People start businesses, and there is a limit to what a single person can do. Therefore, it is always necessary to meet people who will become your colleagues, in order to generate innovation. This requires different steps, from “nice to meet you” to becoming colleagues.
On this occasion, we explore tips for encounters between players in different positions, namely “entrepreneurs and investors” and “startups and big companies,” for building good relationships, and for maintaining them.
We talk to Mr. Kenta Sasahara, Founder and CEO of Holmes and James Riney, CEO of Coral Capital. Mr. Sasahara is a former legal entrepreneur who received an investment from the venture capital (VC) firm presided over by James, and who has entered the cloud contract market.
How did they get to know each other and build a relationship?
・Communication among “people” who don’t fit into the “entrepreneurs” and “investors” brackets
・The problems in the cloud-based contract business is that contracts should be grasped by aspects, not points
・Startups and big companies: how to align perspectives that tend to be different
CEO of Holmes Inc.
In 2008, Kenta Sasahara passed the former national bar examination while attending Keio University Law School. He registered as a lawyer in 2010 (2nd Tokyo Bar Association, 63rd term). In 2013, he established PRESIDENT legal professional corporation. In 2017, he established Legsea Co., Ltd. (currently Holmes Inc.), providing the contract management system “Holmes.
Founding Partner & CEO, Coral Capital
Founding partner and CEO of Coral Capital, a former CEO and managing partner of “500 Startups Japan” since 2015. James has invested in more than 40 seed stage companies, operating a total of approximately 12 billion yen. He was also an early investor in SmartHR, leading a series B funding round of approximately 1.5 billion yen, and currently serves as an external director of SmartHR. At DeNA, he has been involved in global investments, mainly in Southeast Asia and Silicon Valley, since 2014
Communication among “people” who don’t fit into the “entrepreneurs” and “investors” brackets
I was very surprised to observe their relationship. It seems that the way they talk and interact with each other is more than just a relationship between an entrepreneur and an investor. They give each other compliments like “Japan’s No. 1!” and “an excellent project manager!” and when seeing them talk as if they are joking, it is evident that they trust each other.
Sasahara: James … I mean, Coral Capital is the most caring VC in Japan. Even if you ask other people, there is no other place where you can get so much support. Well, now he is busy, so it might not be that much… (laughs).
James: No, no, no! It’s not like that! Holmes is doing well, that’s why I’m relaxed (laughs).
Sasahara: Really? Going back, I met James right after I launched Holmes. We got in touch through Facebook.
James: That’s right. In the United States, SaaS businesses related to Legal Tech have been successful, so I was wondering where is the potential in Japan? So, when I was researching, I found Holmes. When I got in contact, Mr. Sasahara’s personality was very good, and I was confident that “this person will definitely succeed.”
Sasahara: From there, we decided on the investment immediately. I thought it was very important to have a sense of speed.
― I can already feel the good compatibility between you two, but can you tell us why you decided to accept an investment from Coral Capital? You may have received inquiries from multiple VCs, but why did you choose Coral Capital?
Sasahara: I was originally a lawyer, and I also established a lawyer corporation that was separate from Holmes. I was also involved in corporate legal affairs of the so-called startup community and understood startup financing as a concept of corporate law.
However, I couldn’t grasp the “sense of the business” that one comprehends only when conducting management. Even after I started the company, I thought that it would be possible to manage using reserve funds for a while. James sent me a message at that time. His relation to us is not only as the so-called investor, but he also gives advice on how Holmes will grow and teaches me about internal conditions in the startup field using examples from other investments. I felt sincerity in that attitude and decided to work together with him. Also, I felt good about the rational aspect that “the clauses of the investment contract are published on the website, so look there.” Although, I thought, is it okay to make this public?
James: Can it be perceived as sloppy? Is that okay? (laughs).
― What did you focus on when you received the investment?
Sasahara: Of course, I set certain judgment criteria, but I trusted him as a person, so I decided to assess the detailed conditions based on James’s proposal. If he understood my vision, the investment amount that he would present as an investment professional would be appropriate.
I think this leads to the topic of the interview; on paper it is called “fundraising,” but I think I gained more than that by meeting James. Announcing the fundraising has given us an opportunity to learn about our company, and we were able to meet a lot of new people. One encounter led to the next encounter, and awareness and growth as a startup, which I wasn’t so conscious about until now, was born in myself.
