In April 2024, MUFG Innovation Partners (MUIP) collaborated with startup media BRIDGE to host a study session about a new type of IPO known in Japan as the “swing-by” IPO. This approach, which involves a startup first becoming a subsidiary of a large corporation and then going public, is attracting attention as a growth strategy and exit model for startups. The term “swing-by” refers to the space exploration technique of maneuvering a spacecraft using a planet’s gravity, such as to accelerate or change direction. The term “swing-by” IPO was coined to describe the process of first leveraging the resources and distribution networks of large corporations to facilitate rapid growth before going public.
The session featured Wataru Yamaki, Founder and Chief Executive Officer (CEO) of Kanmu, previously an equity-method affiliate of MUFG that became an MUFG subsidiary in December 2022 when MUFG acquired an additional interest at a valuation of ¥25 billion. Joining him was Takashi Sano, Chief Investment Officer of MUIP. This is Part 2 of a three-part series. The questions in bold are by Bridge’s Hirano.
Kanmu, Chief Executive Officer
After graduating from Keio University’s Faculty of Science and Technology with a degree in Information Engineering, he joined Studio Ousia, which promoted university-industry collaboration projects, as a data analysis engineer. In 2011, he founded Kanmu.
Takashi “Taka” Sano
MUFG Innovation Partners, Chief Investment Officer
As the Chief Investment Officer of MUFG Innovation Partner (MUIP), he manages an AUM of ¥80 billion and is responsible for investing in startups and developing new businesses globally. Prior to MUIP, he undertook startup investments and CVC operations at Global Brain. Before that, at Sony, he was involved in financing new business projects such as technology investments and joint ventures, and managed overseas operations as the category head of the retail energy business.
The journey from founding to M&A
The session began with discussions ranging from Kanmu’s early founding days to its M&A activities. Yamaki reflected on Kanmu’s journey from its initial funding during the startup phase to the success of the Bundle Card. At the time of acquisition, during the fiscal year ending December 31, 2021, Kanmu’s revenue was approximately ¥3.9 billion. How did Kanmu achieve this growth and what motivated them to join the MUFG group?
This may be related to your founding days, but could you please explain the context of this photo (photo above)?
Yamaki: In the early days, we often shared office space with various entrepreneurs, and this was the birthplace of many successful and well-known Japanese startups. In the center was “Kurashi no Market”, an online marketplace that connects users with various home and lifestyle services. There was also CAMPFIRE (crowdfunding platform) and Gunosy (news curation app) nearby, and BASE (e-commerce platform that allows individuals and small businesses to easily set up online stores) downstairs. After Kurashi-no-Market moved, Coiney (now STORES, it provides payment solutions for businesses) followed, and then Mercari (popular online marketplace app similar to eBay or Craigslist) moved in.
So it’s a place where startups that are now household names, some even publicly listed, used to congregate in their early days. You spent your early startup days there and in 2013, received about ¥40 million in investment from multiple investors. At that time, while providing the card-linked offer business, you were also developing the current core product Bundle Card that was released in 2016. What gave birth to this hit product?
Yamaki: At that time, our world view was that if we could get 500 monthly active users (MAU), it would be considered a good business. It was a tough period. At the time when I was raising funds, I happened to engage a YouTuber as part of a marketing campaign. Our cost per acquisition (cost of acquiring a new customer or lead through a specific marketing channel) dropped significantly, and we gained 10,000 users in just a matter of days. Although it was still early days for our business model, it gave an indication of market fit.
At the point where you could see the business growth, the Kanmu team and FreakOut entered a capital and business alliance in 2018. From here, most of the funds would be sourced from this alliance. Could you explain the characteristics of the capital policy you adopted?
Yamaki: Kanmu’s business required us to maintain net assets of at least ¥100 million due to Japan’s Money Settlement Act. This had to be equity-based — Debt was not permissible. As a good half of our business involved financing, we found this to be quite challenging. From observing fintech companies overseas, I understood that they were capital-intensive, and I felt that we would need a significant fundraise at some point.
At that time, Yusuke Sato (currently CEO of STORES), who was then the CEO of FreakOut, mentioned a potential scenario between an M&A and equity investment. This discussion led to a solid plan where we could inject substantial funds. Back then, startup funding rounds were not as large as they are now, so we decided it would be better to go for a big splash rather than incremental drops.
I see, so you were already considering a structure similar to what’s now called a "swing-by” IPO at that time?
