GPs require comprehensive responses to technology - AVCJ Forum

“The first thing we have to do is put technology at the center of the due diligence process,” said Tetsuro Onitsuka, head of special situations and managing director for buyouts at Japan Post Investment Corporation (JPIC), a direct investment unit formed by Japan Post Bank and Japan Post Insurance. “A lot of people, including myself, were not educated in this way. But everyone has to be reminded of the importance of technology.”

Assessing how a company is likely to be impacted by technology is an exercise in identifying leverage points on a balance sheet – usually involving the ability to access customers more efficiently or deliver products at lower cost. Private equity investors need to consider how technology might disrupt a business or be used to drive earnings growth during the holding period.

However, Paul Ford, a partner with KPMG, emphasized the importance of taking a longer-term view as well. “You have to think ahead two private equity holding cycles,” he said. “What is the likely trajectory of the industry and how will that company be positioned? What is the industry dynamic that will attract strategic acquirers?”

Some private equity firms have already developed sophisticated processes for due diligence and investment management, while others are still adapting. According to Mark Bivens, a partner with Truffle Capital, a European VC firm that invests in Japan, venture capitalists bet on radical change happening while PE firms have traditionally relied on it not happening during their investment periods. Now, though, there is evidence of convergence between the strategies.

Approaches vary greatly by geography. Jonathan Epstein, an angel investor in the US and Japan, noted that the incumbents in Japan’s financial services sector are so strong and well-established that disrupting them is not a realistic goal. Rather, early-stage investors should help these giants “innovate and disrupt themselves.” 

One of Epstein’s portfolio companies – Moneytree – is trying to do just that. It provides tools and services that enable individuals and businesses to manage all their financial data in a single mobile and desktop app. The company, which closed a Series B round led by SBI Investment last year, is considered the leading platform for Japan’s accounting industry.

No matter how much technological infrastructure and processes are implemented at a company, people must be open to new ways of thinking. “It’s not just a matter of bringing in new data analytics tools, you have to change the way teams are put together,” said KPMG’s Ford. “Digitization is not a separate thing that happens on the side. If you want meaningful benefits from technology, it must be part of your organization from top to bottom.”

Truffle’s Bivens added that the biggest challenge for VC investors is deciding whether to continue supporting a company – and how to provide that support – through subsequent funding rounds. Teams are as important a consideration as technology.

“We have been guilty of becoming too enamored with the technology and the power of technology and we underestimate change management issues, or we overestimate its contribution to that transformation,” he said.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• North Asia
• Technology
• Buyouts
• Expansion
• Japan
• AVCJ Events
• TMT
• KPMG
• Japan Post Bank