Founders Doc: Inside the Mind of a VC: Founder to VC Wisdom with Jeremy Au

· Press,VC and Angels,Podcast,Harvard

Jeremy Au and Rachel Wong discussed the value of an MBA in business, the transition from being a founder to a VC, and fundraising challenges. Jeremy shared insights on the seed fundraising process, the importance of valuation, and perspectives on legal terms from both the founder and VC viewpoints. They also touched on the Southeast Asian startup ecosystem, comparing it to Silicon Valley, and the need for localized strategies. They also talked about "BRAVE Southeast Asia Tech Podcast," emphasizing its role in highlighting Southeast Asian stories and perspectives.

Check out the episode here and the transcript below:


(00:00) Jeremy Au:

Well, you know, who are the worst VCs to work with on a legal basis, right?

(00:03) Rachel Wong:

Hey guys, welcome back to Founders Talk. I'm Rachel, your friendly startup lawyer, and in this video, we have a very special guest, Jeremy Au.

(00:13) Jeremy Au:

Hello everyone, good to see you all. So a little bit about myself, I went to UC Berkeley, studied my undergraduate there. on technology, economics, and business. Then after that, I went to Bain to work as an associate consultant across Southeast Asia, primarily on consumer and tech.

And then after that, I went to build my first company, which was a social enterprise, a consultancy for the social sector, grew that out to over a hundred clients. And I eventually went off to Harvard to do my MBA. Then there, I built a second company in education tech gritted out across pre seed, series A, expanded that across Boston and New York, and eventually sold the company.

And then eventually, um, after a year as a GM there, I went and returned back to Singapore and became a VC at Monksville Ventures. In parallel I've also set up a podcast during the pandemic called the Brave Southeast Asia Tech Podcast which you have been a guest on it's just a couple of great episodes.

And yeah, happy to share about my experience today from the founder side, from the VC side, and as an ecosystem builder side.

(01:04) Rachel Wong:

So I guess the first question I have for you, Jeremy, is does the MBA actually help you in the business building process? Because I think some of the founders. Would have considered hey, i'm working in a very nice mnc at the moment Do I have to do an mba course in order to be an effective business person?

(01:20) Jeremy Au:

The short answer is yes, you know, the mba Fundamentally is a school where he has the professors The academics and the curriculum and the network to help you, you know get To where you want to be, especially in a business domain. So for myself, I had been at Bain as an associate consultant. And so that was a dream job for many folks.

And I realized that was not the dream job for myself. I was rejected from Bain.

(01:39) Rachel Wong:

Oh, okay. They did this arithmetic test for me and I just sat there with my primary school model and the guy just looked at me and he's just like, nah, you're not going to make it. Oh no.

(01:50) Jeremy Au:

Yeah. You got to practice for that, unfortunately. And so I think there's the awkward reality is that I had a job. I enjoyed it. I really enjoyed the people there, but I just felt like I wanted to do more on technology and frontier Um, so that's one side of it And then I had gone off to build social enterprise and I realized that I really enjoyed it as well But I also wanted to do something a little bit different.

So I think The Harvard MBA program allows you that space to think and they surround you with resources, role models, and great professors who are really there to help you, I think, navigate your career track from one where, you know, you're climbing the ladder in a little sense. So saying like, okay, what ladder do I want to climb?

So be it being a founder or something else in a business domain. But what's been interesting to see over the past five 10 years. And as you start looking at different alumni, people start to really kind of like click, which is to find out what career you want to have now and also how to accelerate. And so it's interesting to see that our network, our cohorts are starting to become

(02:38) Rachel Wong:


(02:39) Jeremy Au:

Oh, not necessarily, you know. Some people will get there. I think that's inevitable. It's just that some of us also realize, you know, it's just talking to someone, it's like, we have other goals, right? Some of us have goals for family. Some of us have goals for business of our own. So I think it's just been interesting to see that, but the value of the network is improving. So I think it's one of those things where I think you have the opportunity to go to a, you know, a top three MBA. I think take the opportunity and go for it.

