Coral Capital, formerly known as 500 Startups Japan, has launched a 2.7 billion yen ($25.2 million) growth fund to make late-stage investments in its most successful portfolio companies, according to an announcement.
The new vehicle, Coral Growth, will back three to five companies out of the firm’s core fund over the next two years.
Coral Growth has received commitments from the core fund’s existing institutional investors, the VC firm said.
The 500 Startups Japan team went independent in March 2019, launching a 5 billion yen ($45 million) fund whose investors included Mizuho Bank, Mitsubishi Estate, Shinsei Bank and Taizo Son, the brother of SoftBank CEO Masayoshi Son and founder of early-stage investment firm Mistletoe. The fund was then oversubscribed to 6 billion yen.
Prior to the new growth initiative, Coral Capital allocated about 40 per cent of its dry powder to make investments before the Series A stage and reserved the rest to continue investing into the most promising founders.
However, that approach limited its ability to double down on these startups due to the amount of capital in the core fund. “The separate vehicle expanded our capacity significantly,” it said.
Coral Capital revealed that it had set up a separate fund to solely invest in SmartHR’s 1.5 billion yen ($14 million) Series B round in 2018, marking the first Series B investment for the early-stage VC firm.
“There are other companies in our portfolio that we believe have the potential to follow SmartHR’s success,” the firm said.
In addition, there are only a few players in Japan that can write large checks for startups, which has resulted in many large rounds consisting 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,” Coral Capital added.
Meanwhile, the firm also expected that strategic corporate investors, the main source of capital for Japan’s later-stage companies, could be the first to pull back from investments due to the COVID-19 pandemic.
Coral Capital’s maiden fund has backed nine startups. 500 Startups Japan was a $35-million fund launched in 2015 and funded nearly 40 companies in total.
