What founders should check when fundraising with J-KISS
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Specific template terms below refer to Coral Capital's public J-KISS v2.01. Older versions and individually amended agreements must be checked against their own wording.
We regularly advise on J-KISS financings from seed through pre-Series A, sometimes for the issuing company, sometimes for an incoming investor, and sometimes for an existing shareholder reviewing a new instrument. 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 capital relatively quickly without issuing common or preferred shares at closing. Treating it as a simple contract is risky. Because no shares are issued up front, the effect on ownership remains invisible until Series A, an exit, or the conversion deadline, when terms fixed at issuance suddenly turn into concrete numbers. In practice, the first task is making visible, before signing, how the current round connects to the next Series A or an M&A. Founders should verify several core elements prior to execution. These include whether the template remains unaltered and whether the conversion formula applies the lower of the cap or discount. In addition, founders must calculate the floor resulting from the post-money cap, identify qualifying Major Investors, and confirm how the instrument converts at Series A or upon an exit.
Conversion mechanics and valuation formulas
J-KISS is a paid stock acquisition right, not a share, designed to convert into equity once a triggering event occurs. What that conversion entails depends on the exercise conditions, redemption terms, and the specific class and volume 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 volume, and post-closing stakes are fixed at the outset, J-KISS fixes a future conversion formula. Key variables include the valuation cap, the discount rate, and the qualified financing threshold. In addition, the conversion deadline, exit treatment, and investor information rights are locked into the instrument. Founders should treat these provisions as binding commitments that reserve tomorrow's equity structure.
The valuation cap acts as a ceiling on the valuation used at conversion. J-KISS v2.01 uses a post-money cap, so dividing the investment amount by the cap gives a rough conversion-calculation floor before dilution from new shares and any related option-pool increase connected with the next financing. For example, JPY 30 million invested against a JPY 300 million post-money cap works out to roughly 10%. This figure is a calculation floor prior to the next equity financing, not a guaranteed final post-Series-A percentage, because subsequent share issuances and option pool expansions will dilute the holding. All instruments must be modeled under the precise definitions in the signed issuance terms.
The discount lets J-KISS investors acquire shares 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 percentage depends on commercial negotiation rather than statutory mandate. The conversion calculation compares two per-share figures: the next-round price multiplied by the discount factor, and the post-money cap divided by the defined fully diluted share count. The template selects whichever per-share price is lower. The cap functions as a ceiling on valuation that yields a price cap, not a price floor, so merely comparing headline valuation against the cap is insufficient. The conversion trigger is typically a qualified financing of at least the stated amount; Coral Capital's public v2.01 template sets this threshold at JPY 100 million, excluding shares issued upon conversion of convertible equity. Actual contract and issuance terms should always be verified directly.
Calculating the fully diluted share count under the template follows precise rules. It includes the defined outstanding common and preferred shares, rights to acquire shares, and existing reserved option pool without double counting. Treasury shares and treasury rights, and any option-pool increase connected with the next equity financing, are excluded. Furthermore, the denominator must be recalculated for any J-KISS converting at a discount, and multiple J-KISS rounds or versions are not automatically treated as the same type.
Template alterations and investor rights
J-KISS provides speed and transparency when parties use the public template unchanged, which makes verifying whether the document in front of you has been altered a critical first step. The standard template contains an opening representation confirming that the text matches the public form, except for completed blanks and bracketed options. When parties modify terms, this statement is sometimes removed to avoid inconsistency. Deleting the sentence is transparent, but it signals that substantive modifications exist. Even when the statement remains, parties should still compare the draft against the official public version, because its presence alone does not guarantee the text is unamended.
Past transactions reveal several recurring modifications. In some deals, the conversion price is altered so that a qualified financing applies only the discount, leaving the valuation cap merely as a reference price at the conversion deadline or upon an M&A. In other transactions, such as early angel rounds, the discount is reduced to 0% while the cap is set high enough to remain dormant. Adjustments to the Major Investor payment threshold are also common, directly altering who qualifies for information and participation rights.
