JAFCO Group Co., Ltd.

Political, economic, and social conditions as well as trends in the stock market and IPO market directly affect fund performance, and during a recession this can lead to poor performance of portfolio companies, a decline in the number of startups, and restricted EXIT opportunities. Because unlisted equity investments require several years until EXIT, deterioration in market conditions at the time of EXIT can cause significant fluctuations in capital gains and performance fees, potentially adversely affecting the Company's business performance and financial condition. As countermeasures, the Company diversifies through a combination of Venture Investment Fund and Buyout Investment Fund investments, and pursues EXITs through M&A in addition to IPOs.

Seed- and early-stage portfolio companies that are investment targets have unstable revenue and financial bases and high business uncertainty, creating the risk that invested funds may become entirely unrecoverable due to bankruptcy or other events resulting from failure to achieve business plans. Unlisted equity has markedly inferior liquidity, and the accuracy of issuer information is not guaranteed, so the sale price at the unlisted stage may fall significantly below expectations. As countermeasures, the Company conducts rigorous investment selection through its investment committee, strengthens management involvement after investment, and performs regular monitoring at portfolio meetings.

The Company operates as a specialized entity that concentrates its management resources on domestic unlisted equity investment, resulting in a structure where changes in political, economic, and social conditions as well as in the stock market and IPO market directly and comprehensively affect business performance. As there is no revenue diversification through business diversification, the risk of performance fluctuation during adverse market conditions is relatively high. From April 2025, the Company intends to further concentrate on domestic unlisted equity investment, addressing this risk by enhancing its investment management capabilities and fund-raising capabilities.

Competition with specialized venture capital firms, private equity funds, corporate venture capital firms, and others is intensifying, and competition for acquiring investment deals in promising unlisted companies is becoming increasingly severe. If the Company loses investment opportunities due to competition or is forced to invest on unfavorable terms, it may be unable to obtain sufficient capital gains, leading to a decline in fund performance and potentially adversely affecting the Company's business performance and financial condition. As a countermeasure, the Company seeks differentiation by evolving its partnership model and leveraging its accumulated network.

Due to the policy of highly selective, concentrated investment, the shareholding ratio at the time of IPO tends to be relatively high, which could further amplify the adverse impact of a decline in the share price of held listed equities on fund performance and on the Company's business performance and financial condition. As countermeasures, the Company makes sale decisions based on a comprehensive assessment of stock market conditions, acquisition costs, trading volume trends, and other factors, and utilizes multiple liquidation methods such as block trades.

If the Company is unable to raise sufficient funds from external investors due to deteriorating political and economic conditions, weak fund performance, or a mismatch with investor needs, this could hinder investment activities and reduce management fees, performance fees, and capital gains, potentially adversely affecting the Company's business performance and financial condition. As countermeasures, the Company works to build trust with investors through regular reports and periodic meetings, and to expand its investor base to include overseas investors, pension funds, investment trusts, and others.

Even after the completion of the transfer of the Asian and U.S. subsidiaries, the Company will continue to hold equity interests in existing funds, but since it will not be involved in their management and operation, there is a risk that fund performance may deteriorate due to a lack of appropriate risk response. In addition, since the held assets are denominated primarily in U.S. dollars, foreign exchange risk exists, and it is difficult to completely eliminate the impact of exchange rate fluctuations over the several years from investment to EXIT. As countermeasures, the Company obtains reports from the fund administrators on a quarterly basis to make appropriate provisions, and has established a system to receive direct reporting.

Against the backdrop of increasing cyberattack threats and the advancement of generative AI, if important information is leaked due to unauthorized external access or negligence by officers or employees, the Company may face claims for damages and a decline in social credibility, potentially adversely affecting its business performance and financial condition. As countermeasures, the Company conducts system risk assessments by external security specialist consultants, implements firewalls, malware countermeasures, and data encryption, establishes information management regulations, and provides training to officers and employees.

The Company is subject to a wide range of legal regulations, including the Companies Act, the Financial Instruments and Exchange Act, the Act on Investment Limited Partnerships, and anti-money laundering regulations, and stricter regulation may restrict its activities or increase compliance costs. If officers or employees violate laws and regulations, breach their duty of care, or commit operational errors, the Company may bear liability for damages, and a decline in social credibility or administrative sanctions could adversely affect its business performance and financial condition. As countermeasures, the Company has established a system for consolidating information with the Compliance Officer, set up internal and external whistleblowing channels, and conducts regular training and study sessions.

The Company's business is highly dependent on talented personnel such as venture capitalists, and if it becomes difficult to secure personnel due to intensifying recruitment competition, this could adversely affect future growth, business performance, and financial condition. In addition, increased costs for securing, developing, and retaining personnel could also affect business performance. As countermeasures, the Company raised the upper limit on performance-linked compensation through a January 2024 revision of its personnel system, introduced a partnership model, and has established flexible working arrangements such as full flextime and remote work.