Jarlon Tsang, Hong Kong-based managing partner, Asia at Eight Roads Ventures, says one of the focuses of the firm’s new $275 million fund is to find Chinese fintech companies in emerging B2B areas.
Tsang tells DigFinthat mobile payments and peer-to-peer marketplaces can be overcrowded or overplayed. “B2C companies tend to be expensive and over-invested,” he said.
Eight Roads wants to find companies in cross-border payments, and in other business-to-business enterprise fintechs that play to the strengths of Fidelity International Limited, the investment firm behind Eight Roads.
These include insurtech, as China’s private-sector healthcare industry grows; and companies addressing investments-related fields such as defined-pension schemes (known in China as enterprise annuities).
Tsang is not against payment plays in China. Eight Roads was an investor for eight years in Huifu Payments, which last month went public in Hong Kong. (He says he is happy with the company’s pricing, noting that the IPO came amidst a downturn in global equities.)
The company has also invested in PingPong, a Hangzhou-based payment facilitator for China-based ecommerce sellers; Eight Roads participated in both Series A and Series B rounds.
“We feel the next wave [in payments] is crossover post-payments or cross-border,” Tsang said, as opposed to mass retail mobile payments.
Winning over B2Bs
Eight Roads was established and continues to be led by Daniel Auerbach, the firm's managing partner.
It invests primarily for financial returns, Tsang says, but it can have a strategic side. In some cases this could involve a company that interests Fidelity. But Eight Roads also competes for deals by emphasizing its parent’s capabilities.
“In B2B enterprise tech investment, you need to be an expert,” he said. “We can do proofs of concept, or take companies to meet our technology and procurement teams, and help them understand if they are meeting a real financial enterprise need.”
The next wave in payments is post-payment and cross-border
Unlike most other local venture funds, Eight Roads can hold positions in companies for long periods of time, because it can continue to invest by establishing a new fund as older ones reach maturity. Having a sole LP makes this possible. “Our structure allows us to continue to invest in a company through its full development irrespective of fund life, and B2B companies can have long gestation periods.”
Eight Roads has been an investor in Alibaba for 19 years, he notes.
The fintech vehicle is Eight Roads’s sixth fund in China. Previous ones have focused on areas such as healthcare or tech, more broadly. Through these it has stakes in 85 companies in China.
Tsang says the market is maturing and now allows for a firm like Eight Roads to launch more such targeted funds; one reason he agreed to speak with DigFin was to showcase Eight Roads’ B2B experience to companies in the field. “We want entrepreneurs to be aware of our specialty,” he said.