Information Meeting: Summary of Q&A Session（PDF：41KB）

Information Meeting for Financial Results For the Year Ended March 31, 2017 Summary of Q&A Session

Date: Monday, April 24, 2017 Presenter: Shinichi Fuki, CEO

Q1. As investments in start-up companies increase, how do you control risks other than being involved in management with a mindset of a "Co-Founder"?

A1. Risks associated with start-up investments are generally high, but the shareholding periods of 4 or 5 years have not actually changed from the time we mainly had invested in middle-stage companies. When we make start-up investment, we invest in 2 or 3 year-old start-ups and provide necessary funds for the following 2-3 years. Our shareholding is 20-30%, which ensures strong influence over the companies.

The outcome of start-up investment becomes clear in a short period of time. When we put priority on business development of portfolio companies, we sometimes team up with a business firm and carry out trade sales. M&A exits based on close ties with entrepreneurs have also been increasing.

As you can see on page 14 of the Summary of Financial Results For the Year Ended March 31, 2017 (http://www.jafco.co.jp/english/ir/library/result/) , each domestic VC team member is in charge of 3 or less companies on average, and this makes risk control through deep management involvement possible.

Q2. JAFCO announced a policy to pay dividends of approximately 3% of shareholders' equity . Looking at past business performance, total shareholders' equity has been increasing. It appears that an upward trend in dividends will likely continue over the medium to long term, but is it so?

A2. As long as we don't record consecutive losses or there are no events such as a share buyback that cause sharp declines in cash and cash equivalents, etc., dividend payments will rise if earnings are built up because they are based on total shareholders' equity.

Q3. Could you tell us about exits (IPOs) expected for the fiscal year ending March 2018?

A3. Over the past several years, the number of new investments has been an average of 20 companies per year. As a result, the number of IPOs will be less than 10 each year. In the fiscal year ending March 2018, there are some companies expected to make large-scale exits through IPO/ M&A if they go public.

Q4. You've announced that investments made from in and after January 2017 are no longer subject to additions to general reserves. Do you have any plans to adopt a more conservative stance regarding company-by-company reserves?

A4. We have been making general reserves of 10% against the balance of investments that are exempt from

company-to-company reserves, so under the current pace of investment, the change in the general reserve policy should provide a ¥800 million boost to annual profits. Meanwhile, we have no plans to make conditions for company-by-company reserves more stringent. As the majority of investments are in start-up companies, there is little possibility of a sudden bankruptcy resulting from a rapid deterioration in cash flow. We will continue to make additions to company-by-company reserves on a quarterly basis based on each company's business performance.

With regard to ¥3.2 billion in the general reserve balance shown on page 9 of the Summary of Financial Results For the Year Ended March 31, 2017, the amount will fall in line with the shift to company-by-company reserves or the sale of portfolio companies against which general reserves had been made. Taking into account an average shareholding period, the general reserve balance will be gone within a few years.