Bulletnotes from a panel of South East Asia’s Venture Capitalist Avengers

06 January 2017

VC Panel Organised by NUS Entrepreneurship Society

Points I really like are highlighted in Bold

Speakers

Tan Yinglan — Sequoia Capital

Arnaud Bonzom — 500 Startups

Lim Kuo-Yi — Monk’s Hill Ventures

Willson Cuaca — East Ventures

Moderator

Kelly Choo — Neeuro

What can you tell us about your investment thesis?

Willson

● Investors like NUS because of alumni (Carousell, TechInAsia, 99.co, Shopback)

VC is not investment business, but people business

● They like aggressive young founders

● Target Industry should be at least 10 billion

● Looking for disrupting traditional industries

● Typically startups capture around 25–35% of market share

● East Ventures focuses on founder and market

● If founder is good, product will be good

● Likes fresh founders, experienced founders take too long to plan

Kuo-Yi

● Likes passionate founders balanced with analysis, guts, drive and execution

Yinglan

● Article by Harvard Business School, Success rate of first time founder around 20%

● Second time founder 21%, what brings an increase in success odds is experienced mentors, 30–80%

Investors at Sequoia Capital are more like business partners

Willson

● When Tokopedia’s servers broke down they went to help

Yinglan

● When Gojek had problems, were there to troubleshoot

● And also, we didn’t know that mobile classifieds were amazing

● Didn’t know that ordering motorcycles was gonna take off in Jakarta

● Brainstorming sessions every year to analyze trends but know that most wins won’t be spotted by them

Arnaud

● Usually fund is for 10 years timeframe

● Invest first 2–3 years, spend the next 3–8 helping these companies mature

● (An exit can happen after few years)

● Think about exit and time horizon

● Reiterate that VC is a people business

● 500 Startups focuses on market, product and entrepreneur

● What separates good founders from the pack, work ethic

Yinglan

Guys like the Carousell founders that live on $2.50 mixed rice, and know by heart what time the last bus leaves from Blk71

Work on in-house hackathon for product features over the weekend for fun

Arnaud

● Guys like the Glints founders, whom he met at INSEAD who asked him for feedback

● Came back the next day, already done, impressive speed of execution

When is a good time for startups to raise funds?

Yinglan

● If you want money ask for feedback, if you want feedback ask for money

Arnaud

● If you’re a good founder, VCs will find you

Yinglan

● Sequoia was trying to chase down WhatsApp

● Found the founder in a coffee shop in Mountain View

● Wanted to meet with founder of Tokopedia

● He said he was on the way to Osaka to propose to girlfriend

● Booked the same flight to Osaka, sat with him in economy class

● Founder proposed to his girlfriend

● Softbank proposed to founder

● Sequoia proposed to founder

Willson

● If you want feedback go to Yinglan, I don’t like (giving feedback)

● 700 startups, so no time to give you feedback (for your startup)

● Know your industry, understand your value chain

● What pain points are you solving

● How to position yourself in your market, what is your niche

● Do you know your fundraising numbers — how much are you raising and why?

● The people who give you money are your real mentors (choose wisely)

Yinglan

● Shopback Founder Henry recognized Yinglan at Blk71 and wanted to pitch to him

● Was in a rush, told him to follow him to a Lo Hei (Traditional Chinese event also known as Yu Sheng) event

● Met and recognized Wilson, pitched to him

Kuo-Yi

Money is not the milestone, money is the accelerant

So many founders forget and just celebrate

● Every investor has their own style, do your research

Arnaud

● Fundraising is still a negotiation, don’t raise when you’re dry

● If several of the founders they’ve worked with before recommend same deal, will probably look at the deal

Yinglan

● Caveat, some businesses don’t need to talk to investors

● Example, dpreviews which got bought over by Amazon

● What questions should you think of when considering?

● Does your market have the size?

● What type of business are you running, venture-backed/bootstrapped?

