TOKYO -- Japanese telecommunications company KDDI and Sumitomo Mitsui Banking Corp. will back a new fund that aims to acquire small and medium-sized enterprises and support their digital transformation, Nikkei has learned.
KDDI and SMBC, among others, will invest in the fund established by independent Tokyo-based investment company D Capital. They will also support companies acquired by the fund to implement digital transformations, by sending data experts into the organizations.
The fund will be set up in October with total commitments of about 30 billion yen ($270 million). IT company SCSK Corp., data science startup JDSC, Aozora Bank and Shinsei Bank are also investors. These companies will provide the technology to help with digital transformation and also source entities for the fund to invest in. It is the first fund in Japan that is aimed at improving corporate management centered on digital transformation.
The fund's lifetime is 10 years. In the first five, it aims to invest in six to 10 small and medium-sized enterprises with a corporate value of about 5-10 billion yen. Its aim is to improve management in rest of the fund's life. As a general rule, it will acquire a majority stake in target companies and send in data specialists who have work experience in major IT companies as well as management personnel.
The main acquisition targets are companies in manufacturing, service, and health care. For example, a manufacturing company can use artificial intelligence to analyze information such as sales data to predict customer demand trends, so that there is less waste. As each company's finances improve, the fund aims to recoup its investments and generate profits by taking those entities public or selling them on to other companies.
SMEs are behind large companies in implementing digital transformations. According to the 2021 Report on the Japanese Economy and Public Finance, only 40% of SMEs are implementing or considering the move to digital, versus more than 70% of big companies.
Among the stumbling blocks is the lack of awareness that data that have been accumulated can be analyzed and utilized to companies' advantage. There is also a lack of talent that can lead digital transformations in SMEs.
The fund will take control and establish a system that will more efficiently utilize data. The people involved in the fund certainly have the expertise to do so. D Capital was established in March this year, and its founding members include investment bankers and other investors, as well as specialists such as Megumi Matsutani, who ran the research and development arm of online fashion retailer Zozo.
Overseas investment funds are increasingly using data to pick their targets and to improve management. Blackstone Group is expanding its recruitment of data scientists. The use of data will open up the field of investment targets and also enable fund managers to distinguish themselves from their competition.