely. I was responsible for supporting management at around 30 stores, covering a wide range of tasks from sales strategy to recruiting sales staff.

It was in the fall of my third year at the company when I noticed the internal announcement for a new business idea competition. It had been 10 years since the last internal venture competition, and it stated that "business domains are not restricted as long as they align with the mission." Motivated by my growing enjoyment of my work, I, along with my colleagues, decided to propose a business idea that could create new impact. I came up with three business ideas: "Baby Skincare," "Personalized Supplements," and "Base Makeup Brand," with CVC being the fourth idea.
During my research on overseas competitors in the same industry, I found that they were actively utilizing CVC in addition to organic growth strategies, which led me to propose it. The inspiration also came from the excitement I felt during my university years about the potential of startups.
However, to be honest, my main focus was on the "Baby Skincare" business idea (laughs).

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- What was the process like from when your submitted idea was officially accepted to when it began to be commercialized?

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The document review deadline was in December 2016, and we passed the initial review in January 2017. In April of that year, I had the opportunity to present my idea in front of several company presidents from POLA, ORBIS, and other group companies. I made multiple revisions to the business proposal and nervously commuted between Takasaki and Tokyo.

After that, I was assigned to the new business department in Tokyo in July, and in December 2017, I gave the final pitch to the Holdings' board of directors and received internal approval. In February 2018, we officially started CVC activities.

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Pivoting the CVC Concept

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- How did your mindset change when your idea, proposed as a new business initiative, was aligned with the company's mission? What specific actions did you take?

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When it was officially confirmed that we could start the CVC, I was extremely excited.

After returning to Tokyo and working in the new business team for six months, I was actively working both internally and externally to get approval. As expected, I realized that if I just sat still, nothing would happen. Since we were doing something new, I had to start by creating work from scratch.

When the official approval came through, I did have some doubts like, "Can I really do this?" While researching overseas examples, I had some hypotheses, but there were very few examples of CVCs in Japan, except for IT mega-ventures. There are several ways to set up a CVC, but considering the premise and the fact that it was bottom-up, I decided to go with direct investment rather than LP investment or a two-person partnership.

At the time, we didn't have any connections with venture capital through LP investments, so there were no clear sourcing routes, and we didn’t have a clear idea of what benefits we could offer startups.

After struggling to differentiate ourselves from others, we began with the concept of a "CVC supporting female entrepreneurs." This concept received some sympathy and was widely covered by the media. However, in practice, sourcing and investment activities did not go as smoothly as expected.

Fortunately, we were able to execute the first investment just two months after launching, but after that, progress completely stalled until the latter half of 2018. Even when we met entrepreneurs and explained our concept, they would ask, "What can POLA and ORBIS offer if we accept investment from you?" and I had no clear answer.

Looking back, it's obvious, but the more capable entrepreneurs were not necessarily interested in receiving investment just because we were supporting female entrepreneurs. Therefore, now, we are committed to making investments with a focus on diversity, but it is always a result of the current situation.

From that point onward, I began consciously focusing on developing a strategic investment approach to strengthen CVC's core competencies.

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- What prompted the shift towards D2C and the consumer sector in your investment focus?

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Through research on overseas examples, I learned that the term "D2C" (Direct-to-Consumer) was gaining attention in the United States. I thought that there might be some insights or breakthroughs to be found, so I visited a group company in San Francisco.

There, I gained valuable input from VCs and entrepreneurs and could feel firsthand that the D2C industry was rapidly emerging. I understood that this trend would likely come to Japan as well.

After returning to Japan, I continued to collect information on how various companies were approaching D2C and monitored trends in startups.

Starting to focus on D2C as a new axis of activity, I gradually felt a sense of achievement and began building a grounded approach to our work.

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- What have you focused on to build a track record of investments as a CVC?

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The most important thing has been building relationships. Especially with fellow capitalists of the same generation, I have maintained close communication, exchanging information and seeking advice. I place great value on turning individual points of contact into a connected network.

