JAFCO Group’s
ValuesMessage from the President

Fueling Perpetual
Growth by Continuing
to Support People
and Companies
Pursuing Change
Keisuke Miyoshi
President & CEO

Growing Presence of Startups and Increasing Business Opportunities

JAFCO Group’s
Value Creation

Sustainable
Growth Strategy

Business Foundationfor Sustainable Growth

Corporate
Data

JAFCO Group’s Ongoing Business and Social Value

The Company formed Japan’s first venture capital fund (investment

the transformation and restructuring of society through their solid

partnership) in 1982. Since then, we have worked closely withbusiness development. It is essential that we believe in the newcompanies to achieve growth and revitalize their businesses throughchallenges undertaken by portfolio companies/entrepreneurs and thinkventure and buyout investments.

through how to achieve them together. Occasionally, there are cases

We place importance on continually investing in the bold visions of

where the interests of stakeholders may not coincide, but we believe that

entrepreneurs and others. What we value most in investment activities

we always make fair decisions on such matters (an important value).

is our approach of growing together with portfolio companies. For this

Our investments often involve pursuing pioneering goals such as thereason, it is essential that we gain the understanding, trust, andcreation of novel business models, so naturally, we must be prepared

cooperation of the four groups of stakeholders involved in our growth—

for a certain degree of failure. However, we have learned from

namely, portfolio companies/entrepreneurs, fund investors, shareholders/experience that big results only come from continuing to take on

investors, and our employees. By doing so, we are able to promotechallenges without fear of failure. This is behind our firmly rooted

joint operations with portfolio companies over the medium to long term.

culture of not fearing but permitting failure.

Venture investments come with high risk and require a significant amount

Our investments are not possible without portfolio companies/of time because they essentially involve the creation of completely new

entrepreneurs that are serious about growing their businesses, ourbusinesses from the ground up. To guide these investments to success,employees who promote the businesses with them, our fund investors

it is important to listen carefully to the opinions of not only portfolio

who provide capital, and our own shareholders/stock investors.

companies/entrepreneurs, but also fund investors, shareholders/stock

We work alongside portfolio companies/entrepreneurs to put theirinvestors, and our investment professionals and other employees.

businesses on track for growth, and distribute the proceeds that we

A key point for realizing the world envisioned by portfolio

gain from our investments in the form of returns to fund investors,

companies/entrepreneurs is to jointly think through what kind of

shareholders/investors, and the Company. By repeating this cycle ofbusiness to create and how it will contribute to the transformation andmaking an investment, achieving the portfolio company’s growth, andrestructuring of society. In buyout investments, our aim is to take over arecovering the investment, we have challenged ourselves to create new

business, further enhance its value, and then transfer the business to takevalue, led many companies to success, and achieved our own growth.

it to the next stage. Our approach with buyout investments is the same

Our social value is in our ability to promote corporate rejuvenation andas the one with venture investments in that we listen carefully to all

eventually change the industrial structure through our investments.

stakeholders in the process of management reform and contribute to
Uncertainty about the future of society continues to grow.
The COVID-19 pandemic has brought significant changes to our

9become commonplace for major corporations and other establishedcompanies to find ways of effectively incorporating these products andlifestyles and behavior patterns, while the crisis in Ukraine has led toservices into their own businesses. While the majority of existingsoaring prices and supply shortages worldwide. At the same time,companies have started taking social responsibility seriously

environmental and social changes, including intensifying disasters

recognizing that resolving social issues is a fundamental theme, there

arising from climate change and the emergence of human rights andhas not necessarily been a seat at the table for startups to play theirother social issues, are heavily impacting people’s ways of life, as wellpart. However, as social change accelerates, there are growing

as corporate management and supply chains.

expectations for highly agile startups, and venture investments are now

Increasing the Reproducibility in the Challenge to Succeed

Our journey to date has not always been smooth. Despite many

was aimed at promoting the growth of portfolio companies by

The COVID-19 pandemic has undeniably forced companies tomade across a broader range of themes and in greater amounts. At

difficulties, including the collapse of the dot-com bubble in 2001,

acquiring an influential stake that allows deep involvement in theirchange traditional ways of generating earnings and working, which

the same time, there is steadily increasing social demand with regard

the global financial crisis in 2008, and the Great East Japan

management. At a time when it was widely taken for granted thathas made it difficult to derive solutions from past success models. Amid

to the venture and buyout investments that we engage in. This includes

Earthquake in 2011, we have steadily continued to invest in the boldinvestments in startups would usually fail and the standard practicethe need to pursue the development of novel products, services, andthe rise in the number of successful companies that have taken thevisions of entrepreneurs and others. I consider our biggest turning

was to diversify investments in many startups in a broad range oftechnologies based on totally new approaches, startups are attracting

current social changes as opportunities, and growing needs for support

point to be when we shifted our investment policy to highly selective,

business categories, we resolved to focus instead on highly selective,

more attention than ever before. The products and services created byin establishing independence from the parent company and forintensive investment in 2010. This approach focuses on high-potential

intensive investment, concentrating our funds in companies thatstartups are closely attuned to changes in the market, and so it has

business succession.

targets and takes on the risk of making bold investments. The shift

showed a particular promise.

JAFCO INTEGRATED REPORT 2022

JAFCO INTEGRATED REPORT 2022

10

JAFCO Group’s
ValuesJAFCO Group’s
Value Creation

Sustainable
Growth Strategy

Business Foundationfor Sustainable Growth

Corporate
Data

Ltd. (NRI), which amounted to 27.8% of the total shares outstanding,

When it comes to putting this into practice, investment professionals
who are able to think through the creation of new businesses together

and became totally independent. Up to that point, we had already beenwith portfolio companies/entrepreneurs are indispensable. However, I

independent in terms of management and business operations, but webelieve that the very reason why our highly selective, intensive investment

still had a capital relationship with them. By dissolving this relationship,

has been successful and produced steady results is that we have built a

we clarified our stance as an independent company. In conjunction withsystem where our highly ambitious investment professionals can support

the major shift in the shareholder composition, we have been working toa portfolio company’s growth and create/innovate businesses along

enhance governance to ensure that our management fully considers thewith our Business Development Division, Fund Management Division,interests of both our shareholders, mostly consisting of institutionaland Administration Division.

investors, and our fund investors.

