What founders should check when fundraising with J-KISS

Hello, this is Legal Agent.

We regularly advise on J-KISS financings from seed through pre-Series A, sometimes for the issuing company, sometimes for an investor, and sometimes for an existing shareholder reviewing a J-KISS to be issued to someone else. The same document reads very differently depending on which side you sit on.

J-KISS is the seed-investment template published by Coral Capital, using convertible equity to raise money relatively quickly without issuing common or preferred shares at the time of investment. Treating it as a "simple contract" is risky: because no shares are issued up front, the effect on ownership stays invisible until Series A, an exit, or the conversion deadline, at which point the terms fixed at issuance suddenly become real numbers. In practice, the single most important thing is making visible, before issuance, how the current round connects to the next Series A or a future M&A.

Five things to check first

• whether the opening statement that the document is unchanged from the public template is still present or has been deleted
• whether the basic structure, where the valuation cap and discount apply, uses the lower of the two, or has been restructured
• the investment amount divided by the post-money cap, which gives a rough floor for that investor's eventual stake
• who qualifies as a "Major Investor" or holder of a majority of the aggregate issue price where there are multiple investors
• whether you can explain how this J-KISS will be treated at Series A, at an M&A, and if the conversion deadline arrives first

What J-KISS is

J-KISS is a paid stock acquisition right (新株予約権), not a share, designed to convert into shares once a triggering event such as a future financing round occurs. What that "conversion" actually does depends on the exercise conditions, redemption terms, and the type and number of shares set out in the issuance terms, which can only be confirmed by reading the contract and the terms together. Unlike a common or preferred share round, where issue price, share count and ownership are fixed at issuance, J-KISS fixes only the future conversion formula: the valuation cap, discount, qualified financing threshold, conversion deadline, M&A treatment, information rights and pro-rata rights. Founders should treat these not as irrelevant boilerplate but as terms that reserve a future ownership structure.

The cap, the discount and the conversion event

The valuation cap acts as a ceiling on the valuation used at conversion. J-KISS 2.0 uses a post-money cap, so dividing the investment amount by the cap gives a rough sense of the eventual stake. For example, JPY 30 million invested against a JPY 300 million post-money cap works out to roughly 10%. This is only a starting point: additional J-KISS rounds and how an option pool is treated will move the number, so a full cap table before and after Series A conversion is needed to see what it really means for the company.

The discount lets J-KISS investors buy at a percentage below the price paid by new investors in the next round; METI's guidance on convertible instruments cites 20% as a common default, though the actual level depends on negotiation. The cap and discount should not be read separately: the cap controls where the Series A valuation is well above it, and the discount controls where the valuation stays close to the cap, so modelling a few possible Series A valuations shows which term will actually bind. The conversion trigger is typically a qualified financing above a stated amount; Coral Capital's public page describes the template's threshold as JPY 100 million, but the actual contract in hand may define it differently and should always be checked directly.

Confirm whether the template has been altered

J-KISS's value comes from the speed and transparency of using the public template unchanged, so confirming whether the document in front of you has in fact been altered is the first step. The template includes an opening statement that the agreement is unchanged from the public form except for blanks and bracketed items; where parties amend the template, this sentence is sometimes deleted to avoid an inconsistency, which is itself an honest practice but also a signal that something has changed. If it is missing, produce a redline against the public template before doing anything else.

Terms we have seen altered in past deals include restructuring the conversion price so a qualified financing uses only the discount while the cap survives merely as a reference price at the conversion deadline or an M&A, or the reverse, where an angel round sets the discount to 0% and the cap so high it is effectively inert. The Major Investor payment threshold is also sometimes moved, which changes who receives information and pro-rata rights.

Relationship to the Series A investment agreement

J-KISS is a separate document from the Series A investment and shareholders' agreements, but the two are closely linked. Under the template, a qualified financing extinguishes the J-KISS and the investor receives Series A preferred shares, but rights under the Series A contracts are not automatically identical, so how the conversion connects to those contracts needs separate review, in particular how far J-KISS investors participate in the Series A agreements and what information or pro-rata rights they end up with.

