At the Global Startup Fest 2022 organized by Ngee Ann Polytechnic’s Global Innovation Alliance Office, venture capital (VC) experts Looi Qin En, Principal at Saison Capital, and Leck Ting Yan, Partner at TRIVE Venture, shared with alumni and students on their experience as a VC. Read the interview below to learn more!
Give us a VC101.
Q: You take money and make more money out of it.
T: I’ll add on a little more. You go to rich people, ask them for money to let you decide what to do with that money, and you promise them that you’ll return more. It’s a fundamental premise of fund managers but applied to a very specific type of asset class.
How do we earn money? We charge investors an annual management fee. From the pool we receive from them, we take a cut from the performance profits as well. Our aim for the funds we manage is a multiple of what was first invested, for example, from 100 to 500 or 600 million dollars. We then receive a percentage of the profit.
Tell us more about your verticals!
Q: For my company, the two verticals we’re interested in are FinTech and Web3. Saison Capital is a corporate VC. Our parent company is the number one credit card issuer in Japan so we understand FinTech. We understand how to help such companies grow, how to talk to banks and relevant players in the industry, so we can bring more than money to the table.
Southeast Asia is a hot spot for many Web3 companies. The biggest of it is Xfinity … For Web3, the most interesting (development) is how people in the region will understand financial concepts and financial inclusion. Previously, the banks have been working hard to reach out to these people; they park their cash with the bank and in return earn 1% interest. But they have to go through a lot of trouble just to do this. We don’t think about it as much in Singapore because cash is readily available with ATMs all around. People living in Tier 2 or 3 cities however, have to travel long distances to deposit their cash and in the end only earn 1% every year. It just sounds ridiculous. But because of Web3, this process is changing rapidly. People are now able to receive a higher yield, though of course at a higher risk. But there are more channels and ways for them to participate.
T: TRIVE invests in an intersection of high-growth tech startups and positive social impact (in terms of health and wealth) … largely in Southeast Asia. So sectors we loosely cover include agrifood, healthcare, education, future of work, and by one degree of separation, supply chain and manufacturing because a large section of the workforce are employed within this sector.
The focus of the impact is not so much on the environment, but more to do with people. A couple of our better performing portfolio companies in the agri space for instance, increase a yield of up to +60% over existing methods. We have a food tech company that makes packet foods healthier with lower fat, lower GI, sodium, etc. We’re looking a lot at the education space as well, supporting careers through education.
Complete the sentence: “A VC is a _____.”
Q: A VC acts as an advisor or employee of a company’s founder/s. We want to be helpful, but we don’t want to lord over them telling them how to run their business. They are the ones who spend 12 hours a day serving their customers; there’s no way we can know that better. But I think the founders who understand this relationship use the VCs strategically. If you’re looking to build a FinTech product, come talk to us. But if you want to expand into, say, the Chinese market, go talk to someone else. We don’t know how to do it. It’s about understanding and using the strengths that your investors come to play.
T: We function like a coach, or cheerleader at times because entrepreneurship is hard. Our teams also help to do forecasting, research, and draw trends and patterns from other markets which they can implement in their business, but.. They should know better and say “OK, I’ll take this and fit it into my business because that’s what the market is telling them.”
What are the key aspects you look for in potential investments?
T: At the first interaction, we’re looking for a company’s ability to articulate product market fit. Do they understand who they’re going after, the challenges they’re facing, what alternative solutions are currently used, and why theirs is so much more amazing? That’s the first cut for us. If their solution isn’t multiples better than those in the market or only incrementally better, that’s not something we see as VC-backable. The next thing we’re looking at is market size, because that determines how far the startup can go.
At TRIVE, we take a slightly different approach. We’re happy to work with startups over time, guiding and mentoring them over a three to six month period for us to do two things. One, build rapport with the team so we have a good relationship if we eventually invest. Two, test their tenacity. I believe a lot of startup founders like Qin En here are very smart and have a lot of opportunities. But when the startup hits a wall, will they continue or will they look for other opportunities? … If they want to continue, that gives us a lot more confidence to invest. This is speaking from experience. We’ve had founders give up and it’s hard to explain to our investors.
Q: For founders, being open and receptive to feedback is important. Of course, there’s no doubt that the founders are experts in their respective fields and it’s not for us to tell them how to run their business. But because we meet many companies, there are a couple of things which we do see. So being open and receptive is critical regardless of what their background is.
So… What sort of companies are suited for a VC?