James: Excuse me, but when looking back, the first product was shabby-looking (laughs). But when I talked to him, I immediately realized that the essence of this person wasn’t a lawyer, but an entrepreneur, and, he is an excellent product manager.
I saw several other companies in the field of Legal Tech. It may be natural that the founder is a lawyer, but it is a problem when the “lawyer aspect” is too strong. However, Mr. Sasahara had a great balance between the “lawyer aspect” and having an “eye to see products.” It was clear he had problem awareness, and he was thinking about the product properly. He can explain in detail about future development. That’s pretty rare.
Sasahara: I feel a little embarrassed (laughs). I thought it was wishful thinking, but at first, I had absolute confidence in the product. Once launched, I thought that it would sell as much as Dropbox. I thought it would be in great demand… (laughs).
― Maybe something unexpected happened after the launch?
Sasahara: I was able to see a different problem than the initial hypothesis, rather than an unexpected event.
The problems in the cloud-based contract business is that contracts should be grasped by aspects, not points.
Sasahara: At the beginning when I started, I thought that the problem to be solved by a cloud service for contracts was reviewing and creating contracts. It tends to be expensive to ask a lawyer to do this. That’s why I thought there would be demand from small- and medium-sized companies with limited budgets. So, initially we developed a “contract system that optimizes a series of processes from contract creation to approval, conclusion, and management.” However, this was an opinion expressed from my position as a lawyer.
With the launch, I realized that big companies actually had much bigger challenges. The “review check and create a contract” function that I was thinking about is only a small part of the contract process itself. Not everyone thought of that as a big pain point; in fact, serious challenges were hidden in the bigger picture of legal management.
Multiple contracts are created as circumstances change, and various departments are involved in a contract. As a result, unified operations cannot be organized, and no department takes responsibility. Therefore, the contract becomes like “a ticking time bomb,” and the situation is thrown to other departments where the problem is postponed. In that sense, I assumed this would be a bigger pain point for a large company with a lot of departments and employees. That’s why I wanted to provide a solution that could be used to optimize the contract flow.
― There are various operations in the contract flow for each company. It seems difficult to optimize beyond company boundaries.
Sasahara: As you say, the contract flow has various forms for each company, so it is difficult to unify and share.
In terms of startups’ standard tactics, I think that it is an area where one should not get bogged down, because it makes it difficult to understand Holmes’ service. In textbook terms, the service you provide should be a single function that is simple enough that it can be explained in a few words. James, who is a shareholder, may get angry if I say this in front of him, but if you really want to solve the problems related to contracts, you have to get stuck into the contract flow. I think short-term growth, where “the number of introductions increases,” is also important, but I would like to improve the quality of the product more drastically.
In the cloud contract market, people tend to rush to the world view that “drawing up a contract by e-mail is new,” but we want to fight on a different playing field. I would like to solve “contract problems” that go beyond departments, such as human resources, sales, and procurement on a wider scale. In particular, if we expand the options part of Holmes, like sales force, and work on solutions. The axis of Holmes remains the same, and I would like to approach the problem by expanding the field little by little.
James: There are few lawyers who get this excited when talking about a product (laughs). He has a strong belief in it.
– That’s right. However, you met Mr. Sasahara because you thought this was good. You two make a great team.
Startups and big companies: how to align perspectives that tend to be different
― From here, let’s address the topic of “encounters,” and please tell us about the business “encounters” between startups and big companies, that is, open innovation in Japan.
James: This is from the investing side perspective, but I think it’s better that the responsibility for investment and the responsibility for business strategy are completely separate.
A problem with open innovation is that there are cases where it isn’t clear whether the purpose of investment is “pure financial return” or “aiming for a strategic synergy effect and strategic return.” These two are often mixed up, and if so, I get the impression that I would be worried about how to evaluate them.
Pressure from inside the company may increase when, a few years after creating an open innovation department, specific business alliances have yet to be established. In such a case, if you have firm separation between investment and business strategy, it is easy to say that there was at least some kind of profit.
―It is necessary to clarify the final results and to share roles associated with these.
