With its mission, "Commit to new business creation and jointly shape the future," JAFCO Group (hereafter referred to as JAFCO) has been creating a variety of innovative services with entrepreneurs since its establishment. JAFCO has been supporting entrepreneurs to create new businesses with the idea of JAFCO as a "Co-Founder."
But how does JAFCO's support appear from the perspective of entrepreneurs? In an insightful conversation, Ryota Hayashi, President and CEO of Finatext Holdings, a portfolio company of JAFCO that went public on the Tokyo Stock Exchange Mothers Market (now: Tokyo Stock Exchange Growth Market) in December 2021, and Haruyoshi Onuma, a chief capitalist at JAFCO, delve into the roles that venture capitalists play, through the lenses of both entrepreneurs and investors.
【Profile】
Ryota Hayashi, President and CEO, Finatext Holdings Ltd.
After graduating from the University of Tokyo's Faculty of Economics in 2008, Mr. Hayashi pursued computer science studies at the University of Bristol in the UK. He became the first Japanese new graduate hire at the Technology Division of Deutsche Bank in London. Later, he transitioned to the Global Markets Division, where he engaged in institutional investor sales in London and across all of Europe. Subsequently, after working in the hedge fund industry, he founded Finatext Ltd. (now known as Finatext Holdings Ltd.) in December 2013. Under the umbrella of Finatext Holdings, the group encompasses Finatext, which develops and provides fintech solutions, Nowcast, which specializes in alternative data analysis, Smart Plus, a securities platform, and Smart Plus SSI, a next-generation digital insurance company. Their mission is to "reinvent finance as a service" and promote embedded finance in collaboration with partner companies.
Haruyoshi Onuma, Chief Capitalist, JAFCO Group, Co., Ltd.
Since joining JAFCO in April 1992, Haruyoshi Onuma has consistently been involved in startup investment in the Investment Division. He was appointed as chief capitalist in April 2022. His main investment domains are fintech, SaaS, marketplaces, robotics, and age tech. His track record includes involvement in 22 IPOs and 10 M&As of portfolio companies. He has been recognized as one of Japan's most influential venture capitalists, ranking 10th in Forbes Japan's Midas list in 2017, 3rd in 2019, and 4th in 2022. He received the Venture Capitalist Honorable Mention Award at the Japan Venture Awards 2020.
How a headstrong entrepreneur secured funds from JAFCO
─ Could you tell us about the background of the founding of Finatext?
Hayashi To provide a brief overview of my background, I graduated from the University of Tokyo's Faculty of Economics, and then studied computer science at the University of Bristol in the UK for one year. I later joined Deutsche Bank's Technology Division in London as a new graduate. After gaining experience in algorithmic trading system development, I transferred to the Global Markets Division, where I worked in sales targeting institutional investors in London and across the entire European region. I returned to Japan at the end of 2012.
When I returned to Japan, I keenly felt that financial services here were not user friendly. At the time, there were no apps, and due to my lack of prior work experience in Japan, I couldn't even pass a credit card application review. Compared to abroad, I was struck by how difficult financial services in Japan were to use. Japan is frequently described as going through a "lost 30 years," with low growth rates and a diminished global presence of Japanese companies being noted. While there are various reasons for this, one issue that concerned me was the lack of change in financial services in Japan over the past 20 to 30 years.
Previously, Japanese banks had multiple entries in the global top 10 market capitalization rankings, but they have since been surpassed by American and Chinese banks, resulting in a reduced presence of Japanese financial institutions. One contributing factor to this situation was the failure to evolve financial services using technology. Having developed a strong sense of urgency, I decided that I wanted to contribute to revitalizing the Japanese economy by creating a company that would help to enhance the competitiveness of Japan's financial services.
With these thoughts in mind, I founded Finatext in December 2013.
─ Finatext secured approximately 1.4 billion yen in funding from JAFCO in May 2017. Was venture capital (VC) funding something you had in mind from the beginning?
Hayashi To be honest, when I first started, I didn't consider external fundraising at all. At that time, I was quite headstrong and had a strong attitude, and I thought VCs were unnecessary. Looking back now, I find it quite embarrassing (laughs).
Onuma I believe JAFCO first encountered Mr. Hayashi around June 2014 when I was in charge of two investment groups. My subordinate at the time, Shuji Ono, met Mr. Hayashi. I remember that the smartphone stock app "Asukabu!" had not yet been released, and you were involved in stock information services.
Hayashi That brings back memories (laughs). We were providing stock information services. From my experience in investment banking, I thought that everyone must want the financial services that I want. I developed an app, but it didn't get many downloads at all. I completely missed the mark on understanding the user's needs.
It was around that time that Mr. Ono from JAFCO contacted me. That's when I first learned about JAFCO. I remember looking them up and being surprised to find out about its long history and size.
Onuma I believe I met Mr. Hayashi in July 2015. Finatext had already established a considerable business foundation by then with services like "Asukabu!" and an FX investment education app called "KaruFX." Finatext was looking to launch new businesses that could become the next pillars of the company and was in a phase where it needed growth capital. That's when discussions about fundraising started to take shape.
I saw no reason not to invest in Finatext
─ Why did you decide on funding from JAFCO?
Hayashi It's quite the opposite now, but back then, it was still a "seller's market" for entrepreneurs. I didn't have much of a track record as an entrepreneur, but I was receiving a lot of attention, partly due to my past experiences. It was a very opportune time for me, and I had many offers for investment. There were two main reasons why I chose JAFCO.
The first reason was that JAFCO valued Finatext's company worth higher than I had anticipated. Nowadays, it can be said that valuation isn't everything, but at the time, I was still very much concerned about it. It was reassuring that, even though I didn't have much of a track record, JAFCO gave a higher valuation than I had expected.
