Designing
New Context
Designing
New Context
Digital Garage’s (DG) investments total roughly 70 billion yen (as of March 2024) in startup businesses via DG Ventures. Additionally, DG invests in a wide range of companies from DG Incubation, which operates theme-based funds, and DG Daiwa Ventures, a global venture capital company founded in Japan. Among these, DG is devoting particular attention to the Fintech sector.
We interviewed the Global Investment Incubation (GII) segment division to learn more about DG’s current focus on Fintech investment.
GII manages the DG Group’s numerous investment divisions. It is involved in a wide range of investment operations to maximize returns and increase value in a multifaceted way, including sourcing based on DG’s extensive startup investment track record; proactive support in line with each business stage; and help with back-office tasks like accounting, taxation, and legal affairs. We spoke with Junichi Nakajima, Kurumi Takahashi, and Tatsuki Akiyoshi, who have work experience at financial institutions and are currently involved in Fintech investment strategies. They described their expectations of the Fintech and the strategies behind their investments.
Corporate officer; Digital Garage, Inc.
Junichi Nakajima
Was hired in 2000 by the Sakura Bank (currently Sumitomo Mitsui Banking Corporation). Afterwards, he worked in M&A advising at KPMG, then in venture investing and other investment operations at Lone Star Funds, Marubeni (USA), and the Cool Japan Fund. Joined DG Daiwa Ventures in March 2018. Corporate officer of Digital Garage (GII segment). Graduated from the Faculty of Business and Commerce of Keio University and The Wharton School of The University of Pennsylvania (MBA).
Digital Garage, Inc.
Kurumi Takahashi
After graduating from the Faculty of Law, University of Tokyo, she was hired by the Daiwa Securities Group’s Asset Management Division. Worked in fund establishment and disclosure in the Product Department. Joined DG Daiwa Ventures in 2018, where she invests in a wide range of global companies with a focus on deep tech, including AI, healthcare, and Internet services.
Digital Garage, Inc.
Tatsuki Akiyoshi
After graduating from the Faculty of Economics, University of Tokyo, he was hired by the Development Bank of Japan Inc.. Worked in corporate sales at the Main Branch and Tohoku Branch, then in fundraising through foreign and ESG bonds in the Financial Affairs Department. Joined Digital Garage in 2022, where his job includes value improvement for investees and new in-house businesses, as well as overall business and financial affairs strategy.
Speaking about what makes the Fintech sector so interesting, Akiyoshi said, “We’re seeing lots of new business opportunities.” In the past, only some specific companies were allowed to enter the finance field, a regulated industry with many limitations. However, ministries and government officials are starting to relax these regulations, resulting in many new services for digital payment and digital payroll services.
Takahashi described how this industry is growing by referring to its market size: “The Japanese Fintech market has reached roughly 1.21 trillion yen, which is five or six times bigger than it was four years ago.” This is partially due to an increasingly diverse range of industry players; finance was a traditional industry led by long-established companies, but more startups and IT companies are expanding into this market. In addition, companies called “enablers,” which stand between financial institutions and companies with customer bases to provide the infrastructure for Fintech services, are expanding the base of the market.
“Technology’s impacts on the industry are not limited to Fintech in the narrow sense of the word,” said Nakajima, who has many years of finance experience and a keen sense of how the industry is changing. “When I worked at a bank, we wrote out proposal documents by hand—people said you wouldn’t be promoted if you had bad handwriting. Technological progress has brought significant changes not only in the industry but also in our lifestyles. Even bigger changes are imminent in the finance industry, and investors will need extensive knowledge, including Japanese laws and regulations along with overseas regulations, and up-to-date information. It’s a very fulfilling job that not anyone can do. I find it fascinating and feel a great deal of pride.”
DG invests in Fintech because it is a payment service provider and a Fintech company that offers a comprehensive range of payment services to e-commerce business operators and other clients. DG has established itself in the industry and must provide useful services to accomplish further growth.
However, DG cannot adapt to rapid changes as a Fintech industry bystander; it must invest in promising startups—and sometimes incorporate them into the Group—to remain up to date with the real circumstances of the industry. Nakajima said each subsidiary has slightly different goals.
“DG Ventures, which invests directly in companies, used to focus on financial returns. Today it mainly invests in companies that offer the potential for future collaboration, even if collaboration is not possible today, and we’ve had more of these opportunities. We’re preparing to launch DG Strategic Investment as a separate vehicle for in-progress business collaboration. Since DG Daiwa Ventures gathers money from external parties,we frequently communicate with companies that can benefit our investors. An increasing number of major financial institutions are joining its funds, perhaps due to DG Daiwa Ventures’ investment track record in Fintech companies.”
Takahashi added, “DG acquires information through investing, and it would be wasteful to keep it to ourselves.” DG has been ahead of the times while investing in companies in North America and around the globe, and has built a unique network called the “Global Incubation Stream.” DG does not keep information from this network to itself; DG also shares it with investors, which benefits both parties.