(02:59) Rachel Wong:

So Jeremy, could you share a little bit more about What the seed fundraising process was like, what were your considerations when you chose a safe instrument versus, you know, a convertible loan or a price round? And what was your experience like? Was it difficult to pitch or was, you know, money quite easy then?

(03:15) Jeremy Au:

Yeah. So, I think what was interesting was that, you know, we had done a safe round for the pre seed and that was primarily friends and family. And so it was a relatively tight dynamic. We obviously did go out to pitch to angels as well.

And I think it was very much. Like many first time founders learning the ropes about how to fundraise as well. What was interesting was going to second stage for the seed was, you know, pitching to institutional seed VC funds, um, in the U. S. in the U. S. and New York and SF. That was a different experience because Then you move away from, you know, friends and family who are just willing to sign.

(03:44) Rachel Wong:

I need your friends and family.

(03:45) Jeremy Au:

Well, I mean, they trust you, right? So then, you know, that's the conversation that you have on that side.

(03:49) Rachel Wong:

What were the terminologies within your first fundraise which tripped you up a little bit?

(03:53) Jeremy Au:

Yeah, you know, I think the question that was always top of mind was really about valuation.

(03:59) Rachel Wong:

So yeah. I get that from my clients as well. All they care about is valuation. Everything else is same.

(04:03) Jeremy Au:

Everything else was like, okay, is this normal? And then I'm like, you know, representations or waivers. Oh, okay. It's a normal. Yeah, sure. But it was very much, I think the top line in terms of like, frankly, is this a high valuation or is this a low valuation?

Because I think it's actually quite straightforward to think about it, which is that at the end of the day, you're selling a percentage of your company, right? And so for cinema money. In cinema evaluation, you give away a slice of the company. And so obviously if you've been in a company, how much is that worth versus the cash that is there?

I think it's a very amorphous and obviously a tangible thing to negotiate, but also actually quite symbolic as well, because, you know, you know, you want it to be higher because I feel like an owner and then so, so far off. So I think the interesting dynamic where now that I've been both a founder as well as a VC on the other side of the table.

I think I have a very different view of how that process goes now.

(04:48) Rachel Wong:

But you mentioned something quite interesting just now. You said that your perspective about certain things change as you become a VC founder. What were some of the perspectives that changed for you as you moved from a founder to a VC?

(04:59) Jeremy Au:

You know, I think one of the first things that we had to do as a VC was kind of look at the standard legal package that we're going to write and assign. And I remember looking at this document, I had seen this document obviously from the perspective of a founder. And we're discussing with the lawyers and the VCs, and I realized I was always consistently on the side of the founder because I had this perspective of the founder.

And what was interesting was to learn from the VC perspective of what those valuation control rights actually mean for the VC itself. For me, the biggest realization is that VCs do have a business responsibility, a fiduciary responsibility to the LPs to make money and to be betting on the future and to be compensated fairly when there is power law event, but also to be able to wind down gracefully in the majority of default scenario, which is that the company shuts down or effectively closes down gracefully.

And so there's an interesting set of debate around valuation, which is more about how to get control. I have shared upside and then there's on the other side of control rights, which normally when things are going well, you know, control rights are not really important. And then when things are going badly, that control rights become very important.

And so I think from my perspective, I think the lens that I got was at the end of the day, I think something magical happens when you have a great founder and a great VC is that, you know, you're creating more pie, right? And so it's very fair to figure out how to share that pie and you can be afford to be generous in how you share the pie, but also be generous about the fact that.

You know, you don't need to exercise those control rights. So I think that's one dynamic that's pretty important.

(06:18) Rachel Wong:

What are the different terminologies that you see in the documents as well as your hopes for the region?

(06:24) Jeremy Au:

You know, the reality is that Southeast Asia is an earlier, less mature ecosystem than San Francisco.

I mean, when I was in the US, everybody knew that San Francisco was the most mature ecosystem. And then New York was catching up and then Boston was another tier below. And so I think let's have that frank conversation, right. That we are not Silicon Valley.

(06:43) Rachel Wong:

We are better than Silicon Valley.