James: That’s right. This opinion stems from my own position, but if it is difficult to have an investment function in-house or it is difficult to make an investment decision, I think that leaving it to an external player VC is one option. Then, you will be able to see good deals for the VC side and create a relationship with the client side, and this portfolio could have synergies and could be linked to business alliances.
I think it’s better to increase M&A as well, because this leads to specific businesses. Of course, failure cases will also appear, but I think it would be nice if one company could succeed in acquiring 10 companies through M&A activity in a way that is close to startup investment. I think that you would be happier if you formed the idea that “it’s okay to fail when carrying out M&A and that not everything will be successful.”
― Mr. Sasahara, what do you think about this?
Sasahara: From the perspective of a startup, if you are working with “someone” who has a different culture in terms of open innovation, you should clarify the selection standard.
The influence of the culture and style of the organization you are collaborating with is great. Even if you choose the brand power of a so-called big company, or if you choose the place with the most variations and investment amount, either decision is fine. If you receive an investment, I think you must choose the value that the company itself will give you. For me, I thought that the human compatibility with James and the members of Coral Capital was very good, so “people” was the standard, but I think the standard is different depending on the situation.
― How can you make open innovation more exciting from the perspective of an entrepreneur?
Sasahara: In my opinion, cooperation with big companies is also important, but I don’t think it will happen just by having a signboard. This opinion is from the position of the startup, but if you adjust the timing of investment to the period of fundraising, that alone will help a lot.
The image of fundraising is rather like that of periodical agricultural migration. This isn’t something you do all the time, but once KPIs accumulate to some extent, you can go to various VCs in a short period of time seeking funds. Outside of that period, there will be a lot of extra administrative costs. It is also necessary to submit materials, and if, for example, the amount that can be invested is determined as an internal rule, you must also ask “what do you do with any variations?” If you receive the investment, there will be various adjustments to make with the shareholders.
― I would like to ask James this same question.
James: From the investor side, I think it would be good if the middle position between entrepreneurs and salaried workers increases. The risk is large when starting a business from scratch, but if you start a new business within a big company and then spin it out, the risk won’t be so high, even though the equity will be low. So, I wonder if it is better to increase the curve-out as it is. I think this form is suitable for Japan.
If the business manager leads properly, I think that even when reducing the stock share on the main unit side, you can continue the business while raising funds. Then, the investment will remain as stocks, and if successful, these can be bought, and if you are not interested in the main unit, doing an IPO may be a win-win approach that makes money. If the company is making such efforts, it will motivate employees, and if you enter this company, you can also take a position that is interesting because you can do new things. Sony and Gaiax are in that kind of place, right?
― The last question I would like to ask is about the period after the collaboration. It’s not limited to open innovation, but how can we avoid business disputes when players with different cultural backgrounds partner together?
Sasahara: Almost all business disputes originate from contracts, so I think it would be a result of optimizing contracts. The same is true of whether there is a contract and its contents. However, a contract is not “aspects” but “points.” A company requires countless contracts in order to function, including aspects such as businesses, people, sales, and purchases. In addition, there are countless rights and obligations in each of them. Among these, we capture one point and put it in writing, so even if we try to cover all matters with one contract, it would be impossible.
― A contract is not an all-purpose cure.
Sasahara: That’s why Holmes wants to create a “road” in the contract, a solution that will not only point to the destination, but also make sure that if you go along this “road,” you will go in the direction you want. An example would be a highway, right? As you go from Tokyo to Nagoya, there are several crossroads, but there are road signs, so you can see which road to choose.
I think Holmes can propose an ideal way to implement the optimal contract flow naturally by arranging everything related to contracts, rather than traditional contract design, such as checking a detailed manual to find out what to do.
― Mr. Sasahara said earlier that “we want to provide a solution that can be used to optimize the flow.” A company’s contract work must be viewed in terms of aspects, not points. The challenge is hidden there, and you have conveyed your desire to solve it. Thank you very much for today!
・By trusting each other as “people,” the encounters will give birth to further encounters.
・Holmes aims to solve “contract problems” in the cloud contract market.
・In “open innovation,” responsibility for investment and responsibility for business strategy should be separate, and the purpose should be clarified.
・When working with “someone” from a different culture, it is better to clarify the selection criteria.
・There may be more excitement about open innovation, as the middle position between entrepreneurs and salaried workers increases.