“Ensuring that early-stage investment-recipient start-up growth goes as planned”—The future of FinTech as seen by FINOLAB, a company that has established a fund and is making major moves

In September, FINOLAB, an innovation hub for the FinTech industry, established the FINOLAB FUND and decided to invest as a general partner (GP). Working under the concept of “joint investment,” the fund will provide financial support for start-up operation growth and accelerate the formation of a start-up ecosystem in the FinTech industry.

In addition, with the expansion and renewal of FINOLAB offices as well as the commencement of a back-office sharing service called SUBPOSI and the research organization FINOLAB RESEARCH, the company has established a deeper-level support system. We spoke to FINOLAB’s Mr. Makoto Shibata about the goals behind these series of moves and future support systems.

INDEX

・Why is FINOLAB suitable as an office in the era of remote work?
・Investment is only one measure for supporting start-ups.
・Various issues brought to the forefront owing to the COVID-19 pandemic: There will be an expansion of business opportunities in the future.
・Key points

Makoto Shibata
FINOLAB Head
Mr. Shibata assumed his present post at FINOLAB Co., Ltd.’s founding. After graduating from Tokyo University’s Economics Department, he joined the Bank of Tokyo’s Ikebukuro Branch and studied at the Oxford University, obtaining a master’s degree in Development Economics. He worked at the Accounting Department and the Planning Department of the Nagoya Branch Office. Since 1998, he has consistently engaged in financial IT-related research. In 2018, he transitioned from MUFG Bank to JDD, handling MUFG’s innovation promotion, and went to the U.K. as a visiting researcher at the Oxford University. He has been involved in cultivating Japan’s FinTech community since its inception and participated in the establishment of FINOVATORS.

Why is FINOLAB suitable as an office in the era of remote work?

When it established its fund, FINOLAB also carried out office renewal and continued to make major efforts to start new services. What is the aim behind these simultaneous efforts? Mr. Shibata began by giving an overall picture of these efforts.

Shibata: “Multiple, overlapping development periods was not by design. Preparations had already been made prior to the office renewals. The construction process took longer and ended up falling in line with other developments. Months prior to the emergence of the COVID-19 pandemic, preparations for the new office were being made, integrating the opinions and comments of community members.
The renewal was not conducted as a countermeasure for COVID-19, but it ended up becoming a fortunate accident. I think the current environment allows for working without too much proximity, given the diner-style seating and spaces with partitions installed. The number of people using the site for meetings, etc., has steadily increased, and people have been saying that it has become a convenient work space.”

Mr. Shibata says that many of the companies participating in the planning of FINOLAB are working remotely during the pandemic and adds that because of this, institutions like FINOLAB are precisely what are needed.

Shibata: “For IT companies, most work can be remotely completed, but, for particularly important matters, it is still best to meet and discuss in-person, isn’t it? For the finance industry in particular, the culture of physical paper and personal seals is still deeply rooted. Having talked with major companies and financial institutions, we expect that there will be many instances where in-person meetings work the best.
Additionally, conferences and meetings can now be conducted using Zoom, etc., but more ideas are generated in environments where participants physically gather and converse. However, it would be quite a waste to rent out a large office just for meetings and conferences, wouldn’t it? For this reason, I think that offices like ours, where only the necessary parts can be used at only the necessary times, are better suited for the current age.”

FINOLAB started in 2016 as a community hub within the FinTech industry. In the future, it will provide support on not only the location but also the funding front. There is surely something that has been planned from the start, right?

Shibata: “During the initial period after FINOLAB’s founding, there was no clear roadmap for fund establishment. To nurture FinTech start-ups, it just grew as necessity dictated, beginning with community links. To break old industry habits, community management and cooperation between start-ups and major companies were necessary.
The next apparent issue, having conducted community management, has been fundraising. Many venture capitalists (VCs) have emerged, and a fundraising environment has become accessible should one approach the right parties. Yet, immediately after establishment, start-ups face a hard battle for this. We intend on providing support for these kinds of seed-stage, early-phase start-ups until their products and services take shape.”

Investment is only one measure for supporting start-ups

Mr. Shibata says that while Japan’s start-up ecosystem is said to be fully realized, fundraising environment issues remain. He spoke about investment strategies.

Shibata: “The goal of our fund is not financial returns. I feel that establishing a fund is only one means for supporting start-ups.
With ordinary funds, there is an aim to maximize returns within an established time period. This fund aims to ensure a suitable return, which is different from that of ordinary funds. Our fundamental policy is to work alongside early-stage investment-designation start-ups. We place importance on ensuring that growth goes as planned, followed by a suitable return as a fruit of these efforts.
This might sound like CVC aiming for strategic returns, but as direct operation synergy via M&A and LP is not what we aim for, the disposition here is slightly different. When invested-in start-ups and the FinTech industry grew, we naturally saw returns; we were only committed to investment-recipient growth.
The investment amount is not for return maximization; the amount necessary for growth differs by company. There are plans to consider growth strategies and then invest the respective amounts necessary. As products and/or services are on track, fundraising from other VCs is expected. I would like us to invest the necessary amounts.”