Meanwhile, in July 2017, we bought back and canceled all of ourshares held by Nomura Holdings, Inc. and Nomura Research Institute,History of Strengthening Corporate Governanceand Commencement of Full-Fledged Sustainability Management

Since becoming a company with a board-audit committee in June

Remuneration Committee (in June 2019), and other measures.

2015, we have accelerated the strengthening of corporate

Furthermore, in the fiscal year ended March 31, 2021, wegovernance by increasing the ratio of independent directors,

decided, from the standpoint of capital efficiency, on a policy toappointing a female director, establishing the Nomination andclearly specify the amount of funds needed for continuing investment

PurposeFueling perpetual growth;
investing in bold visions
MissionCommit to new business creationand jointly shape the future

11

JAFCO INTEGRATED REPORT 2022

activities and to return the surplus to shareholders. We bought backvalues we embrace) to our employees, investors, and othershares totaling ¥35 billion that year and a further ¥15 billion thestakeholders, we set out to introduce a purpose statement. After

following year and we have sold about 40% of our NRI shareholdings

repeated discussions from various angles, we identified Our Purpose toaccording to our announced policy.

be “Fueling perpetual growth; investing in bold visions.” While

We have also worked on establishing a sustainability management

upholding our Mission “Commit to new business creation and jointly

structure. In the fiscal year ended March 31, 2022, we launched ashape the future,” which defines the aspiration we have pursued sincesustainability project and began discussions on how to achieve

our foundation, we will decisively invest in bold visions that generatecontinuous improvement of corporate value. Under this project, we arenovel value, commit to ensuring their ability to fuel new perpetual

working on building corporate and governance structures that are

growth, and contribute to the realization of a sustainable society. We

resilient to global demands by highlighting any gaps between ouralso identified the material issues that we face in realizing Our Purpose

management and external requirements. We also launched a cross-and discussed measures to improve our corporate value. Regarding

divisional project to discuss measures to enhance our corporate value,

our human resource policies, we have launched a number of newincorporating the details discussed in the sustainability project.

initiatives, including more active mid-career recruitment, training ofIn addition, in order to communicate the significance of ourinvestment professionals, diversity initiatives, and the introduction ofexistence as a company (i.e., the social value we create and the

new workstyles amid the COVID-19 pandemic.

Results for the Fiscal Year Ended March 31, 2022

Our highly selective, intensive investment to date has borne fruit, and ina portfolio company of ours. I believe that this success was a result of

the fiscal year ended March 31, 2022, our fund management

the efforts of our team led by investment professionals in supporting theachieved a significant result in the form of the IPO by Visional, Inc.,

entrepreneur’s desire to create a new mechanism to resolve social

JAFCO INTEGRATED REPORT 2022

12

JAFCO Group’s
ValuesJAFCO Group’s
Value Creation

Sustainable
Growth Strategy

Business Foundationfor Sustainable Growth

CorporateData

the case of Visional by accumulating our own know-how out ofremaining shares of NRI held will be sold, and the proceeds from thatpass on knowledge and experience to them, and also recruit diverse

successes of this kind.

sale will be used to buy back our shares, which will then be promptly

human resources with the necessary backgrounds to help portfolio

Moreover, in buyout investments, our ongoing efforts to provide

canceled. In addition, we have changed the dividend policy fromcompanies grow their business. We will also enhance our specialized

our investment in Visional is that if a company can create a new

attentive support from investment to exit have resulted in the launch of apaying 3% of shareholders’ equity to paying the greater of 3% offunctions aimed at providing cross-sectional support to portfolio

business model by successfully addressing changes in social values inbuyout-dedicated fund. In addition, we completed investment activity

shareholders’ equity or 50% of net income.

issues using IT and solve challenges in the way people work in Japanby focusing on the area of workstyles, rather than simply leveraging
outstanding technologies or services. One insight we gained throughJapan, it will be able to gain a large share of an existing massive

for the SV6 venture capital fund, and now we have begun fundraisingmarket and win a high reputation on a global basis. We will try to

for the next SV7 fund.

Our medium-to-long-term goals are to reduce our investment ratio in
new funds from 40% to 20%, to increase total funds undermanagement (AUM) from ¥380 billion (as of September 30, 2022) tofirmly root knowledge for the next success in our teams and replicate¥670 billion, and to boost ROE from 6% to the range of 15–20%.
As part of our growth strategies, we need to enhance our investmentcompanies such as hiring executives and employees andstrengthening their relationships with established large corporations andfinancial institutions.
Furthermore, as a measure to actively contribute to the realization ofa sustainable society through our investment activities, we will
strengthen investment in businesses that contribute to sustainability, andmanagement and fundraising capabilities, and strengthen ourhelp portfolio companies enhance their corporate governance. Manyorganizational foundation which supports our investment activities.

of our investment activities lead to the creation of new businesses that

We will raise our investment management capabilities by improving

resolve social issues. To date, we have contributed to social

our approach of highly selective, intensive investment, which we havesustainability through the expansion of portfolio company businesses.

been promoting since 2010, and deepening our involvement in the

Against the backdrop of the growing awareness of social issues, weand announced the Basic Policy for Enhancing Corporate Value inmanagement of portfolio companies by quickly identifying businesswill further increase investment in businesses and companies pursuing

to enhance corporate value, some shareholders proposed a measure

November 2022. The key points of the policy are to aim for greater

possibilities in each stage of investment, growth, and exit. Being

solutions to social issues. For unlisted companies, implementing

to enhance shareholder value in August 2022. Given our priorcapital efficiency than ever before, and to explicitly state andcommitted to broader and deeper growth, we can eventually maximize

ESG-conscious management at an early stage will lead to stable andrecognition of and ongoing discussions on matters overlapping with

implement our growth strategies. In the short term, the amount of

the value of, and guide each portfolio company through to exit.

sustainable corporate/business growth. As lead investor, we regularlymuch of the proposal content as issues to be addressed, we specified

capital earmarked for the Company’s investment business will be

To expand our fundraising capabilities, while increasing thecheck the governance structure of portfolio companies and help themour future direction, taking into account the content of the proposal,

halved from ¥120 billion to ¥60 billion. At the same time, allpercentage of repeated investments from existing fund investors, we

improve it by engaging in dialogue with their management team.

