How do Japanese Venture Capitalists Make Decisions

Abstract

The purpose of this paper is to shed light on the investment decision-making processes of venture capitalists in Japan. In recent years, total venture capital investment has increased, and a more diverse range of venture capital types has emerged compared with the past.

prior studies conducted in the United States, this study examines key issues related to investment decision-making.  Our main findings are summarized as follows.  Regarding investment selection, we find that venture capitalists place strong emphasis on the capabilities of the management team. For valuation, the multiple method is commonly used.  We also confirm that the expected time to exit and the risk of the portfolio company have substantial effects on valuation.   In terms of exit choise, trade sales occur more frequently than IPOs, and the frequency of secondary transactions is roughly comparable to that of IPOs.  When we classify venture capitalists by type, some analyses reveal substantial differences among independent VCs, corporate venture capital (CVC), and financial-institution-affiliated VCs.  In particular, CVCs place significant weight on the strategic fit with their parent companies’ businesses.