Mr. Shibata says that the merits of receiving investment from FINOLAB are by no means only on the fund side. The company offers support precisely because of existing experience in conducting community management.

Shibata: “Various members participated in the planning of FINOLAB, including bank staff, capitalists, entrepreneurs, etc. I think that there are sizeable advantages in being able to receive their support. As the difficulties and worries they face can differ, we connect each company with specialists that suit their respective circumstances. The support they then receive might be technological in nature or more on the legal front.
Additionally, if FINOLAB-developed start-ups can grow in the future, there is a significant benefit in learning about their experiences. Advances made in FinTech operations will surely be a major shortcut for identifying what kinds of barriers can be overcome, if they are encountered. I would like to improve FinTech start-up growth rates by creating this sort of cycle.”
As what is aimed for is investment-recipient start-up growth, communication with LP also seems likely to change.
Shibata: “As an LP, the investor may have aims for indirect, mid- or long-term advantages; importance is placed on regular investment-recipient assessments. Additionally, there are plans for acceleration efforts focused on quantitatively improving company value assessments.”

Along with the fund establishment, FINOLAB also began offering a service called SUBPOSI and then FINOLAB RESEARCH, which support start-ups. What kind of services are these, exactly?

Shibata: “SUBPOSI is a business process outsourcing (BPO) service that offers solutions for various worries and troubles faced by start-ups. For example, newly launched start-ups cannot easily put a financial affair specialist on the team. SUBPOSI FINANCE gives fundraising advice, etc., to such companies. Other marketing supports are carried out by SUBPOSI MARKETING and SUBPOSI CREATIVE.
What is common is that, in any case, the goal is to get the start-ups to focus on their most important work in their operations. When a company is first established, there are not many people on board, yet there are many tasks of a wide variety that managers need to skillfully handle. In the future, the SUBPOSI lineup will expand, and we will create an environment for start-ups to efficiently grow via conducting a provision of high-quality information useful for business development, through research organizations.
FINOLAB RESEARCH is a research organization that aims to conduct internal and external information transmission, contributing to the expansion of Japan’s FinTech ecosystem and collecting, analyzing, and interpreting information relating to finance businesses and advanced technologies.”

Various issues brought to the forefront owing to the COVID-19 pandemic: There will be an expansion of business opportunities in the future

FINOLAB has established funds and arranged for a support system. In the future, what kind of changes will be seen for start-up support?

Shibata: “Support up till now has been focused on FinTech start-ups, but, in the future, I would like to expand beyond the narrow field of finance and instead provide support to a wider range of fields. ‘Technology’ and ‘social issue resolution’ will be the key terms. I would like to support start-ups that attempt to provide solutions for social issues.
Nowadays, in particular, the domain that the term ‘FinTech’ can indicate has expanded. Irrespective of the industry, all developed settlement systems include FinTech. As most economic activities involve settlements or money, I don’t think that there is a need to be overly particular with how the term ‘FinTech’ is used.”

Mr. Shibata says that promoting open innovation appears to be one aim of supporting a wide range of companies, and becoming a hub for the industry is the role of FINOLAB.

Shibata: “It is not only start-ups that have a demand for open innovation. Major companies and financial institutions also experience anxiety over how to produce information or how to advance DX, and they understand that attempting to do so alone would prove difficult. Our role is to serve as a hub for such companies.
We will encounter many regulations for the expansion of particularly major businesses in the future. As it would be difficult for start-ups to change regulations on their own, they must make advances after involving major companies, etc. By creating a space for connection with individuals from the Financial Services Agency and the Bank of Japan, I hope that FINOLAB will be able to foster smooth connections with stakeholders.”

Finally, Mr. Shibata shared a message for FinTech start-ups.

Shibata: “With the impact of the COVID-19 pandemic, we are currently in a trial period for businesses, and the pandemic brought many societal issues to the forefront. For example, even if companies have tried to transition to a remote office set-up, there are many people who still have to go to the office to obtain documents and personal stamp marks. Further, when payment distribution has been attempted, immense system-side issues have occurred as a major issue.
Things are not limited to just the pandemic; there are still dormant issues in Japan’s finance industry. As money-related matters are not taught in schools, there are surely many people with uncertain futures, leading to anxiety. Since society as a whole has begun recognizing these types of issues, we can expect more business changes in the future. I imagine that there are many start-ups that have experienced difficulties due to the COVID-19 pandemic, and I would like to see them challenge themselves to use those experiences as the foundation for future opportunities.”