The second reason was that I felt they really understood me. They conducted basic interviews about our business model and business strategy, and then Keisuke Miyoshi, the investment professional in charge (now president of JAFCO), spent about an hour and a half listening to me speak about my background and personal story. Their understanding of not only the business aspects but also my personality convinced me that JAFCO was the right choice.
─ What did JAFCO see as the potential of Finatext?
Onuma "Asukabu!" and "KaruFX," the B2C services, were generating revenue, and a certain business foundation was being established. Additionally, in August 2016, Finatext acquired Nowcast, starting a big data analysis service for institutional investors. They were also considering a strategy to expand into a securities platform service known as BaaS (Brokerage as a Service) in the future. The fintech sector held growth prospects, and they were aiming to achieve digital transformation in finance. In addition, the management team included Mr. Hayashi, who had an investment banking background, and Mr. Yuichiro Ito (director and CFO). Given the timing prior to the launch of the BaaS business, we thought that there's no reason not to invest and consequently decided to invest in Finatext.
─ In July 2018, you carried out additional fundraising.
Hayashi Raising six billion yen from KDDI, JAFCO, and the Mirai Creation Fund was a significant milestone for Finatext. I wouldn't have said this at the time, but given that KDDI led the round, I didn't expect JAFCO to participate in the investment. However, when they said that they would still invest, I felt that they had a tremendous amount of trust in Finatext. Many investors will say this and that, but JAFCO felt different. It gave me more motivation, and Mr. Ono and Mr. Onuma who made the decision to invest seemed to me unshakable.
Onuma I believe the fundamental role of a VC is to provide funding when entrepreneurs want to raise capital for their business. From a performance and ROI perspective, there may be some third-party scrutiny about whether it's the right choice. However, we determined that Finatext would require a certain amount of business capital to make the BaaS business a success. Therefore, we made a bold decision as JAFCO and decided to invest a significant amount.
Unwavering support and increased momentum; the value that an entrepreneur perceive in JAFCO
─ Looking back, where did JAFCO's support prove most valuable for you?
Hayashi JAFCO's support on the sales side was extremely helpful, even more so than their financial support. This was especially true in the latter stages as we aimed for our listing. Until then, Finatext had conducted sales based on inquiries, but JAFCO introduced us to potential clients, organized seminars, and even provided support for tasks like document creation. It was very beneficial. In fact, it was JAFCO that introduced us to KDDI. I believe that without JAFCO's support we wouldn't have been able to go public.
Onuma I think we introduced about 40 to 50 companies in total, but it was challenging to close deals with them. I feel very sorry about that.
Hayashi But you shouldn't feel that way. Results often depend on luck. What was more important is that JAFCO's actions helped us, and that's what I truly appreciate.
Onuma I was acting only out of a desire to see Finatext succeed.
Hayashi Mr. Onuma would quickly step in and help when he noticed that I might be in trouble or might be having difficulties. His presence is incredibly valuable.
Onuma I don't want to get in the way of entrepreneurs. The people who run day-to-day operations have the most knowledge about the business. There's no way I could compete with that, so I wanted to provide support from a different perspective.
Hayashi It's my personal opinion, but I think JAFCO is becoming something like the Berkshire Hathaway of Japan, because it has a sort of momentum where, if JAFCO invests, there will be success.
I believe that companies have a tangible business and a momentum. Sometimes, momentum can create a tangible business later on. Japanese people tend to underestimate momentum, but I think it's quite an important factor.
In Japan, JAFCO is the only VC with a considerable track record and long history. Therefore, when JAFCO invests, it serves as a seal of approval, and other companies are assured, which leads to the creation of new business opportunities. Other investors also come to the table. Personally, by having JAFCO as an investor, it motivated me to work harder, and I believe that's another role they play.
─ What's your point of view, Mr. Onuma?
Onuma I believe the role of a VC varies greatly depending on the stage of the business. The requirements for pre- and post-founding phases and pre- and post-business launch phases are completely different. While VC support can include funding, hiring, and sales assistance, what's crucial is providing the support that entrepreneurs need. It's not about what we think is necessary, but how we can meet the potential needs that entrepreneurs and companies are seeking. I believe this perspective is more important than anything else.
A new scenery lies ahead after overcoming the immediate obstacles ─ Finatext's future goal
─ Finatext went public in December 2021. Please tell us about your future goals.
Hayashi After going public, we went through some very tough times as a company, but we've finally managed to get on a path of growth. Our short-term goal is to reward the investors who invested in us at the IPO price of 1,290 yen. Our first and foremost goal is to bring our stock price back to the IPO price. Investors put their trust in me even when they were unsure about the market's prospects, and I don't want to be a leader who disappoints that trust or runs away. So, I want to do my best to meet those expectations.
In the long term, we have a vision of making finance more user friendly in people's lives. However, a journey of a thousand miles begins with a single step. What's crucial is continuously overcoming the immediate obstacles in front of us. It's only by consistently surmounting these obstacles that we can realize our vision and mission. In today's rapidly changing world, it has become challenging to have long-term, unchanging plans. Since Finatext is not yet at a scale where it can have a significant societal impact, we'll start by tackling one obstacle at a time. We'll cross these obstacles and look for new horizons, then climb new walls with enthusiasm.
One of the positive aspects of being a public company is that there are quarterly exams, where we're put to the test. These exams expose us to scrutiny, demanding short-term growth. To undertake new challenges with a long-term perspective, we need a track record of short-term growth. Therefore, while keeping our vision and mission in mind, we'll first focus on our immediate tasks, steadily growing as we go along.
Photography: Shunichi Oda
Design: Asuka Itsumi
Planning: Mai Tokui (JAFCO) / Akiko Komiya (PRAS)
