We’re excited to announce the first and final close of our latest fund: Coral Capital III. It is a JPY 14 billion (~$128m) vehicle made possible thanks to the tremendous support of our limited partners, which include Mizuho Bank, Mitsubishi Estate, Shinsei Bank, Pavilion Capital, Founders Fund, Dai-ichi Life Insurance, GREE, and undisclosed domestic and international institutional investors. This brings our total assets under management to about JPY 30 billion (~$275m).
This new fund will continue to invest in the top seed and early stage companies in Japan. However, there are two things that make this fund unique.
Larger Seed Investments, Even Larger Follow On. We will be deploying first checks of anywhere from $500K all the way to $5m ーmaking us one of the largest seed to early stage players in Japan. We have also allocated a significant portion of our fund for follow-on investment. Over the years, we’ve made a few large follow-on investments into our top companies, ultimately investing about $20m into SmartHR and $17m into Graffer. We plan to make similar high conviction bets out of this new fund.
Longer Fund Life. We’ve also structured this fund to be patient. Creating legendary companies takes time, and we are happy to wait. Our fund life can now be extended to 14 years, leaving plenty of time for our founders to focus on building without the pressure of a VC looking for a quick exit.
When my partner Yohei and I first entered the startup world in 2012, Japan’s startup ecosystem was in a very different place. There was less than a billion invested into startups every year. There were hardly any unicorns. There was barely any information available in Japanese on building companies, and the startup world was a black box.
Recognizing that change was needed, we launched our first fund in partnership with 500 Startups, a Silicon Valley based firm, and worked hard to bring over best practices that would grow the ecosystem. We were the first to introduce many concepts, including convertible equity (J-KISS), and the startup market’s first SPV. We also burst open the black box by publishing content on startup best practices and the latest science and technology trends.
The market has drastically improved. Annual startup investment is at about $5 billion. There are now six unicorns, one of which is a portfolio company. Many startup founders, employees, and investors publish content on their learnings, raising the bar for everyone in the ecosystem. Japan is starting to look a lot more like Silicon Valley.
With that said, when you consider the size of the economy, Japan still has a long way to go. The ~$5 billion in annual startup investment is nothing when you consider that the US and China attract tens of billions. Even neighboring Korea, with a third of Japan’s GDP, attracts about $4 billion. They’ve produced Coupang, a decacorn. We can do better, and we will.
Coral will continue to play an important role in driving this ecosystem forward, much like we have over the last five years.
In this next phase, our three areas of focus will be Insights, Talent, and Capital.
Insights. We have doubled down on our media outlet, Coral Insights, by hiring another Editor. Satoru Masuda, formerly of Buzzfeed and TechCrunch Japan, will be joining our Chief Editor Ken to inform and inspire Japan’s startup community.
Talent & Community. Yohei Shirata, formerly of Persol, will be joining to lead executive recruiting, working with Ryo Tsuda to attract talent to not just our startups, but to the startup world as a whole. We’ve also hired someone to lead our community building initiatives, which we’ll announce in the coming months. These efforts will focus on attracting the most important ingredient to building companies at scale: great people.
Capital. In order to aim bigger, we will need to attract even more capital. Domestic capital can only go so far, so we will be leveraging our global network of investors to support our companies’ fundraises. About 30% of our latest fund is from global investors across the US, Asia, and Europe, one of which is Founders Fund. We hope to partner with these investors as our portfolio companies reach scale and grow their ambitions.
With more ambition, more talent, and more capital coming into the Japan ecosystem, we firmly believe that Japan has the potential to produce not only more unicorns, but decacorns. The entire economy is undergoing widespread digital transformation, and startups are the best positioned to ride this wave. Japan is also home to brilliant technologists and scientists that, given the right conditions, have the potential to build global enterprises. We’ll continue to drive the ecosystem forward, and hopefully play a small part in helping these courageous entrepreneurs build us a better future.