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To begin, could you tell us about your journey as a successful entrepreneur and venture capitalist? What led you to explore Search Funds (SFs), especially as one of Japan’s first institutional investors in this space?
After completing my graduate studies at the University of Tokyo and working for P&G, I co-founded Japan’s first internet-only life insurance company, Lifenet Insurance, which went public in 2012. At that time, transitioning from a prestigious corporate position to a high-risk venture was considered bold, but the risk paid off. Following this, in 2013, we launched ICJ Fund 1, our first venture capital fund, and invested in the space development company i-Space. Many doubted the potential of private-sector space development then, dismissing it as too high-risk. However, the Japanese government later supported private space ventures, and i-Space went public, achieving a market capitalization of $500M. At ICJ, we emphasize independent thinking, taking calculated risks, and committing to well-considered hypotheses.
Around six years ago, a mutual friend introduced me to Noriko Shimazu, who was preparing to launch the Japan Search Fund Accelerator (JSFA). I was drawn to the SF model’s potential and have supported her efforts since. However, legal restrictions initially prevented our venture capital fund from directly investing in SFs. This year, with regulatory changes in September 2024, our VC fund can now invest in SFs, marking a significant shift. We’re actively working on raising a dedicated $10M fund for traditional SFs, which we expect to be operational by early 2025.
What are the main motivations and goals behind launching the ICJ Fund focused on SFs? How do you see SFs contributing uniquely to Japan’s corporate landscape?
In essence, I believe the SF model will help unleash the energy, motivation, and expertise of Japanese businesspeople in their 30s to 50s, driving growth in Japan’s stagnant SME sector. While we’ve previously supported startup ventures, the startup path often requires specific conditions and significant luck to succeed from scratch, which limits its accessibility. In contrast, the SF model leverages established SMEs with stable cash flow, allowing talented individuals to grow existing businesses with higher reproducibility. Our conversations with major Japanese companies—our investors—indicate strong interest in this approach for revitalizing SMEs.
How are large Japanese corporations, such as Mitsubishi and Tokyo Gas, involved in your fund? How do these partnerships align with their strategies for succession and continuity with their suppliers?
We expect commitments from five of Japan’s largest enterprises, and many others have shown interest. Japanese business culture is well-known for its keiretsu—a network of interlinked businesses with close, long-term relationships between manufacturers and suppliers. Many of these enterprises rely on long-standing local suppliers for the delivery of their products and services, but with many CEOs nearing retirement, this presents a real risk to these conglomerates. Consequently, they view the SF model as a potential solution to facilitate smooth transitions by bringing in new ownership and management.
We’re pleased to assist in addressing succession issues within our partners’ ventures; however, for us, this is simply one additional strategy to help searchers find the ideal businesses. We aim to avoid restricting searchers’ options or interfering too much with their investment choices, as that could hinder entrepreneurial spirit. ICJ’s primary role, as I see it, is to manage these relationships and to act as a bridge between our large investors and the searchers, while always making it clear that such partnerships are optional and never obligatory. We view searchers as innovative managers capable of independently identifying high cash-flow SMEs, and many of these SMEs operate differently from the traditional keiretsu model.
Over the past few years, various initiatives like Japan SF Accelerator and National Search Fund Inc. have emerged to support SFs in Japan. Do you plan to back deals associated with these accelerators? And do you foresee the traditional SF model growing in Japan?
In the last five to six years, most deals in Japan have been facilitated by accelerator models, though many function more like private equity, taking up to 100% of the equity and offering CEOs only 5-10%. Our focus is strictly on the traditional SF model, aiming to support 10-15 searchers over the next few years with acquisition targets valued at $10-20M. I believe the traditional SF model will expand significantly, while the role of the accelerator model may diminish.
What role do you envision for your fund in developing Japan’s SF ecosystem? Are there specific resources or support you plan to offer new SF entrepreneurs and investors? And what is the current landscape for debt accessibility and enterprise valuations?
I hope to engage more venture capital GPs to explore the SF model, as I believe the Japanese SF industry could become more influential than venture capital within a decade. Japan has a unique market: it’s one of the world’s largest economies but faces a significant succession issue, with the average SME owner around 63 years old and 60% without a successor. Japan has over 3.6 million SMEs, with roughly 15% (about 530,000) generating over $1M in EBITDA—prime candidates for SFs.
Our investment philosophy is proactive; we work closely with our searchers throughout their journey, including deal negotiations. While we welcome both MBA graduates and seasoned managers from large institutions aged 35-45, we’re still refining our process to maintain a strong, adaptable culture. Accessing debt in Japan is relatively easy, with leverage covering 75-90% of the deal and interest rates between 1.5%-2%. Valuations are typically around 4-5x EBITDA, with opportunities at 3x also available.
Finally, what message would you like to convey to potential SF investors and entrepreneurs worldwide who may be interested in Japan’s market? Do you foresee international investment opportunities in Japan’s SF sector? Are you considering investments in other APAC countries or beyond?
Japan has the potential to become one of the most dynamic SF markets globally. We’re eager to collaborate with international SF funds, serving as their local partners in Japan. One of the appealing aspects of the SF model is the culture of collaboration among investors. As a new player, we value the insights and expertise of experienced international investors, and in 2025, we plan to host an investor tour to showcase Japan’s market potential and unique business culture.
While our primary focus is Japan, we aim to invest around 20% of our fund in supporting European searchers as well. We’re excited about fostering global connections and look forward to the continued evolution of the SF ecosystem in Japan and beyond.