Our Determination to Make Further Progress

As the Board of Directors and other bodies were discussing initiatives

will acquire new investors especially by targeting a new group of

Through these activities, we will achieve Our Purpose of “Fuelinginvestors who put a particular premium on the social and economic

perpetual growth; investing in bold visions” by maximizing the supply

value of funds. As a measure to strengthen the organizationalof risk money and circulating such money to guide portfolio companies

foundation of employees, we will continually hire new graduates andto growth, thereby contributing to sustainable economic growth.

Becoming a Partner of People and Companies Pursuing Change and Innovation

Today, the world, in particular Japanese society, is undergoing a majorannounced Basic Policy for Enhancing Corporate Value and making

paradigm shift, away from the traditional social structure, and this trend

significant changes ourselves, we will together take up the challenge ofis expected to accelerate. We have invested, and will invest in peoplebuilding a sustainable society.

and companies taking on challenges to pursue change and innovation.
Toward that end, we must become their partner of first choice. We,

Stay tuned as we strive to become a partner of people andcompanies pursuing change and innovation.

too, will constantly change. By steadily implementing the recently

13

JAFCO INTEGRATED REPORT 2022

JAFCO INTEGRATED REPORT 2022

14

JAFCO Group’s
ValuesJAFCO Group’s
Value Creation

Sustainable
Growth Strategy

Business Foundationfor Sustainable Growth

Corporate
Data

Value Creation Process

Fueling perpetual growth; investing in bold visions
We will continue to invest in the bold visions of entrepreneurs and companies to drive the rejuvenation of industries and achieve the sustainable growth of society.

PurposeFueling perpetual growth; investing in bold visions

MissionCommit to new business creation and jointly shape the future

InputsProcess

Outputs

Outcomes

Climate change and the decarbonized society

Human capital
Stable supply of energy and foodBusiness process"p.27–28

JAFCO’s unique investment professional
training model

new graduate hires and4,100

mid-career professionals
Organizational investment structure

Poverty and income inequality

supporting strong individuals

Support for enhancing corporate value

Investments

Portfolio company sourcing/support"p.17–18

Capital gains

Total funds undermanagement

Work and lifestyle changes

Materiality

Intellectual capital

External
environment
surrounding
JAFCO Group

Track record of success and failure(Total commitments)

in private equity investments

Funds

Fund formation/management expertise

Financial indicators

Fund management
fees, success fees

Extensive knowledge based on an
unparalleled track record of IPO support

Lack of successors at small- andmedium-sized enterprises

Social andrelationship capital
Extensive relationships of trustwith entrepreneurs
Strong partnerships with fund investors

Development of a digital society

Expectations for the creation of innovation

15

JAFCO INTEGRATED REPORT 2022

Information
disclosure,dividends¥ 27.7 billion
Fundraising,information provision

Shareholders/
Stock investors

Capitalcommitments

Distribution

Expansion ofrisk money
supplyExpansion of
employment

Economic
growthOperating income¥16.9 billion
Fund
investors

Profit attributable to
JAFCO Group Co., Ltd.
stockholders

Expanding network¥15.1 billion

with large companies, etc.

"p.18

Creation/development of
new businesses

Net sales"p.17

Stagnation of the Japanese economy

Low birthrate and the dramatically aging society

Promotion of rejuvenationof industries¥ 332.3 billion

Fund management,
capital commitments

cultivated over the years"p.19–20

Investment inbold visions

Portfolio companies

Hybrid organization combining

Heightened awareness of respectfor human rights

Cumulative
number of portfolio
companies

Corporate governance"p.47–51

Note: All figures are for the fiscal year
ended March 31, 2022.

Expansion of
the ecosystem forsustainable growth

JAFCO INTEGRATED REPORT 2022

16

JAFCO Group’s
Value Creation

JAFCO Group’s
ValuesSustainable
Growth Strategy

Business Foundationfor Sustainable Growth

Corporate
Data

Sources of Value Creation

Integration of Management Capital based on Human Capital
JAFCO Group creates new value by integrating its unmatched intellectual capital and social and relationship capital based on the organizational and human resource capabilities that it has cultivated.

Intellectual capital

Because investment in unlisted companies that may not have a solid business foundation is highly

Our shareholders, fund investors, and portfolio companies are all important stakeholders. The successuncertain, the key is how effectively past experience can be leveraged to reproduce success.

of portfolio companies improves fund performance, which translates into profits for fund investors andReproducing success fuels perpetual growth. We have established a mechanism for sharing andshareholders. The relationship between the Company, portfolio companies, and limited partners is that

accumulating experience through meetings and information systems throughout all business processes,of a partnership for the growth of portfolio companies. Fund investors not only provide funds but also

which range from forming funds, identifying investment targets, making investment decisions, executing

actively collaborate with portfolio companies. We, too, are sometimes introduced to promisingplans, and enhancing corporate value to selecting an exit.* This mechanism is our intellectual capital.

companies and entrepreneurs by portfolio companies.

Social andrelationship capital

Our network with large companies and related institutions is also essential for expanding businessTo date, we have invested in 4,100 companies and supported more than 1,000 IPOs. One of ourstrengths is the ability to identify the potential issues that could be faced by portfolio companies andand fundraising opportunities for the growth of portfolio companies. We continue to expand ourprovide solutions based on our experiences of success and failure that have been accumulated in the

network and deepen trust through various activities, including workshops and seminars.

process of supporting an overwhelming number of IPOs.
* Refers to recovery of invested funds or exit strategies in venture capital and other investment funds

Fund formation andExtensive knowledge based onfund management expertisean unparalleled track record

cultivated over the yearsof IPO support

Cumulative number

Cumulative fundsof portfolio companies

under management

1,140.8 billion

Track record of success and failure
in private equity investment

4,100

¥

Extensive relationships of trust

Strong partnerships

Expanding networkwith entrepreneurs

with fund investors

with large companies, etc.

