In the next ten years, I do feel that whatever's happening right now in the next few years is going to really shape that. So I do think that the ecosystem will mature a little bit better in terms of even just the venture side. Talent on the entrepreneurship side, in the last decade the government of Singapore has been doing a great job getting lots of young folks to be interested or even getting corporate leavers to come in and this has also kind of taken off in its own steps in all the various Southeast Asia emerging ecosystems.
Yiping Goh is Partner at McKinsey & Company and the former partner at Quest Ventures, a top venture capital fund in Asia. Prior to this, Yiping was the co-founder and chief product officer at MatahariMall.com, the largest omnichannel fashion e-commerce site in Indonesia, backed by the Lippo Group. Lippo Group also acquired All Deals Asia, the Southeast Asia e-commerce aggregator and group-buying platform that was also co-founded by Yiping.
Koh Shiyan is the Co-Founder and Managing Partner at Hustle Fund, a venture capital fund that invests in pre-seed software startups in the U.S., Canada and Southeast Asia. Prior to that, she was VP Business Operations and Corporate Development at NerdWallet, a fintech startup that helps users with a range of financial decisions through content, community and tools.
Mohan Belani is the Co-founder and CEO of e27, a startup and tech ecosystem platform focused on helping startup founders build and grow their companies. He is also a Partner at Orvel Ventures. He believes that startups can make the world a better place, and in order for Southeast Asia's tech ecosystem to be relevant, it needs to be driven by sustainable and impactful companies solving problems at scale. He enjoys working with Founders and helping them alleviate the challenges of building great companies specifically around the areas of talent, funding and market access.
Jeremy Au: (00:00)
All right. We are going to talk about venture capital and the ecosystem. Thanks for coming in. One interesting aspect that people have been really curious about is what is venture capital, at a deep level. But more importantly, what does that mean in today's context of 2022, the next decade, Southeast Asia, what does it mean for my company?
And so I think last year felt like it was all partying, maybe not for us, but felt like. Then now the media, the stories of layoffs, of the retreat, there’s war and food insecurity. And so it feels like we have gone in reverse.
So, kind of like starting out, I think the first question has been, so what do you think about Southeast Asia tech for the next ten years at a high level? How do you/why are you here/what do you see about that?
Koh Shiyan: (01:00)
So I feel like venture capital is a really weird asset class, right. And I think it gets conflated with all sorts of funding where the reality is most companies should not take venture capital. And so if you think about sort of the history of venture capital, it was to fund crazy things that other people wouldn't fund - semi-conductor, storage chips, things that have high operating leverage and the growth of what was a cottage asset class today has meant that we fund lots of things that don't necessarily resemble some of those traditional profiles.
And then I think the last two years, like you said of the party, an incredible amount of quantitative easing and printing from the Fed and other governments in response to the pandemic have led to an incredible asset bubble and crazy amounts of money being deployed. And that's not normal in the sense that that's not the regular side of things, but it is normal in that market cycles exist.
Right. So we always see boom and bust. We always see overexpansion and contraction, and we just happen to be in a contraction phase. But I think in terms of like what's next for Southeast Asia over the next ten years, I'm incredibly bullish. I think if you think about what you need for a vibrant innovation ecosystem, you need capital, talent and you need experience.
And so for a long time, I think Minister Alvin's like, Hey, guys, we're putting a bunch of money into the ecosystem as capital. The talent, I think, has been traditionally sucked into MNCs and more traditional industries. If you tell your mom you're going to go start a company, they're like, Why would you do that? Why don't you go get a nice, safe job?
I think that is starting to change. You see more and more young people and parents being willing to see people come out and then experience. We've just gone through the first kind of cycle of Southeast Asian companies going public or having exits maybe, I don't know any Gojek, Grab shareholders in the audience, maybe not at the levels you want them to be, but still they made it out.
And, that, I think, is a huge accomplishment, kind of to see that full cycle. And now you start to see these people getting recycled in the ecosystem. So people who are part of those companies’ growths. And so I think those three key factors give me a lot of hope and optimism and venture capital’s about solving problems. Right? Start-Ups are solving problems because this venture capital is the fuel that helps fund those people.
And Southeast Asia's got a lot of problems. Okay. So that is opportunity, I think, to solve a lot of interesting things. Life is not easy and convenient in most places in Southeast Asia. And I think in terms of climate, health care, transport, I think there's still a lot of things yet to be solved.
Goh Yiping: (03:42)
I started my first company around 2004, same as Minister Alvin. At that time there was very little capital and an early batch of folks who are very willing to start. I think Mohan also kind of started around that period. There's a small bunch of us and a lot of us are like daring and just want to try and don't care about failure.
But there isn’t much money out there, so we tend to be more, I guess, in some sense resilient and spend very little - stay at mom's place/mom and dad's place and, taking no salary for years. I think that has changed. I think now. Fast forward to 2022. Right now, even though we are facing winter, I do feel that there is a lot more money than ever before.
The maturity of the venture ecosystem is also, I wouldn't say super mature, but having lots of different players really helped for the scene to eventually get to that maturity. And I think in some sense fast forward if I want to look in the next ten years, I am optimistic and I'm also hoping that this winter is helping to shape that, i.e. at a state where there's a lot of money and then now there's lots of retrenchments happening.
I do hope that Start-Ups kind of find a little bit more of the North Star on the kind of companies they want to build, the resilience that they can built also. And to an extent also, it's not just about burning cash. It’s also trying to be okay to take less salary, for example, or, in a sense, be more thrifty and try to try to not be at a growth at all costs model.