Additionally, since I was a first-time investor, I’ve consciously approached my role from the perspective of developing businesses together, rather than just being an investor. This was influenced by my relationship with SHE Inc., the first company I invested in. At that time, SHE was in the seed stage, and its founders were around the same age as me. They asked me to commit as part of their startup team. We worked together to solve problems and face challenges, and that experience became a major learning moment in my journey as a capitalist and shaped my vision going forward.

On the other hand, as the number of investments has increased recently, it's become harder to maintain that hands-on approach, so I'm constantly thinking about how to grow from here.

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“Company’s Purpose” and “Personal Values” — Striving for the "Greatest Common Denominator"

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- What do you find interesting about being a CVC Capitalist?

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In a broader sense, I believe that "CVC is a job that can make the world and society better." While we aim for financial and strategic returns, I see these as outcomes of our activities, not the primary focus. It’s attractive to think that I can work with a long-term focus on improving society.

Also, when we invest in seed-stage companies and, despite the uncertainty of the success path, we go through the PDCA cycle and start seeing a clear possibility, I feel an immense sense of joy.

Furthermore, since many of our investees are in consumer-facing businesses, I enjoy seeing happy customers using the products or services of our portfolio companies on platforms like Twitter and Instagram. It’s fulfilling and motivating.

Moreover, through this CVC project, I hope to contribute to fostering a culture where new business and initiatives within the POLA-ORBIS Group become more proactive.

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- As both a "capitalist" and an "intrapreneur" (internal entrepreneur), are there any key things you consciously focus on to gain cooperation and make impactful challenges, both internally and externally?

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When trying something new, I believe it’s important to swing for the fences. In a large company, it’s easy to prioritize operating within the given frameworks. However, when it comes to new businesses, if you don't have the mindset to swing for the fences with a long-term impact in mind, I feel that it’s difficult to succeed. Looking back to when I started, I didn’t go all in at first because I was too concerned about what others might think or focused too much on short-term concerns. Now, I would advise myself to take a more bold, full-swing approach.

Additionally, when working on internal ventures or new business initiatives, I’m always conscious of targeting the "greatest common denominator" between "the company’s desired outcomes" and "my own goals."
It’s hard to involve a large organization with just personal ego. On the other hand, if you approach it without passion, just because it’s what the company expects, you might end up blaming the environment when things don’t go well. So, I focus on finding and creating a model that can achieve both, which I believe is important.

Furthermore, while I mentioned swinging for the fences, I don’t mean to treat it like a gamble. I think it’s crucial to not think short-term, but to consider long-term strategies that can ensure success step by step. There’s no quick and convenient way to realize what you want to do immediately. If you prepare for the long haul and think about what needs to be done now to reach your goal in five years, the path becomes clearer.

At the beginning of CVC, I was pushing forward with just my own ego and passion to make it succeed. But soon, I hit a wall with investment activities. That’s when I realized it was necessary to consider both the benefits for startups and the advantages for the company. I remember that through conversations and advice from fellow capitalists of my generation, I began to clarify the things I needed to focus on as a CVC investor.

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- What kind of challenges are you personally aiming to tackle in the future?

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I want to establish a system where new businesses can emerge using investments within the group. CVC is one method, but I want to promote initiatives that leverage a variety of investments.

In a broader sense, I want to create successful examples where Japanese startups can grow alongside large companies. I think there are still few successful CVC examples in Japan. If successful cases accumulate, growth capital will flow from corporate ventures to startups, and this trend will lead to innovation. I hope we can contribute to this development.

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- What kind of entrepreneurs would you like to meet in the future?

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Simply put, I would like to meet entrepreneurs who are pure, honest, and have big dreams, with the strength to push through and make things happen. Entrepreneurs who are aware of their weaknesses and can naturally rely on others to complement them.

You can’t just wait for encounters to happen, so I believe that by actively investing, the right people will come to us. Moving forward, I want to continue to be humble and relentlessly active in pursuing these opportunities.

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