Yamaki: But executing our plans was not easy. Even in the second year after the public announcement, we had still not gotten a good grasp of our business, and our thoughts on an IPO were still vague at best.
You achieved product market fit (PMF) for the Bundle Card and scaled with more marketing efforts. You formed a capital alliance with Seven Bank in December 2022. By then, your revenue had already reached ¥3.8 billion, and you turned profitable. Naturally, you had the option to go for a traditional standalone IPO, so I’m curious why you chose to join MUFG
Yamaki: Of course, pursuing a standalone IPO was initially our primary goal, and we were moving towards it between 2021 and 2022. At that time, market conditions were favorable, and the landscape was significantly different.
In 2021, there was PayPal’s acquisition of Paidy, and so there was a trend of a dual-track approach, considering both an IPO and M&A in parallel and to select the option with the better conditions. It was in this context when we had the opportunity to start a capital business alliance discussion, leading us to seriously consider joining the MUFG group even as the IPO route remained a main goal.
We were pursuing an IPO as the main scenario while concurrently exploring M&A, aiming to choose the best conditions. The valuation from M&A also affects the IPO valuation, and having both potential investors for the IPO and a main potential acquiror was beneficial. Companies aiming for an IPO above a certain threshold can consider both options seriously.
From this point, Taka (Sano) from MUFG Innovation Partners (MUIP) also joined the conversation, correct? How did you view Kanmu’s capital strategy and management at that time?
Taka: Yes, indeed. As an investor, capital strategy represents a culmination of past results, which we try to interpret to understand the company’s past. However, what is more important is what lies ahead. How will the company grow? Is the current capital structure optimal for that growth? From MUIP’s perspective, we are looking for business ideas that could scale, whether through an IPO or direct investment from MUIP’s fund or MUFG itself.
By the way, it’s worth noting that MUIP is a CVC fund. While we’re primarily involved in minority investments in startups, we constantly strive to explore opportunities to drive collaboration between startups and MUFG’s business units and group companies to achieve mutual business growth. This background led us to engage with Kanmu.
A startup that initially was aiming for a standalone IPO while also considering the M&A option, and MUFG, which is actively looking to explore business collaborations with startups. There appears to be strong synergies. In reality, how did things unfold?
Yamaki: We initially sought investment from stable shareholders through a standalone IPO. Moreover, since FreakOut already held a significant share in us, the option for them to hold our shares was naturally available. Since we assumed that we would be listed as a subsidiary, having another company as a major shareholder, especially one with potential synergies, seemed like a viable option.
And so, in line with that thought process, you joined the MUFG group. As Taka mentioned earlier, what’s important is future growth. For instance, after Soracom joined the KDDI group, they increased their contracts from 80,000 lines to 2 million lines, paving the way for a subsequent swing-by IPO. While Kanmu already has a wide user base, could you discuss what synergies you expected from the M&A?
Yamaki: This business requires substantial working capital that can only be obtained through listing. The short-term merit of our M&A was ability to obtain substantial capital for our needs. Without this, institutional investors considering our IPO would view it as a risk. This was clear to us.
Your management style changed significantly after becoming a subsidiary under a major listed corporate, especially concerning governance, right?
Yamaki: With the need to align disclosures with quarterly financial statements, even if it’s not so strict as to say that missing something by one yen is bad, we need to adhere to guidelines and execute our budgets with higher precision. There was also a substantial shift towards establishing management controls.
Also, following the IPO, as we’re in a “parent-subsidiary” listing situation, the parent company expressed its intention to maintain a certain percentage of ownership. In general, this could constrain our ability to freely issue new shares in the public capital market when the need for capital arises. However, MUFG’s backing allows us to explore various approaches, including back financing. This has been a clear merit for us.
Nevertheless, even with the insights gathered so far, it’s challenging to predict outcomes without a certain level of expertise in capital strategy, particularly regarding the public markets. What are your thoughts on this, Taka?
Taka: Indeed, today’s session was very insightful. Capital strategy is of course crucial for startups, and this insight is equally valuable from the perspective of potential buyers. In Japan, we’re seeing a rising trend in M&A activity, and there’s a societal push to increase this further. Large corporations are also looking to bring startups within their sphere through open innovation, and different companies are weighing various ideas.
In this context, while a straightforward approach of immediately acquiring a 100% interest can be appropriate if conditions align, having the option of a swing-by IPO expands the range of choices. The key is understanding what specific funding needs exist to drive the growth of a particular business of a startup and identifying the optimal financing solutions for that purpose. The fact that we’re beginning to be able to have such discussions within society is a positive.
