Takahiro Hayashi won his first nationwide title in shogi—Japanese chess—while still in high school, and by the age of 22, he was the world amateur champion. His coaches were urging him to turn pro.
But Hayashi wanted to be an entrepreneur, not a chess player. And so, in 2009, he found himself in a room with some local venture capitalists, presenting a 120-page pitch about his social game firm. The financiers kind of tuned out.
“One of the investors told me that he didn’t really listen to the explanation of our business plan,” the 41-year-old Hayashi said in an interview at Heroz Inc.’s headquarters in Tokyo. “He said that ‘You’re a world champion, so you’ll work something out.”’
Record Debut
In April, the company listed on a startup market on the Tokyo Stock Exchange. It was a record-breaking debut. The shares opened 11 times higher than the IPO price, the best ever start of trading by a Japanese listed company. The stock has almost quadrupled since going public.Deep Blue
Heroz released its game “Shogi Wars” in 2012. The following year, the company’s artificial intelligence engine became the first to defeat a professional player of Japanese chess. That was about 16 years after Deep Blue, a chess computer created by International Business Machines Corp., beat then world champion Garry Kasparov. Shogi is more complex than chess because pieces return to the board after being captured, increasing the number of move permutations that must be considered.After building the new Deep Blue, Heroz used the deep learning and machine learning skills it acquired to expand into other areas—everything from construction to financial services.
It couldn’t have come at a better time. The AI industry is expanding rapidly in Japan, where a shrinking workforce is causing the tightest labor market in decades, creating an opportunity for companies to use the technology to help fill vacancies and improve efficiency. The Japanese AI market may top $18 billion by fiscal 2030, a more than sevenfold increase from fiscal 2016, according to Fuji Chimera Research Institute Inc. estimates. “There’s huge potential,” Hayashi said.
Construction, Software
Takenaka expects to reduce the routine work associated with designing building structures by some 70 percent, giving its professionals more time to focus on being creative. It aims to develop a prototype of the AI system by the end of this year and put it to use by 2020.“Structural design is a lot like shogi in that you’re choosing the best of various options,” said Hirokazu Yoshioka, the head of technology planning at Takenaka. “So Heroz is the perfect partner for the AI system we want to make.”
Heroz has also formed a partnership with Tokyo-based Digital Hearts Holdings Co. to use AI technology for software testing. If all goes to plan, the AI engines will learn by themselves the best way to test programs.
Shorts Gather
With all the excitement about Heroz’s stock, valuations have gone through the roof. The shares trade at almost 40 times book value and more than 215 times earnings.Short sellers have been descending. Short interest stood at 59 percent of the free float as of Aug. 13, according to IHS Markit data. That’s the highest level among the 253 companies in the Mothers Index of emerging stocks.
“It’s overvalued,” said Mitsushige Akino, an executive officer with Ichiyoshi Asset Management Co. in Tokyo. “It’s an excellent company, but people’s expectations are too high and the shares have gone up too far.”
Heroz now has a market value of 59.4 billion yen ($534 million). That means Hayashi and his co-founder Tomohiro Takahashi, who each have 37 percent stakes, are each worth almost $200 million from their shareholding alone. The market decides the share price, so it’s difficult to comment on it, Hayashi says.
But he does have one target in sight. The sixth-dan shogi player, generally the highest rank for amateurs, wants Heroz to become the next Japanese company with a market value of more than 100 billion yen.
“When we founded Heroz, we told investors that we wanted to create a 100 billion yen company,” Hayashi said. “It’s not worth doing if we don’t grow to that level.”