Cumulative number

Number of interactions with potential

Cumulative number

Number of companiesof IPOstargets (most recent three years)of fund investors

with which we have contact

1,019

6,603

1,295

15,410

The greatest source of value creation at JAFCO Group is our human capital. For many years, we have consistently
hired new graduates and worked to train investment professionals. Our unique training model has contributed
significantly to the development of the private equity investment market and industry, including fund establishment by
our former employees. In recent years, in addition to our new graduate hiring/training model, we have been
focusing on mid-career hiring in an effort to build a hybrid model for developing human resources.

JAFCO Group’s unique modelHybrid organization combiningof training investment

new graduate hires andOrganizational investment
management structure

professionals

mid-career professionals

supporting strong individuals

Our culture of respecting portfolio companies (entrepreneurs) is continuously passed down not only to our
professionals but throughout the entire organization. A culture in which all employees, regardless of their division orage, cooperate naturally with each other to support the growth of portfolio companies and improve our investment
capabilities has allowed us to develop strong organizational and human resource capabilities. Our organizational
structure that places emphasis on the unique talents of individual professionals while also backing up thoseindividuals is a major feature of the Company.

Human capital

17

JAFCO INTEGRATED REPORT 2022

Number of professionals with

Percentage of

Number of

10 or more years

mid-career hires amongsupport personnelof investment experience

investment professionals

for portfolio companies

20 out of 47

41.3%

27

Note: As of March 31, 2022

JAFCO INTEGRATED REPORT 2022

18

JAFCO Group’s
Value Creation

JAFCO Group’s
ValuesSustainable
Growth Strategy

Business Foundationfor Sustainable Growth

Corporate
Data

Materiality
Materiality Identiﬁcation Process

STEP

1

Our private equity investment, and particularly our venture investment,
which is where our business originated, is strongly characterized by its
contribution to solving social issues by its very nature. For this reason,
we have focused on private equity investment since our founding
based on our policy of continuing to invest through good times andbad. We believe that our continued investment enables us to achieve
Our Purpose and contribute to the resolution of social issues.

In recent years, the social environment has become increasingly
diverse, and issues have become more complex, making it vital tounderstand society from a wider perspective. With this in mind, we
consider our course of action based on the opinions of our
stakeholders. We will continue to determine our direction for growth
while taking into account a wide range of opinions, and work to
identify and resolve material issues and make improvements.

Identifying Material Issues based on Feedback from Stakeholders
Before identifying material issues, we conducted interviews withstakeholders such as institutional investors with a view to enhancing ourcorporate value. We received a number of comments that our businessof private equity investment itself contributes to resolving social issues.
Based on such feedback, we worked to identify material issues interms of medium-to-long-term issues related to the markets andstakeholders in which and with whom we are involved. After raising awide range of issues, six material issues were identified based on theevaluation axes of internal issues and external demands, as well as
expert advice.

Interviews

Survey

STEP

2

STEP

3

4

Material issues

Social issues facing the Company
Innovation in various industries is essential for the sustainable development of society and economic
growth. The creation of new businesses that address potential social demands, in addition to resolvingsocial issues which have already emerged, is required.

Institutional Investors
Interviewed 5 major institutional investors
Asked about their expectations and requests from the viewpoint of sustainability and the social value that the Company
has createdDirectors, Officers, and Employees
Interviewed 43 directors/independent directors/employees
Asked about the social value that the Company has created and current issues, and what should be addressed in the future

STEP

1. Creation of new businesses that lead the way
in fulfilling social needs

Conducting interviews and surveys with each stakeholder group

Administered to 30 shareholders/institutional investors, 248 fund investors

Identification of issues
from external andinternal perspectives

Identified a wide range of issues to be addressed by the Company, including expectations and requests ofstakeholders (shareholders, investors, entrepreneurs, and employees), and barriers to be removed toachieve medium-to-long-term goals as an entire company and in each division.

From the perspectives of external expectations/interests and importance to our business, the identified

Evaluation of issues

issues were evaluated through a bottom-up framework centered on respective division heads and in light ofthe expectations of each stakeholder group.

Identification ofmaterial issues

PolicyConduct highly selective, intensive investment anddeepen management involvement to achieve high performance

Based on the evaluations of each division, a final prioritization of issues was conducted from a companywide perspective, and six material issues were identified. Four related to our market domain: (1) venture
investment, (2) buyout investment, (3) funds, and (4) ecosystem; and two related to our company domain.

Examples of specific initiatives• Expand the scope of deal sourcing to include companies at an earlier stage with high growth potential
and become involved in their management as a lead investor• Ensure a high level of involvement in business development and deploy a full range of management
resources, through a specialized team to support portfolio companies• Build a business foundation to realize continuous corporate growth in the future

Issues faced by companies are becoming increasingly complex, such as the necessity of adapting to social

2. Growth of companies with social value andpassing on to the next generationand environmental changes, productivity improvement, and the shortage of business successors. The ability

Realize a fresh start by committing to growth throughto revitalize corporate growth must be improved to pass on the technology and assets essential for

an integrated approachsociety’s future.
New industries that support the future must be created to ensure Japan’s medium-to-long-term growth.

3. Expansion of risk money supply in Japan

Since Japan continues to lack a sufficient supply of risk money, it is vital that long-term capital frominstitutional investors in Japan and overseas is allocated to the private equity market, wherein it can gain
value and circulate.

Improve attractiveness of funds as a financial instrument
through high investment performance and management
discipline/transparency of management

As there are many barriers that must be overcome to create new businesses and reinvigorate corporate

4. Establishment of an ecosystem that
supports business creation and growth

5. Continuous organizational development topromote active roles of diverse human resources

6. Reduction of business and management risks
by strengthening governance

19

JAFCO INTEGRATED REPORT 2022

• Commitment by professionals through an integrated approach covering everything from sourcing to exit
• Use of knowledge cultivated through venture investment to achieve corporate growth for the next generation• Establishment of a business foundation that allows continuous corporate growth in the future• Acquisition of new investors by providing a level of returns that sufficiently compensates for lower liquidity• Building trust with investors through highly disciplined and transparent management• Strengthening and expanding collaboration with financial institutions and business firms that support thegrowth of portfolio companies• Acquisition of new investors by providing returns that compensate for low liquidity

growth, a structure that supports society as a whole is needed. Based on a high level of commitment ofForm co-creation partnerships to create new businesses

professionals in various specialized fields, there is a need to reproduce success through the circulation ofand realize a fresh start• Building frameworks to support entrepreneurs and companies through cooperation with universities,
research institutions, and government

diverse knowledge and experiences.

