Fund focus: Eight Roads fund targets Japan tech

Eight Roads Ventures says that artificial intelligence, big data, and analytics, as well robotics have proven increasingly valuable in its portfolio due to their potential to facilitate automation. As the GP launches its second Japan-focused vehicle, this trend is expected to be amplified by a unique cultural reaction to the local aging crisis.

The firm – formerly known as Fidelity Growth Partners – has launched the vehicle with a corpus of JPY25 billion ($223 million) provided entirely by its parent, Fidelity. Like its predecessor, Fund II will focus on technology, but is tipped to benefit from heightened urgency around a dwindling Japanese workforce and a relative lack of sensitivities about replacing human jobs compared to other developed economies.

“This is one of the few countries where you can say, ‘We’re going to have robots replace 10% of our workforce in three years,’ and the labor unions say, ‘Great idea, we’re looking forward to that,’” says David Milstein, a partner and head of Japan at Eight Roads. “That’s because the labor shortages here and the challenges around hiring are so severe. People are going to be more welcoming to technologies that are driving efficiency and that’s going to drive innovation.” 

The fund will invest in about 20 companies with deployments of JPY500 million to JPY1.5 billion and potential for follow-on investments in larger, more successful companies. Target segments include financial technology, energy, space industries, new materials, content and media, and agricultural technology.

Inbound tourism is also expected to attract attention. Eight Roads says the 2020 Olympic Games in Tokyo will not be just a one-time tourism crescendo, but part of a steadily expanding market already being leveraged by the likes of Retty, a Japanese restaurant booking app in the Fund I portfolio.

The most noticeable distinction between Funds I and II will be a heightened focus on healthcare. Eight Roads has yet to make a healthcare IT investment in Japan, but considers it a prospective area in light of aging pressures.

More immediate opportunity is seen on the services side of the sector, where deal flow is expected to be driven largely by niche clinics. Eight Roads says specialist healthcare service providers generate better patient outcomes through focused repetition, which in turn defines them as more viable, best-in-class investment targets. The firm also sees medical devices as a particularly promising investment area in Japan thanks to the relative strength of the local research and university scene.

“There are a lot of markets around the world that are aging, so we look at this in terms of being ahead of the game in dealing with the issue and finding investment opportunities that will be leverageable across our global team,” says Milstein. “[Aging in Japan] is something that’s going to play out for 15-20 years, but it’s accelerating down the track, so getting out ahead of it is important.”

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• Topics
• North Asia
• Growth
• Technology
• Fundraising
• Japan
• Eight Roads