Once you get the money, clock ticks faster, IPO, follow on financing

How do you value your companies?

Yinglan

● Willson is the best at this, buy low, sell high

● I wrote a book for this (Way of the VC) but it’s mostly not accurate

● Jokes that Softbank, Sequoia always pays too much

Kuo-Yi

● You want to avoid down rounds, flat rounds, investors dislike these

● Also demoralizing for employees

● That said: Do what you need to

● Think about what the business needs

Arnaud

● Take for example, jet.com

● Raised 140 million upfront to start a business

● Got acquired by Walmart 3.3 billion

Kuo-Yi

● But on the flipside, Twilio talked about 10x (target returns)

● Then later, 8x, 5x, 3x

Willson

● South East Asia has less data, than US, SG

● For US, SG can just pull data to value startups

● Analogy: buying a house

● Singapore: check portals to get market price

● Indonesia: ask neighbours, take average for market price

● Based on instinct and comparables

● Ask around for prices, take and average the prices

● If they accept the price, it’s probably average

● If they reject, it’s too cheap, or they are too expensive

Kuo-Yi

● Remember not to lose too much stake when you raise

● Different VCs have different motivations

● If the founder is weak but they like the idea, they might consider buying over

● If they want to motivate the founders to build big, might leave founders more share

Yinglan

If you have two offers and valuations, look for the VC that can bring more value

The higher valuation might not be the most useful to you

Arnaud

● Talk to founders whom the VCs invested in

● Talk to the founders who are winning, and the founders who are losing

● Ask the founders how the VCs are like when the going gets tough

● Because every VC will tell you that they will help — can they?

What are some tips for negotiation for startup founders?

Willson

● I don’t negotiate, this isn’t the fish market

● You should know the price you want, and why you need that price

● Example: Henry from Shopback approaching me during Lo Hei

● “I know you, you are from Indonesia, you do ecommerce”

● “This is my traction, here are the numbers”

● Impressive because he trusted me, knows integrity of East Ventures

● Sent him template term sheet

Kuo-Yi

Negotiation tells me a lot about the founder

Some VCs do pullback after the negotiation

Especially if you realise not a good working relationship

● Do you know the personality of the VC?

Yinglan

Don’t negotiate too much, affects the partnership

Sets wrong basis, starts off on wrong foot, lack of trust

● Also, look beyond the valuation numbers, see the terms

● I’m teaching a mod on this at NUS this term

Arnaud

● 500 Startups has a term for this, being founder friendly

● Know what you want, who you want in the round

● Are you going to tell your VCs, I have ten girls/boys, do you want to be the 11th girl/boyfriend?

● VCs want to feel special too

● Join Yinglan’s course if you want to learn more

Willson

● East Ventures wants growth, not slow profitability

Arnaud

● 500 Startups recognizes that the returns for the fund mostly comes from big wins

● (This is a similar vein off the talk the Dave McClure shared on slideshare and at Kopichat)

Kuo-Yi

● Peng and I handle 6–8 companies and not more

● We have limited time, and we know most startups not going to succeed

● Need to go for those that swing to the fence (baseball analogy — homerun)

Yinglan

● We want to be the world’s largest shareholders of the best tech

We know that not all startups will go to Silicon Valley

If you are fixated and obsessed, VCs will find you

Kuo-Yi

Most founders struggle at articulating a market (why is this market important?)

As a founder, you need to internalize size and growth

If you don’t understand why it can become big, why are you doing it?

Willson

Sometimes you only know the problem but not the model

● Only when you figure out the business model can you measure market size well

● What really matters is having smart founders — people able to learn really fast

● Smart founders know how to pivot and build products (or can learn)

● Start as a blank page, learn about corporate, management, etc

Arnaud

Some people are good at different stages

There are usually three stages of the company

(Product, Scaling, Innovating)

● Rare to see CEO growing as fast as the company

Kuo-Yi

● The best outcome is to see the founder taking the company as far as possible

● Founders embody the company the best

● Last thing VCs want to do is to change the founders

But best founders are also very self aware

● Mindset: “I’m done here, want to bring in someone better, and not be the bottleneck”

What are some sectors that you predict will be up and coming?

