Japan’s Emerada lands $1.8M seed round to create financing marketplace for SMEs and startups


See the original story in Japanese.

Tokyo-based FinTech startup Emerada revealed on Wednesday that they have raised 200 million yen (around $1.8 million US) in a seed round. This round was led by D4V, the joint venture by US-based design studio Ideo and Tokyo-based investment fund Genuine Startups, with participation from two major unnamed financial institutions and several unnamed individual investors. The company says it will solve the problem of information disparity in funding and financial affairs that is unevenly distributed among smaller companies and startups.

Emerada was established in June of 2016. Beginning with CEO Taiga Sawamura, and extending to many founding members and directors, it is a startup comprised of investment bankers from Goldman Sachs and others.

During Sawamura’s days at Goldman Sachs, he had many opportunities to solve the financial problems of large businesses from the standpoint of an investment banker. These large enterprises often have bright, dedicated graduates of business school to serve as treasurers and raise funds, while there is also an abundance of investment banks to add their expertise and propose solutions. It can be said that both the side providing the advice and the the side receiving it thus have a high financial literacy.

Meanwhile, from the viewpoint of cost effectiveness, general investment banks do not often take on smaller businesses or startups as customers. Even if such businesses and startups had the opportunity to receive advice from investment banks, there is a possibility that there may not be anyone in the company with enough professional knowledge to understand it. In other words, we can say that smaller businesses and startups are undeveloped in the areas of raising funds and solving financial problems. Sawamura’s strategy is to take advantage of this need.

From here on, please understand that the following information about their business content is not concrete yet and subject to the approval of the Japanese Financial Services Agency.

Emerada offers two kinds of financing options for smaller businesses and startups: debt and equity.

In terms of debt, it will be a P2P (person-to-person) lending marketplace that connects lenders and borrowers of funds, but it does not cover areas like social lending where banks cannot approve credit. Funding Circle (UK) and Lending Club (US) are similar. In such an environment, investors are more likely to make business-like loan decisions, since the funds being sought are securitized.

Funds are mainly provided by institutional investors, and there is a possibility that financial institutions may be included (noticeable in Lending Club, etc., with indirect financing players moving toward direct financing). It is unnecessary for institutional investors to return excessively high loan interest rates if a convincing explanation is given to the balance between risk and return, so it will not be a two-digit percent interest rate as seen in social lending. They are aiming to develop a system that enables customers to quickly and efficiently undergo the process from credit to loan execution, while following those built by banks over many years.

Regarding equity, it seems that it will be in the form of crowdfunding by stock investment, including the context in which individual investors support companies. AngelList and FundersClub are two American companies doing similar work. According to Sawamura, from his role of filling a gap in the startup ecosystem, it may be better to realize an angel investment platform that anyone can participate in and startup-focused investment trusts rather than supporting general small and medium sized businesses.

Emerada plans to start testing their debt service in the second half of 2017. For equity services, they are aiming for a service launch in the middle of 2017.

Translated by Amanda Imasaka
Edited by Masaru Ikeda