Two contractual mechanisms embedded in the template warrant close attention. First, the Major Investor definition establishes a specific payment threshold, set at JPY 5 million in the template, which aggregates amounts invested by specified affiliates. Qualifying as a Major Investor confers information rights, participation rights, and an obligation on the company under section 5.2(3) to grant rights conferred on major investors in future financing agreements, rather than granting automatically identical class rights. Crucially, the participation right is not a straightforward pro-rata allocation based on shareholding. Instead, it carries a cumulative cap set at twice the original investment amount (such as JPY 10 million for a JPY 5 million investment), minus amounts already subscribed under this right, with stock option issuances excluded.
Second, the Majority Investor provision permits holders of a majority of the aggregate issue price to execute written amendments with the company that bind all holders of the series. This framework facilitates negotiated extensions when the conversion deadline approaches, but it requires founders to track who holds that voting majority at issuance. However, this power is not unlimited. Under express section 5.13 exceptions, several core provisions cannot be amended without each affected investor's written consent. The exceptions cover section 5.3 transfers of the rights, section 5.5 costs and indemnity, section 5.12 cooperation, and section 5.13 itself. Section 5.2 is also protected where the investor concerned is the only Major Investor, as specified in section 5.13. Furthermore, applicable corporate procedures under the Companies Act remain mandatory. In addition, the most-favoured-nation (MFN) covenant imposes an ongoing administrative duty before conversion. Within five days of issuing or granting covered subsequent convertible securities or rights, the company must deliver written notice and a complete copy of the agreement to eligible investors. This requirement excludes employee stock options and does not apply to every straight common share issuance, but the reporting burden compounds as a company adds more J-KISS investors.
Series A alignment and exit scenarios
J-KISS is distinct from Series A investment and shareholders' agreements, yet the documents are closely tied. Exercise or company acquisition procedures deliver the shares defined in the issuance terms. If the Series A round issues preferred shares at a price different from the J-KISS conversion price, template v2.01 calls for a separate class of preferred shares. This sub-class carries an adjusted per-share liquidation preference and an adjusted acquisition price for common-share conversion, along with other conforming terms. Section 5.9 requires the J-KISS investor to join the specified investment-related agreements entered into for the next financing when exercising or converting. Founders should check the documents and applicable governance, information, and participation provisions; share ownership alone does not give identical contractual rights. Where side letters are executed alongside J-KISS, METI guidance highlights information and MFN terms as common friction points, and even an informal letter can generate burdensome commitments.
When the company decides to undertake a defined change-of-control transaction, it sets an acquisition date no later than completion. It acquires all rights not exercised by the preceding day for cash equal to twice their issue price. A holder may instead exercise beforehand under the applicable cap-based conversion provisions. The company must give written notice of the transaction terms at least two weeks before the acquisition date, or completion if no acquisition date was set. The definition includes qualifying control transactions, a sale of all or substantially all assets, dissolution or liquidation, and an IPO. The holding-company exception requires a wholly owning parent and substantially unchanged ownership proportions; the definition also excludes share issues or disposals solely for fundraising.
Where no qualified financing occurs within the designated period, METI guidance references a structure permitting common-share conversion after 18 months from allotment. Under the template, exercising rights once the conversion deadline passes without a financing requires approval by holders of a majority of the aggregate issue price, including same-type rights defined in the issuance terms. Reaching the deadline does not trigger automatic conversion or debt repayment. In practice, companies frequently negotiate a separate extension agreement as the date nears. Negotiation outcomes—whether an extension, conversion to common equity, or restructured terms—depend on the company's financial position, the deadline length, and the composition of majority investors established at issuance. Too short a deadline can force the next financing earlier than the business plan intends, while an ambiguous timeline leaves investors uncertain about when equity will be issued.
Cap table modeling and pre-issuance preparation
Founders should prepare three core documents before issuing J-KISS:
- A conversion simulation across multiple Series A valuations, distinguishing between cap-driven and discount-driven scenarios, using the defined fully diluted share count that includes the existing option pool while excluding treasury shares and next-round pool increases, and recalculating denominators for discount conversions.
- A schedule of departures from the public template, tabulating investor-specific economic terms such as caps and discounts so the record can be submitted directly during Series A due diligence.
- An integration memo explaining how the round connects to Series A, identifying the share class to be issued, contractual participation rights, required shareholder consents, and the timing of any option pool expansion.
Without these three records, reviewing the agreement alone will not reveal the practical impact of the financing. Because J-KISS reserves future corporate ownership, founders should review it in conjunction with cap table modeling across successive financing rounds, rather than viewing it merely as a short-term cash injection.