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AD Works aims to attract $14 trillion in personal assets to Japan's small and medium-sized businesses

Article - March 1, 2023

AD Works Group is a leading real estate services firm led by president and CEO Hideo Tanaka. With foundations dating back to 1886, Eiichi Shibusawa, an extremely prominent businessman and the “father of Japanese capitalism”, was involved in the company during its early years.

The management philosophy that underlies the AD Works' success is their ambidexterity  management theory, which balances the “exploration" of new businesses with the "exploitation" of existing businesses, and has been used in recent years as a management theory in the face of the pandemic, WEB 3.0, and other uncertainties.

A recently established subsidiary, Angel Torch, Inc. is the driving force behind the Group's "search for knowledge" and is expected to play a role in raising the percentage of non-real estate business to a higher level in the future. The company is led by president Katsutoshi Hosoya, who also serves as CFO of AD Works Group. Angel Torch's finance arrangement business is attracting a great deal of attention in the market, with the company helping startups and small to medium-sized listed firms raise investment funds.

So why has this seemingly novel business field attracted so much market attention?? To answer this question, it is necessary to understand Japan's extremely unique capital market situation and traditional values. Why are there as many as 4,000 listed companies in Japan? And why is the number of unicorn companies in Japan so low?

The answers to these questions may not immediately come to mind for many. Of the 4,000 listed companies in Japan, more than 30% have a market capitalization of 10 billion yen or less. With small market capitalization and low liquidity, these companies are not considered investment targets by general institutional investors. Angel Torch is offering an unprecedented and groundbreaking fundraising method for these small to mid-sized listed companies.

The first such case is that of Chiiki Shimbun Inc, a regional newspaper company which is listed on the TSE Growth Market. Angel Torch became the largest shareholder of Chiiki Shimbun in late August 2022. On the advice of Angel Torch, Chiiki Shimbun held a shareholders' meeting on November 24, 2022, setting out plans to adopt a rights offering, a rarely used capital increase method in Japan.

AD Works Group has raised funds four times in the past through rights offerings, a method of capital increase of which there are less than 40 examples in Japan. The company has successfully conducted a series of capital increases by accumulating know-how through its own in-house operations without using a financial advisory firm. Through its own experience, AD Works Group is convinced that rights offerings can work for companies with small market capitalization and low liquidity, such as regional newspaper companies.

“We believe that we can contribute to the sustainability of Japanese companies by providing know-how, to nearly 1,000 small and medium-sized listed companies in Japan, which is also part of our commitment to the SDGs,” says Mr. Tanaka.

Another reason why unicorn companies have not emerged in Japan is that the investor base for startups and unlisted companies in Japan is much smaller than in the West. Despite this, many founding owner-managers are still reluctant to exit through mergers and acquisitions because of traditional values.

In the U.S., the market capitalization of companies that go through an IPO is at least around 40 billion yen (approx. $284m). In Japan, on the other hand, many companies go public with much smaller market capitalization, while the amount of funds provided to unlisted companies by angel investors, banks, institutional investors, VCs, and CVCs remains small in comparison to the U.S.

In this environment, another of Angel Torch's mandates is to provide financing support to these unlisted companies, by building a conduit to channel private capital to these firms.

One of the ways it is doing this is through the use of blockchain-based secure token offerings (STOs), which are rapidly gaining traction in recent years. In May 2022, Angel Torch and a mid-tier Japanese securities firm launched a joint venture that will focus on STOs.

“Angel Torch is a rare company that meets the financing needs of startups and small to medium-sized listed companies, which have a small investor base in Japan, through its financial arrangement business," says Mr. Hosoya. “As a company that plays a role in building a channel to redirect more than 14 trillion dollars’ worth of personal assets from savings to investment, we hope to build a revitalized investment society.”