(06:44) Jeremy Au:

Yeah, well, I would say maybe not. I think there's a lot of great opportunities because a lot of fundamental problems in Southeast Asia, right? You know, we need to build more infrastructure. We need to build up more food. We need to build up more energy. We need to build up more of our digitization, our services, our consumer dynamics. So there's a lot of fundamental opportunities that are really open right now for Southeast Asia.

It's just that we acknowledge that the technology system, the capital funding ecosystem, the talent ecosystem, is just an order of magnitude earlier than that of Silicon Valley. And so I think it's really important for us to be thoughtful and just kind of say like, hey, you know, the Silicon Valley playbook doesn't play well necessarily in Southeast Asia, if you're not aware about why it's being done.

And the truth is, you know, Silicon Valley is pumping out all this top leadership. Yeah. And at some level I'm just like reading something and I'm just like. Wait, does this work here? Grab and Gojek were able to be localizations of Uber. Yeah. They were fundamentally tackling the question about how do I get from point A to point B.

Yeah. And how does something travel from point B to me at point A. Yeah. So that was a fundamental insight that they. Took from Uber, but what's interesting is that Grab and Go Jek were able to out compete Uber because they were better localized and they said, you know, this is a part of the playbook that doesn't work.

You know, we have to work with Go Jeks. We have to work with local devices, local culture requirements. And so I think that's an easy aspect about thinking about that. And then I think the companies that are starting to survive are those that quickly figure it out and said, okay, how to localize and adapt and keep the things that's actually working and drop the things that's not.

(08:16) Rachel Wong:

Thanks Jeremy for sharing all these perspectives. My final question for you is you've been doing lots of podcasts and obviously that requires a lot of effort. What is your aim and your goal with this podcast?

(08:26) Jeremy Au:

Coming back to Southeast Asia, I realized that. That diet of podcast was very American centric and there was really nothing that existed in Southeast Asia about Southeast Asian stories with a Southeast Asia lens.

And so from my perspective, I was at some point was like, you know, being entrepreneurial, I was just like, you know what, I'll do it myself. And so I remember the first 50 episodes was just me in the pandemic, just recording episodes with my friends, right? My former co founders, past people in my network, people I respected, my old mentors.

And then for some reason. People liked it, and then I kept going, right? I think about it as, I want to keep going as long as I keep enjoying it. Because at the end of the day, I'm still always the first listener of every podcast episode. I think that I really want to follow my curiosity, and talk to the people I admire, and be inspired myself by those stories.

And I just happen to record them, and so other people get to hear those stories as well. Super.

(09:16) Rachel Wong:

Before you leave, what are three questions you might want to ask me since? This is part of your podcast too.

(09:21) Jeremy Au:

Number one, what is the bell curve of terms that you see across your companies? So not necessarily what standard, but I thought that was a great report that I got to see in the US.

They were able to identify what percentage of the fundings they saw. They'll be like, okay, 20 percent had this clause. 50 percent did not have this clause. 30 percent had a weak version of this clause. So for me, I'm kind of curious if we were to go close by loss. Yeah. What's the shape of that?

(09:44) Rachel Wong:

The bell curve is like this and my arm is not long enough

But I think that what you mentioned just now made a lot of sense. I think a lot of lawyers look at their documents and they look at the terms that they are thrown at that particular transaction. But there were two things that you said during this episode that makes my mind kind of tick. The first thing is.

Looking at these terms from the founder's perspective on what is important. You said valuation is the most important. So maybe creating a Chart of like, okay What are the seven key things you need to look out for in your term sheet in terms of priority could be helpful and number two Be common denominator.

So obviously that bell curve will look different at different Economic junctures right just taking the last three years as an example We have seen the same amount of money Being wired, but for very different terms. Just using Boardsi as an example, we can see 15 million U. S. dollars being wired to our client with zero abort seats.

Yeah. And that's not to say that there was no governance in place. There were information rights that the investor will ask for. From their perspective, this is a small deal and they did not want a board seat because it also perhaps on the flip side also exposes fiduciary duties to them as well. On the other hand, we had also very small check sizes like 800, 000 demanding two board seats.

