On April 12, 2022, J-IIN held its 6th webinar on the theme of "How can we expand impact investment from Japan to emerging countries",with three panelists: Hidenori Kuroyanagi, founder of Linklusion Ltd., Yuko Kato, founder of Lwat Lau Hmu Co.,Ltd and Taka Nakamura, founder of taliki,Inc and taliki Fund. The three panelists are all examples of Japanese entrepreneurs who are actively involved in strengthening impact in business and investing, using approaches that go beyond the commonly prevailing models.
Linklusion and Lwat Lau Hmu Co are both Myanmar-based businesses; Linklusion offers a SaaS service formicrofinance institutions and last-mile logistic services for rural microstores in Myanmar and Lwat Lau Hmu Co., Ltd. invests in microfinance and a coffee business. Taka Nakamura’s taliki, Inc (taliki Fund) is a Kyoto-based company supporting social entrepreneurs, from their initial business establishment through to seed and early investment rounds, all the way to established businesses with impact.
During the webinar, the panelists first shared their views on the investors, entrepreneurs, and ecosystems involved in impact investing and what they feel can be done to expand impact investments in emerging countries. After a 30-minute panel discussion, the 17 participants, which included VC funds, institutional investors, entrepreneurs, managers, and consultants, moved on to lively groupdiscussions and opinion sharing.
During the event, Mr. Kuroyanagi discussed theimportance of the investment time horizon. In his experience, the time horizon expectedby investors is usually not long enough to be helpful to entrepreneurs. Asset owners tend to expect a high return within five years or so and without this, it is often impossible to persuade them to invest in a company. He felt investors who are willing to accept a longer investment time horizon are extremely important because of the significant time needed to develop human resources and conduct research and development.
Ms. Kato of Lwat Lau Hmu pointed out that impact investors need tounderstand the kind of impact and the scale of the impact that entrepreneursare aiming for, instead of expecting fast growth just because the impact business is in an emerging market. She also mentioned the importance of investors who can work side-by-side with entrepreneurs as partners, based on a clear mutual understanding of the impact and scale the business is aiming at.
Ms. Nakamura discussed the challenges of investing anultimate goal of solving social issues. She felt that existing frameworks forevaluating these kinds of investments are not sufficient. A new evaluation framework needs to be developed that is not simply a conversion of social returns into financial returns, because there are many kinds of impact that can not be quantified and yet are extremely important to consider when making business and investment decisions.
Ms. Nakamura also believed it is critical that entrepreneurs communicate market information to their investors, so that investors can deeply understand the risks in emerging markets, including the business practices and cultural factors behind the data. Ms. Kato agreed that communicating information to investors is essential. By visualizing both the market and the impact of the business, investors can make informed decisions that are not just based on emotion or gut feeling. The hope is that this should lead to investments into businesses with higher impact. Finally, Mr. Kuroyanagi discussed the issue of risk tolerance - philanthropic investors who are willing to take on more significant risks and GPs who can explain toLPs about risks are essential to expanding investments in emerging countries.
In the breakout discussion rooms after the panel,groups discussed three critical elements related to the webinar’s theme: (1) what we can do to increase the number ofimpact investors, (2) what we can do to develop more impact entrepreneurs, and (3) what we can do to expand investment in emerging markets. Some of the key takeaways from the discussion included:
The need for angel investors/philanthropy: It is crucial to find investors who are willing to take higher risks, such as angel investors and strategic philanthropists, to fill the void in funding from institutional investors.
Strengthening an ecosystem: We need to develop the impact investing ecosystem. This will allow impact entrepreneurs to have more opportunities to interact with successful entrepreneurs, entrepreneurs who have experienced failures, and coaches with experience in impact investment and business in emerging markets
Fund Manager Development: Fostering fund managers who can make impact investments in emerging markets is critical. These fund managers will ideally have diverse experience, including entrepreneurial experience and experience in traditional fund investment.
Providing market information in emerging countries: What investors need is not only quantitative data, such as data on economic and market growth. They also need practical business information, such as information on market structure or investment performance, as well as success stories from the local market that can encourage investors to engage with the business. Some members of the discussion group argued that operating companies may be faster and more receptive to acting on this kind of information than institutional investors.
This webinar really emphasized a core factor for Japan’s entrepreneurs and impact investors to successfully expand into emerging markets – the need for investors to deeply understand the impact that a business is aiming for rather than trying to evaluate an impact business through the typical investment evaluation frameworks prevailing in global markets. The growth of impact investment and impact businesses will not come from a traditional “investor-led” approach but from partnerships based on a deep understanding of the business, its local market and the company's impact goals.
We felt this was an extremely productive event. Because the participants all had experience with impact-generating businesses and investments, there was a strong base understanding of impact, business and investments. This allowed for intense discussion about participants' visions for impact businesses and investing that was based on their own practical experiences.
J-IIN aims to increase impact business and investment in emerging countries by creating a forum for entrepreneurs and investors to discuss impact and business. Too often entrepreneurs and investors lack a “common language” to discuss impact investing and this can slow the development of this industry. Japan's impact investment still represents less than 1% of global impact investment, meaning Japan’s industry is still in its very early stages, and these kinds of frank discussions are critical.
Going forward, J-IIN will continue to focus ontokyo creating events that bring together a mix of both entrepreneurs and investors, where people with diverse experiences and perspectives can address the key points raised in this webinar.