Management

Business Risks

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Management
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Business Risks

The main risks recognized by the management from among those matters related to the overview of business and financial information, etc. presented in the Securities Report as having the potential to materially affect the financial position, operating results, and cash flows of the filing company are as follows. Forward-looking statements in this text are based on the judgments of the Group as of March 31, 2022, and do not constitute an exhaustive list of risks that could materialize in future.

1. Business environment risks

(1) Market environment
The for Startups Group provides services to Japanese startups or services in related areas, and is potentially affected by corporate trends and recruitment demand among startup companies in Japan. In particular, the Talent Agency that constitutes the main service of the Group could be affected by the recruitment needs of startup companies. If the supply of funding declined dramatically as a result of a deterioration in economic conditions or business trends in Japan or overseas, or of geopolitical risk, or of volatility in financial and capital markets, or some other factor, this could have an impact on the financial position and operating results of the Group.

(2) Competition
The Talent Agency that constitutes the main service of the Group corresponds to a “fee-charging employment placement business.” Fee-charging employment placement businesses require licenses to operate, but the barriers to entry are low and many competitors exist in various fields. According to a survey by the Ministry of Health, Labour and Welfare, the number of private-sector employment placement businesses engaged in the fee-charging employment placement business is on a rising trend. Unlike the general employee placement services, employee placement services specializing in specific industries, and advertising-type employee placement services that account for many existing employee placement services, the Group specializes in providing services to startups and growth industries. However, in the event that competitors roll out similar services in future, resulting in an intensification of competition, this could have an impact on the financial position and operating results of the Group.


2. Risks associated with the nature of the business

(1) Retirement of candidates for personal reasons
The Talent Agency that constitutes the main service of the Group provides this service on the basis of entering into an agreement to repay part of contingency fees received in the event that a candidate resigns from a position for personal reasons before a certain period of time has elapsed since joining the company that offered them the role. The Group works in close cooperation with client companies to implement measures to prevent recruitment mismatches, but in the event of an increase in the number of people resigning for personal reasons before this period elapses, whatever the justification, this would result in the repayment of fees received, which could have an impact on the financial position and operating results of the Group.

(2) Relationship with BizReach, Inc.
Rather than adopting a registration-based approach to finding job seekers that depends on the Company having its own platform, the Talent Agency that constitutes the main service of the Group uses a “hunting” approach to discovering job seekers that relies on the use of platforms operated by other companies. As of the end of the fiscal year under review, transactions sourced via the “BizReach” service operated by BizReach, Inc. accounted for a high proportion of the total (46.9% of employee placement net sales for the fiscal year under review were derived via BizReach). In addition to maintaining good relationships with BizReach, Inc. and continuing transactions with this company, the Group is working to mitigate this risk by promoting the use of multiple platforms. However, in the event of future changes in the business relationship with BizReach, Inc., these could have an impact on the financial position and operating results of the Group.

(3) Legal restrictions
The Talent Agency that constitutes the main service of the Group has obtained a license from the Minister of Health, Labour and Welfare to operate as a fee-charging employment placement business pursuant to the provisions of the Employment Security Act. In addition to the requirement for the license to be extended every five years, Article 32-9 of the Employment Security Act sets out reasons for disqualification. As of the end of the fiscal year under review, no such reasons (in the case of corporations, a notification violation, or the presence among the officers of a person who has been sentenced to imprisonment or more severe punishment, or an adult ward, or a person under curatorship, or a bankrupt whose civil rights have not been restored, etc.) were relevant to the Group. However, in the event that reasons for disqualification as set out under Article 32-9 of the Employment Security Act become relevant, there is a risk of the Group being issued with an order to suspend business or a business improvement order. Such a situation could have an impact on the financial position and operating results of the Group. The license number and license period for the Group are as follows.

License number
13-yu-307946
License period
September 1, 2019 - August 31, 2024

(4) Protection of personal information
Because the Talent Agency that constitutes the main service of the Group handles large volumes of personal information, it is required to fulfill the obligations of a personal information handling business operator pursuant to the provisions of the Act on the Protection of Personal Information. In addition to establishing Regulations for the Management of Personal Information, etc. for the careful management of personal information, the Group has obtained certification for use of the PrivacyMark issued by the Japan Institute for Promotion of Digital Economy and Community, and implements a thorough program of internal education in accordance with the operating rules for the PrivacyMark System. Notwithstanding such initiatives, in the event that personal information is leaked as a result of unauthorized access from outside, or as a result of intentional or grossly negligent actions by officers or employees of the Group, this could lead to demands for payment of damages by the Group, impairment of brand value, and a decline in social trustworthiness, which could have an impact on the financial position and operating results of the Group.

3. Organizational risks

(1) Securing and developing human resources
The Group recognizes that securing and developing human resources is important for the further expansion of its business and the ongoing enhancement of its corporate value. For the Talent Agency in particular, securing human resources is essential and a certain period of development may be required before the expected results can be demonstrated. The Group is working as one on initiatives to secure and develop human resources, but a failure to secure the desired human resources in an appropriate and timely fashion could have an impact on the financial position and operating results of the Group.