Yeah. To answer your question, huge bell curve. But at the end of the day, founders only care about valuation, so Yeah. Second question.

(11:04) Jeremy Au:

If you are a company, for example, in Manila, but you're running domestic operations, I'm just kind of curious, what percentage would go for the US, what percentage would go for Singapore?

How would the whole core be structured? Yeah. And what would be the operating company be structured as well?

(11:17) Rachel Wong:

I mean, because I'm a Singaporean, I have to say, yes, incorporate your company in Singapore. The key considerations founders might want to have at this point Yeah. Because once you incorporate a company in the U. S., I think your tax considerations become a heavy part of your day to day operations. The second key thing to think about is the tensions that's happening globally. It's probably something we cannot be PC about And it does impact people's decision to invest in your company as well as how they want you to structure your transaction So choosing a pretty neutral jurisdiction like singapore is helpful because I think for now we are sort of like the Switzerland in Southeast Asia and for now it is still quite safe to have your holding company in Singapore and still be considered a neutral zone.

So from that perspective, that is helpful. The only slight downside I would say is when it comes to listing or perhaps raising funds from investors in the U. S., they may expect you to have a company incorporated in the U. S. Both for their own tax purposes, as well as for the potential exit plan. But I don't think that is something that you have to worry in your pre seed to Series B stages.

Because that is something you would want to consider as a restructuring process as you approach your exit. Third question.

(12:28) Jeremy Au:

Well, you know who are the worst VCs to work with on a legal basis, right? But you know, I'm just saying that what's the bad behavior that you see in from VCs without naming names?

(12:36) Rachel Wong:

Yeah, I'll name them. I'm just kidding. No, I think most of the VC funds start with good intentions and obviously they have their own LPs to report to. A lot of the VC fund founders themselves have pumped in money. To build the company or build the fund, right? So they've got their own money in the line as well, but there are perhaps two general observations The first observation is some of the VC funds are quite young So they were still figuring out how they wanted to treat their portfolio companies what sort of terms they wanted to use I think the ones that made me feel highly uncomfortable were VC funds who not their fault perhaps the fault of The legal counsel they're engaging Who use private equity deal terms to dictate the vc deal because private equity deal terms are also investment documents But they are premised on a large stake like we're going to invest 100 million in your company for 40 percent of your company and then we So, um, I think it's really important for us to make sure that we expect an exit within seven years on the premise that this is a company that actually generates revenue and profit when we invest in you.

So, the investment model that VC and PE funds operate are quite different, and the investment documents that are used for PE deals should not be used for VC deals. That's just my personal perspective. The second thing is, on perhaps the hires. So, not just VC funds, but maybe some of the incubators. The founders started with good intentions, and I'm sure the people that they hire to also operate with good intentions.

But when they do hire people who don't have experience either in starting a company or investing in companies, they sometimes give ridiculous terms to the founders. And then they wear the, I'm a VC. Label to bully them. Oh boy. Yeah, so i've seen behavior, which I don't think is like really Encouraging or i've seen founders being sort of like feeling they're very cornet Or being threatened to say, like, these are our standard terms, why aren't you accepting it?

You know, this is very basic, you should be signing it tomorrow. I do think that any founder should be given the chance to understand the deal that they are signing. And I think the worst situation that they could put themselves in is if they were coming in with good intentions, but then, you know, there's a clause that says that the founder is going to be personally 2 million investment.

I don't think many founders will have 2 million sitting in their bank account. On the other hand, I've seen really good VC funds, and particularly VC fund founders who have had experience as founders before. And it's just really encouraging to see the ecosystem evolve over time. But all VC funds are wonderful, of course.

(14:54) Jeremy Au:

It's just that some VC funds are more wonderful than others.

(14:56) Rachel Wong:

Some are better than others, right? So we hope you enjoyed this video, and if you liked it, remember to like it, share and subscribe both to our channel and to

(15:05) Jeremy Au:, Brave Southeast Asia Tech Podcast.

(15:08) Rachel Wong:

There we go. Have a good day. Bye!