The EWOR Team sat down with Ryo Kawashima, a finance professional with ten years of experience in asset management. Ryo worked at a Japanese equity fund focused on small and mid-cap companies, and also got interested in start-ups and smaller ventures.
Currently, Ryo is studying at IE business school to learn more about entrepreneurship and innovation. “After I graduate from my MBA,” he told, “I would like to pursue my career as an investor first, to be kind of the bridge between growth companies and investors.”
An Investing Success Story
“Growth has been the key word of my career,” Ryo told us. 15 years ago, he recalls the financial crisis occurring, and how much the market has been recovering since, despite other events such as Covid-19. As an investor, he was monitoring 500+ growth companies every day and night to react to events and find the opportunities representing the most growth.
The investor remembers a company with a market capitalisation of about EUR 30 million, relatively small in his market. “I tried to investigate this lossmaker, because I found that they released a new handout and documentation to investors saying that they declared that they will embark on a fundamental change in their business model by tring to welcome new management and restructure to focus on the AI-related business,” Ryo explained.
What used to be a simple marketing automation software company with few opportunities for growth caught Ryo’s eye as it changed strategy, overhauled its cost structure, and diversified its revenue streams. The sector of AI was also proving particularly interesting at the time.
Convinced by what he saw, Ryo was one of the few to invest in the company due to its small size. This bet paid off, as the company’s capitalisation grew almost fourteen times, and thus the returns were sizable.
How Do You Find a Company With a High Growth Potential?
We asked Ryo what the tell-tale signs are that a company is experiencing high growth.
First of all, he said, it’s important to focus on the market, and adopt a top-down approach. Since 2018, he’s been focusing on new technologies that he believes will become trends in the next couple of years.
From there, Ryo explained, narrow down your focus to a few key industries (eg AI and tech) and list all of the companies related to them in the market you’re interested in. Make a note of which companies are covered by analysts, and focus on the ones which are under their radar. “As a listed companies investor,” he said, “I also used to investigate the pre-seed companies, startups and ventures as well.”
“It’s all about the amount of research you do,” Ryo told us. You can get easily accessible information from websites and reports, but the key is obtaining information from the company directly, being in touch with executives and the Investor Relations department.
The definition of a growing company is different for an investor and an entrepreneur, according to Ryo. Below are just some of the signs he looks for in a company when making an investment decision:
- A good market position.
- Expanding, generating more revenue and profits.
- Generating value for customers, a value not already being provided by competitors.
- Whether the core technology can be imitated by competitors.
The process is similar when assessing the potential of a start-up, with a few added caveats. “Evaluating the corporate value of start-ups and ventures is quite difficult, because we only have a few bits of financial information available,” Ryo explained.
In order to overcome this, he analyses the market growth potential and the founders and CEO’s approaches to the venture. “I prefer the entrepreneurs who don’t focus on the product or services itself, but focus on the revenue stream and also the cost structures, which provide investors the profits in return.”
An Investor’s Advice to Founder Seeking Funding
As predicted, Ryo had some great advice for entrepreneurs seeking funding for their business.
- Provide information about your personality as well as your business. Ryo stressed the importance of founders revealing what they’re all about as well as the insights into their venture. “Attractive entrepreneurs are confident and energetic, but they also have to be humble,” he told us. Credibility and sincerity also make a big difference to investors.
- Make your business as light as possible. Avoid cost-heavy structures, advised Ryo. Investors can spot them from a mile off and they’re not attractive prospects. “Asset light is a vital factor for growing fast,” he explained, something often seen in the tech industry. Ryo also pointed out that conducting continuous trials at minimum cost is crucial.
- Don’t focus only on the product. Not only do you need to develop high potential products and services, you should also broaden your vision to see the big picture. We must not forget a basic principle that a business is only viable when you have customers. Therefore, understanding the customer’s needs and deepening the market knowledge are paramount. And, we need to understand how profitable and sustainable your business models are in the competitive market.