We’re pleased to announce Coral Growth, a new initiative that we’ve been working on over the past few months. This is a later stage fund put together with our existing institutional investors to continue funding our top companies.
When we first partner with entrepreneurs, it is typically before the Series A. We allocate about 40% of our fund to make these initial investments, and then reserve about 60% to continue investing into our most promising founders.
However, two years ago, we tried something different. We set up a separate fund to invest the entire Series B of SmartHR, one of our breakout companies. As I wrote in my announcement then, we did this for two primary reasons.
One reason is that since there are few players in Japan that can write large checks for startups, many large rounds consist of several investors writing small checks. This is not only inefficient for founders that need to pitch and negotiate with each investor, but costly to communicate and manage all of them after the round is closed. With the separate fund, we were able to raise the entire round for SmartHR in only 1.5 months and 10 hours of the CEO’s time.
The other reason is that when we have high conviction about a company, we are not afraid to double, triple, and quadruple down. Previously, our ability to continue betting on our best companies was limited by the amount of capital in our core fund. The separate vehicle expanded our capacity significantly.
As the market is hit by COVID-19, we expect later stage Japan fundraising challenges to be even more relevant over the next 2 years. Japan’s later stage funding environment is highly dependent on corporate capital, and we expect that these strategic investors may be the first to pull back. At the same time, there are other companies in our portfolio that we believe have the potential to follow SmartHR’s success. Given the confluence of these two factors, we’re proud to say that we’ve prepared additional capital to continue making these high conviction investments throughout a downturn.
Coral Growth is a JPY 2.7 billion fund that will serve as an extension to our first fund. We plan to invest into the later stages of 3 – 5 companies out of our core fund over the next two years. This will enable our best companies to continue growing, while offering our limited partners access to what we believe will be the next leading companies in Japan.
The unicorn was the symbol of choice for startups in recent years, but perhaps the camel will be more symbolic over the next two. The COVID-19 menace is a tragic black swan that will surely impact the startup ecosystem. However, there are strong companies that will survive this and emerge even stronger. We’ve raised the resources to help them endure.