• Awareness-raising/support for career development to expand the flow of human resources to growth industries

Combining diverse viewpoints and a wide range of individual strengths is indispensable for the• Expansion of internal functions, contacts with entrepreneurs/companies, and various networks by
securing diverse human resources through a combination of new graduate and mid-career recruitment

sustainable development of society. To enable each individual to work with enthusiasm and fully
demonstrate potential, companies are called upon to take the initiative to respect diverse values.

Reflecting the diversification and rising complexity of social issues, corporate social responsibility andexpectations from stakeholders are increasing. To meet the demands and expectations of society andrealize sustainable corporate growth, companies are called upon to strengthen their governance.

Promote recruitment of diverse human resources andstrengthen frameworks that support their growth and success• Continuous promotion of on-boarding and internal support programs to support growth• Establishment of a personnel system and a working environment that ensure health and safety as a basis
for success• Strengthen the corporate governance system that supervises and supports management

Strengthen the organizational systemand structure to lower business and management risks• Maintain compliance as a financial instruments business operator and accumulate private equity
investment expertise• Enhance ESG monitoring and the support structure for portfolio companies

JAFCO INTEGRATED REPORT 2022

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JAFCO Group’s
ValuesJAFCO Group’s
Value Creation

Sustainable
Growth Strategy

Business Foundationfor Sustainable Growth

Corporate
Data

Sustainability
Realizing a Sustainable Society through Investment Activities

Invest in businesses that have social signiﬁcanceThe first initiative is continued investment in businesses with social
signiﬁcance. The number of businesses that contribute directly tosustainability has increased in recent years. Leading examples arebusinesses working toward a decarbonized society, which is a global
issue, and those that address new lifestyles following the impact of the
COVID-19 pandemic. While our investment targets are not limited to
specific industries or domains, we aim to realize a sustainable society
by discovering hidden value with regard to social issues andcontinually investing in companies with social signiﬁcance.

1

Enhance governance to increase portfolio companies’
awareness of sustainability

The second initiative is enhancing governance to increase portfolio
companies’ awareness of sustainability. While the importance ofcorporate sustainability activities is increasing, there are cases where
portfolio companies cannot satisfy ESG evaluation criteria on theirown. Through active involvement in these portfolio companies, we willchange their awareness of sustainability and link this to improvement
activities, thereby enhancing sustainability in society as a whole.
As described above, we contribute to the realization of asustainable society through involvement in portfolio companies. We
therefore believe that the continuation of our investment activity itself
leads to the achievement of a sustainable society. Our private equity
investment encourages the flow of funds, drives the transformation of
the industrial structure, and enriches society. From a global perspective,
the private equity investment domain in Japan has high growthpotential, and we believe that the expansion of the private equity
market itself contributes to sustainability.

We regard continued investment as a highly important initiative, notonly in terms of business and corporate growth, but also to boost
sustainability in society as a whole. Even when many funds refrained
from investment activities amid significant declines in business
confidence, including the global financial crisis, we continued to carryout consistent investment.
While responding in a timely and appropriate manner to external
demands as the global environment and social systems drasticallychange, our strong dedication to continuing investment through goodtimes and bad will remain unchanged. We will continue to realize Our
Purpose and strive to create a sustainable society through the means ofinvestment, on which we have focused since our inception.

Invest in businesses that have social signiﬁcance2Here we introduce sustainable value that portfolio companies realize through their businesses by dividing them into four categories, three of which are based on the three tiers of the “SDGs wedding cake” model*—biosphere (contributing to resolving environmental issues), society (contributing to resolving social issues), and economy (contributing to the innovation and development of industries)—and the other is enhancing
governance and information disclosure.
* The SDGs wedding cake model is a conceptual model developed by Professor Johan Rockstrom, co-founder and former director of the Stockholm Resilience Center at Stockholm University, Sweden.

Biosphere: Contributing toresolving environmental issues

TeraWatt Technology Inc.

Society: Contributing toresolving social issues

Economy: Contributing to the innovationand development of industries

Enhancing governance andinformation disclosure

Next Innovation Inc.

TIER IV, INC.

LegalOn Technologies, Inc.

TeraWatt Technology conducts research and development of

Next Innovation offers Smaluna, a one-stop medical consultation

TIER IV has developed Autoware—an open-source software

LegalOn Technologies offers LegalForce, an AI-based software thatnext-generation lithium-ion batteries with high energy and power

platform for contraceptive pills that allows consultation,from Japan for autonomous driving systems. The company

supports contract reviewing. It helps to prevent hidden risks fromdensity. It is contributing to the realization of a decarbonizedexamination, prescription, and delivery arrangement overcontributes to the social implementation of autonomous

being overlooked or required clauses from being omitted in contracts

society through the development of next-generation batteries thatsmartphone. The company also provides a corporate welfare

driving systems through its two platforms: Pilot.Auto andand allows users to search for clauses used in the past, thereby

can extend the driving range of electric vehicles, which are inservice and has developed a free sanitary product service,

Web.Auto.

contributing to improving the efficiency of highly specialized

increasing demand, and increase the payload capacity and flightcontributing to empowerment and quality of life for women.

legal practices and strengthening corporate governance.

time for delivery drones.


Sharing Energy Co., Ltd.

Gojo & Company, Inc.

Realization of a sustainable society
through continued investment activity

Portfolio
companies

Realization of a sustainable society
through portfolio companies

Synplogen Co., Ltd.

Sustainable Lab Inc.