Arnaud

● Cheap deals for the next 12 months (Jokes)

Willson

● Financial Inclusion and Agriculture — infrastructure currently quite bad

Arnaud

● 500 Startups quite agnostic, look at the industries

● What is inefficient, where is there potential for improvement

● If three startups pitch same problem, it might be cause for further investigation

Kuo-Yi

● No bets, but couple of things he learnt

● Depends on luck, but it’s always a joy meeting and learning from new people

Yinglan

● Fintech, Nanotech was hot 5–10 years ago, but we avoided it

● We knew our level of understanding of those areas not great

● Don’t focus on what’s hot, focus on what you understand

● Example: Story about talking to Appier Founder at a hot spring in Taiwan

● “Why are you doing a game company when you did machine learning at Harvard?”

● Appier pivoted to AI analytics company

Actually when things are hot, it’s time to sell not invest

● Figure out your competencies are

Arnaud

● Be resilient, Story about BlaBlaCar

● Carpooling startup, went on for 5 years, flat growth

● Founder never gave up, now $1.5 billion dollar valuation

● Back then, why would you want to share car with someone you don’t know?

● Everyone thought that founder was crazy

● But if the founder is pissed off about the problem

● Passionate, willing to wait

When do you know when to pivot/shutdown?

Willson

● You shut down when you have no more money

● We run 100 startups, 20 shut down, 80 go on to subsequent rounds

● You can only pivot when you have enough money

● Don’t wait till you have only one month of cash left

● Track your data, spot if there’s any spikes/stumble onto something (potential for pivots)

Kuo-Yi

● Early phase is a series of experiments

● Be very clear on a few things, your assumptions, you must be clear and objective

Arnaud

● Example: Story about how Justin.tv eventually spun off Twitch

● Saw something happen because they were driven by data

● Saw a lot of people streaming games, thought it was weird but developed it

● Eventually bought over by Amazon

● Also, figure out your limit

There is a difference between enterprise bankruptcy and personal

● Had a friend from PWC who thought he was taking a risk

But change your idea of a risk — there’s a startup bootcamp in the US

● Tells founders to go get a job in 24 hours, any job

● Moral: whatever happens you can always get a job — maybe not perfect but still a job

Yinglan

● A lot of people dress up pivoting

● For example, we invested in both Colour and Instagram, who do you think would have succeeded

● Serial Entrepreneur or a 3 kids out of college

● Both were dealing with the same problem

● People get pivoting wrong sometimes

● Pivoting is not going from industry A to industry B (which they are unfamiliar with)

● It’s about creating or focusing on new subsegment

● Example: 99.co competing with PropertyGuru — decided to work with new developers

● New developers needed a platform, 99.co helped them

Arnaud

● Another example, Flickr was spun off the tools that a gaming company built

What is the difference between a bootstrapped and venture-backed startup?

Willson

● Depends on the company, analogy of a runner

Venture capital is like giving a runner steroids, but ultimately depends on the runner

● Steroids on bad runner might still lose to a good runner who is clean

● That’s why you raise money, more ammunition

● Also consider if your competitors are taking money

● Can you outcompete them if you bootstrap?

● How long you bootstrap really depends on your business

● Also depends on what market you are in and the competition you are facing

Yinglan

Additional things to consider: Is the industry, a winner take all kind of industry, or winner take most, tech vs F&B example

● Is time your friend or enemy, will people still use your service if you don’t dominate straightaway?

● Example: F&B, people will still eat your food even if you don’t dominate

Arnaud

Sometimes it’s also a viable strategy to not disclose how much you raised

Or you might delay press to get an advantage over competitors

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