Two mechanisms already built into the template are easy to overlook. The "Major Investor" threshold (a default of JPY 5 million) automatically grants information rights, pro-rata rights, and rights later granted to major investors in subsequent rounds; in an angel round nearly everyone can meet this bar. Pro-rata rights are capped at twice the amount paid, so a JPY 5 million investor could claim a JPY 10 million allocation at Series A. Separately, a "Majority Investor" provision lets holders of a majority of the aggregate issue price agree in writing with the company to amend terms for the entire series, binding smaller investors without their individual consent. This is useful when negotiating a deadline extension, but it also means knowing who holds that majority at issuance matters. The most-favoured-nation clause also carries an ongoing burden: written notice with a copy of the new agreement is due within five days of each subsequent securities issuance, an obligation that compounds as more J-KISS investors are added.

Founders should not assume terms will simply align at Series A. Where several J-KISS investors exist, disputes over who participates in which contract and with what rights often surface only once Series A negotiations begin, sometimes colliding with governance terms a lead investor demands. Side letters signed alongside a J-KISS deserve particular care, since METI's guidance flags information and MFN rights as common side-letter issues, and even a short side letter can create obligations close to a shareholders' agreement.

Connecting J-KISS to the cap table

Founders should build not just a current cap table but versions immediately after J-KISS issuance, immediately before Series A conversion, and after conversion. Multiple J-KISS rounds (seed, pre-Series A, a bridge) are easy to lose track of, since each round's cap and discount stack up and the resulting dilution only becomes visible at Series A. The option pool matters too, since Series A investors will ask whether the pool is sized pre- or post-money, and founder ownership cannot be judged correctly without viewing pool expansion and J-KISS conversion together. Because converted J-KISS investors receive the same class of preferred shares as Series A investors, liquidation preference and pro-rata terms extend to them as well. J-KISS should be treated as the entry point to the next preferred round, not simply paperwork for getting cash in now.

M&A before conversion, and what happens if conversion never triggers

The template gives J-KISS holders the choice, if an M&A occurs before conversion, of receiving twice the invested amount in cash or converting at the cap and participating in the sale; Coral Capital's public page describes the same approach. The definition of a qualifying "change of control transaction" is broad enough to include not only a share sale or merger but a sale of substantially all assets, dissolution or liquidation, and even an IPO. A clause founders may skim past as "the M&A section" can therefore also govern what happens to the J-KISS at listing.

Where no qualified financing occurs, METI's guidance describes a design allowing investors to request conversion to common shares after 18 months; the template allows exercise, once the conversion deadline passes without a qualified financing, upon approval by holders of a majority of the aggregate issue price. We have seen deals where, as the deadline approached, the parties signed a separate agreement extending it. What gets negotiated at that point (an extension, conversion to common shares, or amended terms) depends on the company's situation, and the conversion deadline and the composition of majority investors set at issuance form the basis for that negotiation. Too short a deadline can force the next round earlier than the business plan intends; too vague a deadline leaves investors uncertain when they will hold shares.

Three documents founders should prepare before issuing J-KISS

• a conversion simulation across several possible Series A valuations, separating scenarios where the cap binds from where the discount binds, correctly accounting for the fully diluted share count including any option pool and treasury shares, and recalculating the denominator for any J-KISS converting at a discount
• a list of every departure from the public template, with economic terms such as the cap and discount tabulated by investor so it can be reused directly in Series A due diligence
• a short memo on how the round connects to Series A: which class of shares J-KISS investors will receive, how they participate in the Series A agreements, whether existing shareholder consent is needed, and when the option pool will be expanded

Without these three, reviewing the contract alone will not reveal the real impact of a J-KISS. Because it reserves the company's future ownership structure, it needs to be read together with the cap table, not just the investment amount and closing date.