Founded in December 2000 with Masami Komatsu as its CEO, Music Securities (MS) was in essence a financial institution promoting economic independence for musicians. From a young age, Komatsu recognised the importance of funding to sustain a business. He had been a musician while a student, and had SOON learnt that creative independence could not exist without economic independence.

Komatsu started by creating a small music fund that raised 860,000 yen (US$7,207). The investors of the music fund would receive a cut from the sales of CDs. It was a one-man show and he did everything on his own – creating contracts, signing artists, negotiating with investors, making CDs, marketing and promoting them. The result was a total return of 13.31% for the investors.

MS was very flexible in its investment approach and open to financing a wide range of business services. However, there were strict ‘investment criteria’ which included the strength of the business model, expected financial return to investors, and social returns. The firm delivered its unique value proposition by letting investors choose the businesses they wanted to invest in. While the other financial institutions in Japan that undertook impact investing typically preferred larger projects, MS was willing to provide funding to unlisted companies.

In 2009, Komatsu developed Securite, a platform for micro-investment funds, which was not limited to music and had a focus on empathy-based financial inclusion. Thereafter, it was shortly after March 11, 2011 – the fateful day when a magnitude-9.0 earthquake off the north-eastern coast of Japan triggered an unprecedented 18-metre high tsunami, killing about 18,000 people and resulting in 16.9 trillion yen (US$142 billion) of damage – that MS set up Securite Disaster Area Support Funds, a unique financing scheme comprising 50% donation and 50% investment, to provide financial aid to businesses destroyed by the earthquake. Within six months, MS had successfully raised US$11 million from 39,200 donors to support 38 local companies in the earthquake-hit areas.

As of October 2019, MS had established over 850 funds for more than 570 companies in various fields, including the Securite Disaster Area Support Funds. It was at this point in time that MS received a request to raise funds for Toyomi Electric Co. Ltd, a victim of Typhoon Hagibis, which had struck the Kantō region of Japan earlier on October 6, and was the most devastating typhoon to hit the region since 1958. With the funds, Toyomi Electric could continue running the factory, keep its workers employed, and contribute to the recovery of the local economy.

However, Toyomi Electric had a reputation for generating negative social impact by releasing pollutants into the air and water, harming the well-being of neighbouring populations and the environment. As investment decisions at Securite were guided by three criteria - social returns, strength of the business model and expected investment returns - Komatsu must carefully evaluate the potential impact of its decision before deciding to raise funds for Toyomi Electric.

This case was written by Liang Hao, SMU Assistant Professor of Finance; Anant Kapoor, SMU Research Assistant (Feb-Sep 2019); Bihong Huang, Research Fellow at the Asian Development Bank; and Dave Luo Jia Xuan, SMU alumnus and Research Assistant (Dec 2015-Apr 2016). The case identifies key stakeholders and an organisation’s relationships with them. It observes how unique schemes integrate both profit-driven and philanthropic objectives and explores how organisations influence stakeholders to achieve sustainability and how their actions impact stakeholder interests.

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