Sharing Energy offers Share Denki, a third-party ownership service

Gojo & Company operates microfinance services in India,

Synplogen utilizes its proprietary DNA synthesis technology (OGAB

Sustainable Lab offers TERRAST, a tool that enables companies tofor solar power systems for detached houses. The company

Cambodia, Sri Lanka, Myanmar, and Tajikistan for low-income

method) to provide ultra-long and complex DNA synthesis services

easily collect and analyze non-financial information. It contributes

contributes to a decarbonized society by transforming the energy

earners who cannot access financial services due to a lack ofand DNA library construction services for various combinations. It

to enhancing governance and non-financial information

system through the creation of distributed power sources and theeconomic infrastructure. The company contributes to providing

also applies its technology to the design and development of viral

disclosure by managing and analyzing non-financial data,

supply of innovative products.

equal opportunity and expanding freedom by ensuringvectors for gene therapy and production process development,

including analysis of the current status of ESG/SDG management

financial access for all people.

thereby contributing to the development of gene therapy

and industry/competitor/time-series comparisons.

Enhance governance to increase portfolio companies’ awareness of sustainability

As many portfolio companies are yet to establish the necessary organizational frameworks,
we have been conducting compliance checks on a regular basis. In recent years, we havefurther strengthened our efforts in response to increasing social demands for sustainability.
In the pre-investment due diligence phase, we evaluate candidate portfolio companies andentrepreneurs based on our own checklist, which includes ESG items. Then, in the postinvestment support phase, we conduct awareness-raising activities and periodic surveys
based on management guidelines and monitoring indicators with a focus on an ESG
perspective, and our specialist team carries out improvement activities if necessary.
We will continue to contribute to the realization of a sustainable society by raising theawareness of portfolio companies.

Involvement by JAFCO Group’s specialist team1

2Pre-investment
due diligence phase
Corporate evaluation
based on ESG items

Post-investment
support phase
Raising awareness and supporting
improvements to enhance thegovernance of portfolio companies• Corporate evaluation in accordancewith ESG items• Raising awareness based on guidelines
for human capital management, etc.

• Investment judgment based on ourown checklist• Monitoring and supporting
improvements from an ESG perspective

Raising awareness of sustainability

We will contribute to the realization of a sustainable society throughthe following two initiatives for portfolio companies.

products and the establishment of manufacturing platforms.

21

JAFCO INTEGRATED REPORT 2022

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22

JAFCO Group’s
Value Creation

JAFCO Group’s
ValuesSustainable
Growth Strategy

Business Foundationfor Sustainable Growth

Corporate
Data

Message from the CFO
Overview of profit structures

Fund profit structure

We will improve our capitalefficiency and build a solid

JAFCO’s capital
contribution

ROI

Capital gains(Investment management
capabilities)

Fund profit

financial foundation topromote growth strategies.

JAFCO’s profit structure

Success fees

Fund size
Increase in line withtarget market expansion

External capital
contribution(Fundraising capabilities)

Fund management fees

Hiroaki Matsuda
Chief Financial Officer
Higher performance increases a fund’s attractiveness as a financial instrument, facilitating external fundraising

Building a Strong Financial Foundation and Improving Capital Efficiency
Since its founding in 1973, JAFCO has continued to invest in

The most important aspect of maintaining a solid financial position

Put simply, our venture investment is a business in which we createcompanies, and had some sudden unpredicted bankruptcies.

companies working to create new businesses or to revitalize theiras a company making private equity investments is the ability tonovel businesses together with entrepreneurs. Being a business of great

However, the policy has allowed us to be more closely involved

existing businesses. Looking back, despite adverse events such as theproperly evaluate investment assets. As CFO, I must identify decreases

significance, it is also highly risky and heavily impacted by changing

with each portfolio company and to gather information throughcollapse of the dot-com bubble in 2001, the global financial crisis ofin the value of our investment assets faster and more accurately thantimes. In 2010, amid the continued economic downturn caused by thesmooth communication. It has made it relatively easy for us to2008, and the Great East Japan Earthquake in 2011, we haveanyone else. If we can identify and solve problems early, our2008 global financial crisis, we adopted a policy of highly selective,

identify risks beforehand, detect signs of their manifestation, andcontinued to invest consistently regardless of the circumstances. Wheninvestment professionals can devote themselves to proactive investment

intensive investment. Prior to that, we attempted to reduce risk andtake prompt preemptive action. The shift to highly selective, intensive

it comes to creating a cycle of economic revitalization and growth, it isactivities. As we move forward with this business, I believe it isimprove performance by diversifying investments among many

investment stabilized our profitability, enabling us to achieve a strong

very important to continue investing even amid difficult circumstances.

extremely important that we create such a frontline-oriented environment

companies, but due in part to the financial crisis, we could not achievefinancial foundation.

As CFO, my most important mission is to ensure that we have theand disclose the fair valuation of our private equity holdings—a key

the expected results. As a result of shifting to highly selective, intensive

financial foundation and fundraising capabilities to make bold

category of our assets—with transparency to fund investors, as well as

investment, the number of portfolio companies decreased, but webasically, have been making an effort to build a solid financial structure

investments in businesses that can potentially change the future.

JAFCO’s shareholders/stock investors. Our investment professionals

could focus more on management involvement and gaining a deeperthat would allow us to stably finance our own investments in our funds.

Our main income sources are capital gains on our interests in funds

maintain a close dialogue with the management teams of portfolio

understanding of their business conditions, allowing us to generate

However, in 2021 we specified the amount of capital needed tothat we manage, and the success fees and fund management fees wecompanies in a variety of ways to gain a thorough understanding of

more favorable results. Meanwhile, increasing the amount invested incontinue our investment activities and decided to return any surplus toreceive for the management of external capital entrusted to us by fundthe status of their businesses. We have a culture in place in which

each portfolio company meant that capital gains per company wereshareholders to improve capital efficiency. Then we sold off aroundinvestors. The most distinctive feature of our venture capital funds is thatthese investment professionals and members of the Businesshigher and overall fund performance generally improved. Highly

40% of the shares we held in Nomura Research Institute, Ltd. (NRI) and

we ourselves also invest in the funds. In doing so, we, the fund manager,

Development Division and Administration Division discuss the potential

selective, intensive investment has also made it easier to grasp thebought back our own shares totaling ¥50 billion. Going forward wetake on risk ourselves to show our investors that we are strongly

downside risks openly and honestly. This information reaches me as

downside risks of each portfolio company. Prior to the policy change,

will take further measures to improve our capital efficiency.

committed to the fund performance, and also to align our returns withwell. It is one of our greatest strengths to be able to accurately evaluate

we were not always able to identify the downside risks in portfolio

those of investors. Doing so has enabled us to raise funds on a steadyassets based on such information.

