500 Startups' Japan Team Starts New Fund Called Coral Capital

(Bloomberg) -- 500 Startups' Japan team is breaking off to start a new early-stage investment firm called Coral Capital.

The company will debut with a new fund and be run by James Riney and Yohei Sawayama, who launched 500 Startups Japan in 2016. The pair have raised 5 billion yen ($45 million) and aim to make larger investments compared with rival early-stage venture capital firms, the two said in an interview.

Fundraising took about two months and will see many of 500 Startups Japan's limited partners return for the new Coral fund, including Mizuho Financial Group Inc. and Taizo Son, one of Japan's best-known seed investors and the younger brother of Masayoshi Son. New investors include Shinsei Bank. Coral will operate out of the same Tokyo shared-office space used by 500 Startups Japan, and all five of the existing employees will migrate to the new fund.

“It has been a win-win relationship between us and 500, but in terms of why entrepreneurs are picking us as investors in the market, it is in a lot of ways because of the reputation we built as general partners,” Riney said.

The pair said the departure from 500 Startups is amicable and that they will continue to cooperate on events and investments “for the foreseeable future.” They will also continue to service the 2016 Japan fund for 500 Startups, which has invested about 5 billion yen in 43 companies.

For 500 Startups, it means the loss of one of their largest teams outside of Silicon Valley. The fund's founder Dave McClure stepped down in 2017 amid allegations of sexual misconduct, leading employees at the company's Canada fund to resign in protest. Riney said McClure's departure had “pretty much zero” to do with the decision to launch Coral.

“500 has and continues to be a strong global brand,” said Kelsey Cullen, a spokeswoman for 500 Startups.

Riney and Sawayama's portfolio for 500 Startups includes satellite-communications provider Infostellar Inc. and automation service SmartHR Inc. Another investment, restaurant reservation app Pocket Concierge Inc., was acquired by American Express Co. in January. The two have leveraged social media and services such as job fairs to reach Japan's entrepreneurs and generate deals.

“In Silicon Valley, Andreessen Horowitz has lots of partners: there's recruiting help and PR help and management help and there's all kinds of help,” Riney said. “But we were one of the first VCs in Japan to bring in an in-house recruiting person and build that as a pillar of the support that we provide.”

Venture funding continues to expand in Japan, doubling since 2015 to about $3.5 billion last year, according to Uzabase Inc. That's a record, but still far behind the $111 billion and $105 billion raised in the U.S. and China last year, respectively, according to Preqin. Coral's first fund will exclusively focus on Japanese startups, but Riney and Sawayama are thinking of expanding further in Asia.

To contact the reporter on this story: Yuji Nakamura in Tokyo at ynakamura56@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Reed Stevenson, Peter Elstrom

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