SMBC's support for startup exits

Last week, SMBC Group made two announcements concerning their support for startup exits.

1. Sumitomo Mitsui Banking Corporation and FOR STARTUPS have begun a collaboration aimed at diversifying exit strategies for startups
2. Sumitomo Mitsui Banking Corporation, SMBC Venture Capital Management, and Bee Alternatives Japan have established a secondary fund to support the sustainable growth of startups

1. SMBC & FOR STARTUPS

1.1 Background and Purpose of this Collaboration

Traditionally, "value enhancement" has been the central theme in the growth of the startup ecosystem. However, as "diversification of exit strategies" is listed as one of the key elements in the government's "Five-Year Startup Development Plan," the importance of considering exit strategies beyond "value enhancement" is increasing for the sustainable development of growth industries.

In this context, this collaboration focuses on diversifying exit methods through M&A utilization. By examining ways to revitalize the M&A market targeting startups, SMBC aims to support the revitalization of the Japanese economy by encouraging more entrepreneurs and venture capitalists to enter the market, creating serial entrepreneurs, and increasing the probability of large-scale IPOs (swing-by IPOs) through growth environments under large corporations.

At the same time, if large and medium-sized enterprises can leverage startups' technologies and expertise to create new businesses and enhance existing ones, this will contribute to productivity improvement and business diversification, potentially creating significant economic value.

1.2 Overview of this Collaboration

In this collaboration, SMBC will utilize its customer network with large and medium-sized enterprises developed through support for capital strategy planning and business strategy implementation, including M&A, as well as FOR STARTUPS' connections with startup companies built through their talent agency business, to work on the following:

• Creating venues where information on startup M&A and collaboration is available: Through joint seminars, pitch events, case study sessions, etc., SMBC will establish venues where both parties can openly discuss successful experiences and challenges, creating practical opportunities for collaboration.
• Examining solutions to practical bottlenecks in startup M&A: To address and reduce practical issues that act as barriers to growth through M&A, SMBC will visualize processes such as valuation and due diligence required during acquisition execution, and post-acquisition management integration. SMBC will also examine mechanisms to facilitate the smooth execution of startup M&A by utilizing AI and digital tools for efficiency.
• Disseminating information to expand startup M&A: In addition to the above initiatives, SMBC will continuously conduct case studies and market trend surveys both domestically and internationally, identifying success factors and points to note when startups choose M&A. SMBC will share the insights gained, leading to an increase in companies considering M&A as an option and revitalizing the entire ecosystem.

1.3 Future Outlook

Through this collaboration, SMBC aims to revitalize the startup ecosystem, accelerate new business development and pivots by large and medium-sized enterprises, enhance the vitality of the overall Japanese economy, and create and expand support businesses surrounding startups for both companies.

2. Japan Boost-Up No. 1

Sumitomo Mitsui Banking Corporation, SMBC Venture Capital Management, and Bee Alternatives Japan have established a secondary fund to support the sustainable growth of startups, the "Japan Boost-Up No. 1 Investment Limited Partnership".

In Japan, the startup market has expanded due to the rapid growth of equity funding since the 2010s. Meanwhile, recently, there has been an increase in investment funds reaching maturity, creating a challenge to enhance the liquidity of unlisted shares through the growth of secondary markets (secondary distribution of unlisted shares) and M&A markets.

Increasing the liquidity of unlisted shares broadens startups' options regarding timing of IPOs and fundraising methods, which is an important element for the growth of Japan's ecosystem.

Under these circumstances, to develop an environment that supports the sustainable growth of startups, SMBC has created a "secondary fund that invests in investment vehicles established by domestic VC funds to continue supporting their portfolio companies," and has made the first case investment. SMBC plans to recruit external investors over the course of about one year.

Through the activities of this fund, SMBC will contribute to Japan's economic regrowth and the realization of an asset management nation through the supply of growth capital and diversification of investment targets.