Fintech has made greater strides overseas compared to Japan. There are many Fintech companies in North America and Europe offering services that are not available in Japan. Fintech-based innovation is occurring in Southeast Asia, Africa, and other developing nations that lack financial infrastructure.
DG’s investees include companies that provide individual asset management tools to financial institutions and peer-to-peer lending platforms. Takahashi said they must keep a careful eye on Fintech services across the world because the finance industry changes at such a fast speed.
Of course, DG also invests actively in domestic Fintech companies. “One of our investees is Fivot. This startup offers Flex Capital, a revenue-based financing service that loans money to companies according to their revenue, such as software as a service (SaaS) companies. It might be difficult to link this with our main business right now, but I think Flex Capital could be used for loans to non-SaaS companies when its prediction accuracy reaches a higher level. DG also provides services to restaurants. For example, I think we could offer funding with more peace of mind if we could accurately forecast restaurant sales, which would reduce the risk of irrecoverable debt.”
What investment strategies does DG use when deciding among the many Fintech companies? Takahashi replied, “We have to look at them from two viewpoints: micro and micro.” Financial services are not a new concept; they have existed since ancient Mesopotamia. Today’s financial services are basically different versions of the old ones. On the macro level, their fundamental value remains unchanged.
At the same time, there are many innovative services that no one could have imagined in the past, such as blockchain. Companies will be left behind if they merely follow existing financial concepts. The important thing is to also think from the micro level and strike a balance between universal financial value and the latest trends born from new technologies.
Speaking about efforts to discover Fintech services that can generate new trends, Nakajima said this resembles “searching for a new species.” He continued, “Fintech is developing in original ways in different countries, so it’s not easy to get a complete picture. Change is happening at a fast pace, too. If you pick up a magazine with the latest Fintech information, it’s already a year old. We’re in an uncharted land, and we can think of cutting-edge Fintech as an animal you can’t find in any book.”
“To understand what’s going on, you have to talk with players in different regions and actually invest money. Not all these investments will be successful, so we constantly engage in trial and error while refining and revising our strategies. Collaboration isn’t the only goal of our investment. It also helps raise Fintech to a higher level around the globe.”
What are DG’s strengths as an investor in global Fintech companies? Akiyoshi said the answer is “our business assets.” Other venture capital companies might not be able to provide the same monetization and other types of support to investees, compared to DG, a company that has its own payment services.
Takahashi believes DG’s strengths are its “profound knowledge of blockchain” and “assets in other sectors.” DG was a pioneer in blockchain investment. It can offer support based on its unique knowledge of the Fintech sector because it continually acquires up-to-date information.
Technologies from other industries can also generate innovation in Fintech services. For example, semiconductor technology can improve the performance of smartphones and other devices, resulting in new services that no one ever imagined. It is likely that new Fintech services will be created as well. DG is paying particular attention to companies with technologies to build semiconductors with better heat resistance and processing speeds thanks to lab-grown diamonds, which offer excellent material properties.
Nakajima said that DG’s biggest strength is “seamless global investment.” He stated, “American companies make up 40% of our portfolio, and we have other investees across the world. It’s not unusual for us to hold Zoom meetings with people around the globe every day. Financial services differ by country because the industry is so highly regulated, but there are similar methods for solving issues. We can assist companies because we directly obtain information from around the world, which we also leverage in our own business.”
“It’s true that our investments are concentrated in some regions—we have more investees in San Francisco and fewer in Europe. A future challenge is increasing our investment in areas where we have less of a presence, and we’ll have to work with lead investors in those regions to earn trust. Our goal is to become a highly influential company on the global stage.”
The diversity of services, as well as the geographic area, is another challenge that DG faces. Akiyoshi says that among financial services, areas such as lending are all about how to procure and lend money at the lowest cost. In order to lower procurement costs and strengthen areas such as lending, the fintech industry in many countries is moving toward alliances with major financial institutions with high creditworthiness. This is one reason why it collaborates with the Resona Group.
Takahashi mentioned the issue of strategies to become a “next-generation Fintech enabler.” DG has built a solid position in the payment service industry, but to accomplish this, it must keep enhancing its services in a rapidly changing era. DG will have to carefully analyze risks while expanding its services.
What role will DG’s investment business play in the rapidly changing Fintech sector? Nakajima said, “We will work to acquire information and resources that allow DG to grow.” DG’s mission is to be a lead investor and enter ecosystems in different regions, with the goal of obtaining and analyzing up-to-date information, and establishing collaboration with the company’s main businesses.
This will allow DG to enhance its existing services and offer more varieties of proposals. There are many services across the world that cannot be found in Japan. It may not be possible to import them to Japan as-is, but their essence can be preserved. Nakajima, Takahashi, and Akiyoshi said they can contribute to DG exactly because they have access to the latest information.
This segment invests in and nurtures Japanese and global startups. It reaches out to promising startups and technologies worldwide—including North America, Japan, Asia, and Europe—and strives to maximize the corporate value of the Digital Garage Group and these startups through collaboration with DG’s businesses.