Q: I think the media portrays the goal of VC funding as raising millions of dollars in a company’s early stage. First and foremost, only a very small subset of businesses out there are suited for VC. There are many other businesses out there that can be great businesses, but not great for VC. You need to think very critically on why you need the investment, and who you’re receiving the money from. That will impact how you drive the business. For example, no VC is going to back you if you want to start your own ice-cream business. But you could perhaps find a few high-net-worth individuals who can put some money into your business, and you pay them a dividend when you make a profit. So you need to be clear on what business you’re in and who you want to partner on this journey so you don’t waste time chasing the things that don’t matter.
When you talk to someone who’s in VC, you don’t really talk about breaking even but how fast you can grow. That’s the mindset of VCs; we want your value to be five times, 10 times more within the next 12 to 18 months. Realistically, not all businesses can do that and that’s why not all businesses can be backed by a VC.
T: If we’re looking at growth rates and trajectories, it’ll be short-term, high growth numbers. When we invest in companies in the seed stage, most of the companies are valued at around 10 million. But I’m looking at companies with the potential to, three to five years from the point we invested, hit valuations of 300 to 500 million. If your company or the way you choose to operate your business will not be on this growth path, then look elsewhere for funding because a VC is about hitting such returns.
How should I raise my first round of funding?
Q: One advice that always seems to work is whenever you ask for money, you get advice. Whenever you ask for advice, you get money. If you ask someone for money the first time you meet them, the relationship will feel transactional and it’s much harder to build trust that way. If you believe raising funds is the best path for your business, the logical thing to do is to find out who the people you want to work with are and get to know them. Once you’ve built these relationships, these advisors or mentors will usually be the first cheque in. That’s pretty much the way I did it when I was just fresh out of National Service. It’s tried and proven.
I had no work experience whatsoever. In fact I had less of a relevant education than most of you. But what was helpful was understanding who to partner with. When the time came for my team to raise money, the conversations were much easier because the investors understood us and our vision.
T: A lot of startups which we eventually invested in came to us early. If you’re thinking about raising money, you must understand that it’s a process. It takes time to build trust in you. For companies that just started, there’s no traction. There’s no real, “Oh hey, we have a two million annual run rate.” There’s none of that. So what you need is time to showcase that you can be trusted, that you know what you’re doing, that you’re working hard. And then use your results over a period of time to convince investors.
We’ve worked with startups from way before, even up to nine months prior. They transformed from an ice-cream company to a food tech company. It shows the team’s ability to be coachable; they have a good head on their shoulders to think about growth and capturing markets; they’re tenacious. All these things take time. So if you’re fundraising, don’t come to me and say, “Hi, ATM please.” Nobody likes that relationship.
Qin En, you’re a startup founder turned VC. Was the prior experience helpful?
Q: Having once been a startup founder, the experience is helpful now that I’m on the other side of the table. I can understand what the companies are going through … The advice I’ll give is, if you’re pitching to investors, think about the one or two superpowers your team has that would make your business work. There’s always a thousand and one reasons why a business would fail. As VCs, we invest because we believe these one or two strong suits will work out for you. It’s these strengths that make you the right person to build this company. So think about that, and don’t think about covering all your bases because you’ll never cover all of them; there’s no way you can be good at everything. But if you can be very clear on what you’re good at and double down on that, that’ll be beneficial.
Perhaps you’re great at storytelling, so make sure you tell a great story and raise lots of money and attract lots of customers. Or maybe you’re a very good hacker; make sure you build the best product that’s out there. But be clear of what’s the one thing you’re strong at and play it out.
What would you tell your 20 year old self?
T: I tell my team this from time to time. As VCs, we’re providing the capital. But if you think about it, we’re those tiny fishes swimming underneath the big shark. A lot of the work is done by the founders; they sometimes even have to take risks on a personal level. So any success comes from the founders and their team. We have to be very respectful of that. Remember the value they bring and be careful with how we say things.
Q: The one thing I’d say is go for the path with least regret. There’ll come a point when you have to decide if you want to go all in or all out. I can tell you for a fact that no one has built a successful company part-time. I’m very happy to be proven wrong, but I haven’t met such a person. There’ll come a point when you have to take a leap, and it’s going to be a hard choice especially with Asian parents breathing down your necks. For me, that meant leaving Stanford and giving up a government scholarship to build my company. As you can imagine, that wasn’t cool with my parents but I had absolutely no regrets. Just be clear that at some point, you’ll hit that crossroad if your idea takes off in the entrepreneurial journey. When you reach that point, ask yourself what is the path that you’ll regret the least and make your decision from there.