Much discussion has been made about our capital efficiency. We,

basis and focus on improving the funds’ return on investment (ROI).

23

JAFCO INTEGRATED REPORT 2022

JAFCO INTEGRATED REPORT 2022

24

JAFCO Group’s
Value Creation

JAFCO Group’s
Values

Reflection on the Fiscal Year Ended March 31, 2022

Business Foundationfor Sustainable Growth

Sustainable
Growth Strategy

Corporate
Data

Illustration of our vision and quantitative targets

New fund size

Net assets

Profit structure

Fund size expands in linewith target market expansion

Looking back on the business environment in the fiscal year ended
March 31, 2022, although the number of IPOs in Japan reached120, the market underwent a significant correction in the second half

ROE
Around 15–20%(¥ billion)

against the backdrop of U.S. monetary policy and geopolitical risks.

(¥ billion)

250

As a result, we could not predict how it would affect the performance(¥ billion)

Net income
22.0–25.0

190.0

of portfolio companies and the fundraising of our new fund. These

Success fees

43.5

circumstances led a number of planned domestic IPOs to beExternal
capitalcontribution

150

postponed or scaled down, but even in this business environment, theCompany’s performance remained relatively strong. Capital gains on

NRI shares(four domestic1 and two overseas), amounted to ¥12.6 billion,
exceeding the previous year. The amount of investments also exceeded

60

that of the previous year, reaching ¥37.1 billion on a global basis.
The IPO by Visional, Inc. made up a significant part of the year’s total

Present

50

Operational
investment
securities

85.0

20%

Medium to long termPresent(approx. 10 years ahead)

capital gains. I believe that this large-scale IPO with a market

35.0

89.0

JAFCO’s own capital contribution
40%

Cash

61.2

200

90

listed and unlisted stocks combined, including those from six new IPOs

20%

Net assets
120.0

Medium to long term
(approx. 10 years ahead)Fundmanagement fees

6%

25%

11.0
15%
15%

70%
Present

Capital gains

55%

Medium to long term
(approx. 10 years ahead)

Note: Total amount of new domestic and overseas funds.

capitalization over ¥200 billion proves the potential of our highly
selective, intensive investment policy, and that venture investment isand will continue to be a growing domain.
As for shareholder returns, we completed the aforementioned sharebuyback (totaling ¥35 billion; 14.3 million shares ) approved in
2

April 2022, and canceled 7.63 million shares (9.4%4 of the numberof shares outstanding) in May 2022.
target and announced a policy of paying out 3% of shareholders’February 2021, and canceled a total of 16.74 million treasury shares(17%3 of shares outstanding) by June 2021. In addition, we conducteda three-for-one stock split on February 1, 2022, to increase stock
liquidity. Moreover, we completed a share buyback (totaling

1. Excluding an IPO (Kibun Foods Inc.) from our investment securities portfolio.
2. Figures after the stock split in February 2022.
3. Number of shares outstanding (including treasury shares) as of the end of March 2021.
4. Number of shares outstanding (including treasury shares) as of the end of March 2022.

¥15 billion; 7.41 million shares2) approved in October 2021 by

In addition, being focused on further improving ROE we have set aequity (average of the beginning and end of the period) or 50% of net

10-year management goal of decreasing net assets from ¥188.8 billion

income, whichever is greater. It is meant to both improve capitalas of September 30, 2022, to around ¥120 billion. Furthermore, ourefficiency and align our interests with those of our shareholders.

growth strategies are centered on further improving investment

However, as an exception, for the fiscal year ending March 31,

performance by enhancing our investment management capabilities and2023, the dividend will be the greater of items a) or b) below.

expanding fund size by enhancing our external fundraising capabilities
in line with the expansion of target markets. Moreover, we are lowering
our investment ratio in new funds from 40% to around 20% over the nexta) ¥150 per share

Next Challenge

investment in funds based on this target ratio, and returning the fundsb) Dividend per share calculated by deducting the amount ofIn the midst of these efforts, in August 2022 a group of shareholders
proposed to us a measure to increase shareholders’ value including a

to continue investing in any business environment, we had previously
defined ¥120 billion of cash level including NRI shares collectively as

our corporate value.

the necessary funds for future investment activities. However, we decided
to halve it to ¥60 billion, as an amount expected to be invested overpreviously allocated to self-funded investments to shareholders. Throughthe share buyback to be implemented in the current fiscal year

these measures to improve capital efficiency, we aim to increase thefrom net income, including the gain on sales of NRI shares

total shareholder return ratio, including through share buybacks, tobetween 60% and 100%+ and ROE to between 15% and 20%.

In addition, in order to maintain a financial position that enables us

as issues to be addressed, we further looked into measures to improve

To Our Shareholders and Stock Investors

perpetual growth; investing in bold visions—by making venture andthe following three years, and any cash in excess will now be used forbuyout investments through our funds. With the aim of sharing the results

share buybacks to improve capital efficiency. We sold our entireof our efforts with shareholders and achieving further growth, weholdings in NRI and used ¥42 billion of the after-tax proceeds to buy

announced our Basic Policy for Enhancing Corporate Value in November

back our shares. We will promptly cancel the acquired treasury shares

The recently disclosed Basic Policy for Enhancing Corporate Value ishigher profits, and improving capital efficiency to boost our corporate

2022, which calls for the improvement of capital efficiency through theto reduce treasury shares to 3% of the shares outstanding.

a transformative 10-year plan for improving our capital efficiency andvalue. By strengthening corporate governance as a public company,

promoting growth strategies. To implement the short-term measures andwe will establish an organizational foundation in which management

reduction of net assets and the promotion of growth strategies.