(2) Internal control systems
The Group has determined that building appropriate internal control systems is essential for ongoing enhancements to its corporate value, but it recognizes that they are still under development due to the relatively short time since the founding of the Company. The Company strives to implement and operate appropriate internal control systems, but if in future the implementation and operation of such systems were not performed in response to a drastic expansion of the business, this could have an impact on the financial position and operating results of the Group.

(3) Dependence on specific managers
Yuichiro Shimizu, the President and CEO of the Group, was previously General Manager of the NET jinzai bank division of the predecessor to the Group, SAINT MEDIA, INC. (currently WILLOF WORK, Inc.), and has continued in the position of Representative Director since the time of the spin-off. He plays an important role in the management policies and branding of the Group. The Group has taken appropriate steps to strengthen the management organization in terms of personnel structures, delegation of authority, and other matters to avoid excessive reliance on the President and CEO. However, if in future it became difficult for him to continue to execute business, for whatever reason, this could have an impact on the financial position and operating results of the Group.

4. Risks associated with the parent company

(1) Parent company’s controlling interest or power to materially affect matters resolved at general meetings of shareholders
As of the end of the fiscal year under review, 54.6% of the total number of issued shares of for Startups was owned by Will Group, Inc. Accordingly, the Will Group, Inc. has the potential to influence the right to determine or reject basic matters, irrespective of the will of other shareholders. These matters include the appointment and dismissal of Directors of the Group, approval for mergers and other reorganizations, transfer of significant businesses, changes in the Articles of Incorporation of the Group, and dividends of surplus. Nevertheless, there are no matters for which the Group requires the approval of Will Group, Inc. in advance, and the Group’s management conducts decision-making independently.

(2) Officers serving in concurrent roles
Of the Group’s officers (numbering eight Directors and three Corporate Auditors), Shigeru Ohara is a Representative Director of Will Group, Inc. and a Director of one of its major subsidiaries, and Shizuka Sawada serves as Audit & Supervisory Board Member at Will Group Inc. and at one of its major subsidiaries. This is because the Talent Agency that constitutes the main service of the Group is a human resources business, and the insights of these two individuals into management and audit at the Will Group, Inc., which has been involved in the human resources business for many years, are intended to strengthen the management structure of the for Startups Group.

(3) Transactional relationships
As of the end of the fiscal year under review, there were no ongoing transactions between Will Group, Inc. or its subsidiaries, and the Group has no plans to execute such transactions going forward. A structure has been put in place to ensure the soundness and appropriateness of transactions with related parties by requiring approval, as set out in internal regulations, for the economic rationale of said transactions.

(4) Relationships in the human resources business
The for Startups Group is active in the same “human resources business,” in the broad sense of the word, as Will Group, Inc., but the main business of the latter is the temporary staff business. Other group companies of Will Group, Inc. that are engaged in the fee-charging employment placement business are specialized in industries and sectors such as manufacturing and sales assistants, and because none of them are focused on fee-charging employment placements for startups like for Startups Group, there is no competitive relationship. However, if the Group were to change its management policies and approach to developing the business, or if Will Group, Inc. or its subsidiaries were to change their management policies and approach to developing their businesses, there would be potential for future competition, which could have an impact on the financial position and operating results of the Group.

5. Other risks

(1) Litigation
As of the end of the fiscal year under review, no parties were engaged in litigation against the Group. However, in the event that litigation is brought against the Group during the course of its business as a result of deficiencies in the services offered, leaks of personal or confidential information, contractual violations, or other reasons, this could lead to damage to the Group brand and a decline in its social trustworthiness, which could have an impact on the financial position and operating results of the Group.

(2) Information Systems
The Group uses a variety of information networks and computer systems during the course of its business, and its database is stored in the cloud. In the event of network failures caused by natural disasters or accidents, system failures such as server outages, or unauthorized access by third parties, there could be an impact on the financial position and operating results of the Group.

(3) Share price dilution caused by exercise of new share acquisition rights
The Group awards stock options based on new share acquisition rights with the objective of incentivizing officers and employees of the Group to further improve performance. As of the end of the fiscal year under review, the number of potential shares arising from such new share acquisition rights numbered 182,200. This is equivalent to 4.9% of the 3,711,000 shares that would result from adding these potential shares to the total number of issued shares. In the event that these new share acquisition rights are executed, the value per share of the Group could be diluted.

(4) Dividend policy
The Company has not paid a dividend since it was founded. The Company considers returns to shareholders to be one of the most important issues for management, but it believes that making investment required to strengthen its financial position, expand the business, and improve profitability in order to enhance corporate value should be prioritized for the foreseeable future. At this moment in time, no decision has been made regarding the payment of dividends or the timing of any such implementation. Nevertheless, the Company’s policy is to aim to pay a dividend at some point in the future after comprehensive consideration of the balance between such factors as operating results, financial position, and internal reserves.

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