25

investment ratio to around 20%.

takeover bid. Having already recognized much of the proposal content

Up until now, we have been working to realize Our Purpose—Fueling

10 years. Therefore, we are gradually reducing the amount of our own

As for dividends, owing in part to the results of our highly selective,

The goal is to increase the level of profit and significantly improve

intensive investment, we have been building a financial structure thatto achieve the medium-to-long-term targets it sets forth, our directors,

and human resources can be passed on in a stable manner, andcapital efficiency by reducing net assets based on growth strategies,

allows us to generate steady profits. Accordingly, while maintaining a

officers, and employees will put every effort into further strengthening

contribute to the realization of a sustainable society through ourand to expand the size of new funds while gradually reducing oursolid financial foundation, we have adopted a dividend payout ratio

our investment management and fundraising capabilities, making

investment activities.

JAFCO INTEGRATED REPORT 2022

JAFCO INTEGRATED REPORT 2022

26

JAFCO Group’s
ValuesJAFCO Group’s
Value Creation

Business Foundationfor Sustainable Growth

Sustainable
Growth Strategy

Corporate
Data

Business Process

JAFCO Group has established a system for increasing the reproducibility of investment capabilities by sharing andmaximizing investment professionals’ individual competence and commitment across the organizationl About every three years, the Fund Management Division plays the central role in fundraising for domestic flagship funds in collaboration with the Investment Division, the Structured Investment Division, and the Business Development Division.
l For each investment, we form the optimal team and provide comprehensive growth support from the deal-sourcing stage to exit.
l For enhancing the corporate value of portfolio companies, a specialist team is formed for each company to provide systematic support according to the growth stage, ranging from recruitment and sales and marketing support to IPO preparation.

Fund Establishment

Main Activity

Deal Sourcing

Investment Decision
and Execution

Enhancement ofCorporate Value
Our investment professionals who are in charge of
portfolio companies work on resolving issues witha sense of ownership, coming up with growthscenarios together with entrepreneurs. Furthermore,
at JAFCO, we have dedicated personnel to provide
support to portfolio companies. This support includes
functions that are essential for growth, such as
recruitment, marketing and sales support,
development of back-office functions, and IPO
preparation. In our buyout investments, we maintaina permanent or semi-permanent presence at
portfolio companies to proactively improve
management at the post-merger integration (PMI)stage and accelerate business growth.
In addition to fund investors and portfolio
companies, we have built up a network oforganically connected business firms. We continue
to further enhance and expand this network.

In order to secure continuous and stable investment

With private equity investments, high-quality deal

Because many of the unlisted companies in which we

funds, it is necessary to attract a new investor base insourcing based on careful selection creates

invest do not have the necessary business foundations

addition to repeated investment from existing investors.

reproducible success. Our deal-sourcing

in place, the main focus of our corporate value

Our primary investors are financial institutions andcapabilities, which we have cultivated throughassessments is on identifying business potential andbusiness firms. Unlisted securities have low liquidity,

interactions with numerous entrepreneurs, are one ofmeasuring management quality. To determine businessand it takes around five to 10 years to recover

our strengths. Based on our approach of constantfeasibility, we verify such key factors as market growthinvested funds through exits. Because of this, the Funddeal sourcing by everyone from partners to young

potential, competitiveness and uniqueness of productsManagement Division builds trust with fund investors

associates who have just joined the Company, eachand services, and innovativeness of technology. We

by providing highly transparent reporting andyear we meet with more than 2,000 new investment

also analyze and conduct negative screening on

information, and communication according to theircandidates that we have had no prior interaction

growth potential from the standpoint of ESG and theindividual needs. In addition to returns based on fundwith. Our proprietary database of records from

SDGs. In venture investments, the most important

performance, we emphasize our social significancethese meetings is an unmatched strength.

element is assessing the quality of the management

and the attractiveness of our investments in our

Around one-third of our investments come fromteam, which our investment professionals do over thecontinuous efforts to cultivate a new investor base thatreferrals and unsolicited inquiries. Referrals fromcourse of ongoing dialogue. Together with an

empathizes with the aims of our investment activities.

our human network, including the management

investment team, a member in charge of investment

teams of past portfolio companies, are also an

evaluation provides an assessment from an objective

important source of deal leads.

standpoint, and the Investment Committee makes theExit

We select exit strategies that realize both portfolio
company growth and returns to fund investors. In thecase of venture investment, most portfolio companies
plan IPOs at the time of investment. We havespecialists who provide support for listing
preparation, through whom we have supported IPOs
amid various changes in the market environment.
When selecting an exit strategy other than an IPO,
because we hold a certain stake under our policy ofhighly selective, intensive investment, we are able torealize an optimal exit, including M&A, for portfolio
companies, based on agreement with the
management team.

investment decision based on the consensus of allpartners using this feedback.

JAFCO Strengths

Attractiveness as a financial instrument thatdelivers stable, high performance

Outstanding volume of interaction withentrepreneurs and companies

Discipline and transparency of management

Information on investment candidates
accumulated through past deal-sourcing
activities

Information provision and communication
tailored to the individual needs of investors

Consistent management involvement, frominvestment to corporate value enhancement
and exit, by forming the optimal team foreach investment

Judgment and insight from partners andexperienced investment professionals
Investment decisions based on the consensus of
all partners

Support by experts specializing in humanresources, back-office functions, marketing,and more according to the growth stage of
portfolio companies

Relevant Divisions
Investment Division(Venture Investment)

Structured Investment Division(Buyout Investment)

Partial involvement"p.29–30"p.31–32

Business Development Division"p.35–36

Fund Management Division"p.37–38

Venture investment¥10.0 billion/29 companies

Buyout investment¥ 3.8 billion/2 companies

Number of referrals from customers

4,607
Number of business meetings conducted

742

s

244

2,193

Amount/Number of new investmentss

Number of investorss(Fiscal year ended March 31, 2022)s¥215.0 billion

Number of first meetings
with domestic companiesss

Domestic funds under management

Quantitative Information

JAFCO INTEGRATED REPORT 2022

Listing preparation support leveraging
experience from more than 1,000 IPOs

Involvement as the main divisions

27

Formulation of exit strategies that fully leveragepotential of portfolio companies

Exits by domestic portfolio companies
Amount of sales¥ 47.0 billion/33 companies

Amount of sales: Actual amount at time of sale
Number of companies: Number of IPOs + Trade sales

JAFCO INTEGRATED REPORT 2022

28