To a certain extent, I think that it is very fair for us because to be able to help to invest in a company and know that this is not going to be profitable in the short term and we're all okay with that. But just being able to know that the problem we are solving has a way to monetise one day down the road and you don't have to grow in a sense of in all directions and in just a giant inventory of folks in the team.
So I think that in the next ten years, I do feel that whatever's happening right now in the next few years is going to really shape that. So I do think that the ecosystem will mature a little bit better in terms of even just the venture side. Talent on the entrepreneurship side, I think in the last decade the governments of Singapore have been doing a great job getting lots of young folks to be interested or even getting corporate leavers to come in and this has also kind of taken off in its own steps in all the various Southeast Asia emerging ecosystems. So I think that, in itself, is also very interesting, just how I have seen it as a VC in the last few years. I have seen all kinds of talent. In 2004, is mostly the new batch of talent, or the entrepreneurs are the young fresh grads like us thinking that, Hey, we're willing to take the fall, we are still young, we can afford it, right?
But now it’s coming from young, it’s coming from folks who haven't even graduated, but also lots of corporate leavers and just coming from all directions of folks returning to Southeast Asia. So I think that the dream here is to create that diverse set of entrepreneurs and, same thing, the diverse set of VCs and I think then this demand and supply is quite well done then in between I just really care a lot more about the soft parts,
The resilience, the kind of people we want to see grow in the next ten years. I often think that you need to put capital where you believe. And it's not just about believing in just full transactional or capital optimising, but also the kind of folks that we think can impact our world.
Mohan Belani: (08:42)
I think you have ever given quite good overviews of the evolution of VC. But this I'm reminded of this really good video on YouTube on the history of Silicon Valley. And a lot of it actually had to do with innovations that were needed in World War Two. And the venture capital industry, alongside the research firms, were the ones that really invented a lot of the technologies that helped the US win the war.
So I think venture capital had idealistic and visionary starting fronts, but over time, that has evolved over the last ten or 15 years. I mean, even when each of us started, we started it for two reasons. One is we genuinely believe that Start-Ups can make the world a better place, right? From in their idealistic viewpoint.
But on a bigger level, if you look at Southeast Asia, it has a ton of problems. I completely agree. And to be fair, I'm talking about this in 2012 context before Grab even existed. So when I say a ton of problems. Yes, really. And I still think it does. And the teams that can really get these problems solved are fast, nimble, innovative groups of people that are willing to take a big bet, big risk and try completely radical views.
And those are start-ups. And I think venture capital is the mechanism that enables all of that to happen. Now, along the way that might have been lost maybe to a certain level to pure greed or on some level to just funding what is popular or interesting. Right. But, but, but going back to that basic core thesis of venture capital, where it's all about innovation, big bets, radical ideas is also realistically not so simple, especially in the market like Southeast Asia, where the Start-Up ecosystem is still very, very nascent.
So I think that there needs to be a few ways, right. What she rightly pointed out was that the first wave was more or less done right, where you've got the first group of entrepreneurs that have come in, the first group of VCs that have taken a significant amount of bets. I mean, it's so easy to say now that, oh, investing in Carousel is a great idea.
Doing that in 2012 is a totally different thing. It requires a different kind of mindset. It requires a realisation that a classified type platform could work. So that framework of VC has now passed. The next evolution in the next framework of VC is really going to be around big problems - climate tech issues, cybersecurity issues, even defence related issues.
And you will have a different group of founders. They might have done it before in the first round and won a much more difficult, serious challenge of founders that have this renewed sense of building for the next 30 years
So, I think that evolution will need time and I think we will probably see it in Southeast Asia over the next 10 to 20 years.
Jeremy Au: (11:38)
Amazing. So, what I've gotten from this is that on an absolute basis, Singapore and Southeast Asia is better today in terms of venture capital and entrepreneurship support versus ten years ago. And to some extent, of course, it seems worse or is worse versus two years ago. So let's dive into this because I'm on the same page, right.
It's like I read a lot of U.S. tech news and it looks really bad. And I think there are some ripple effects to Southeast Asia, of course. But to me, I do feel like maybe read less U.S. News and read more Southeast Asia news and understand the facts. How do you think about that?
Koh Shiyan: (12:21)
VCs are sheep, right? That's what founders love to say. They don't recognise my genius…But I think there's the unkind version and there's the kind version, right? So the unkind version is like if you're a momentum investor, you should be a sheep, right? Because that's how you go to make money on the way up.
And then the kinder version is if you're an early stage investor and you don't think other investors are going to follow on, then you shouldn't invest in it because you're just setting your own money on fire. And I think in the big boom of the last two years, a lot of funds got raised. A lot of angel investors were minted, a lot of money was deployed.
And now I think you're kind of seeing the flip side of that in the U.S., right? So the amplitude of that wave was bigger in the U.S. there's less money in Southeast Asia. Some of it did leak out from the U.S., you started to see international funds become tourists in the region and starting to write their checks.
Whether it's Tiger, Insight. All these guys started writing their first Southeast Asia checks, but we've had less of that inflation. And so I think that is probably why we don't feel as depressed. But I mean, I think the shoe is still dropping, right? I think you are still going to get, in the next six months, there are companies that are going to get recapped, cram downs, pay to play. I think we will see all of those things. And you will see like these slow deaths, first the layoffs and then the like, okay, I'm not going to raise, do I keep going or not? So is it better or worse? I think we are probably better off in that a lot of money got raised for Southeast Asia in the last two years and those people all need to deploy.
We don't get paid to sit on our hands. So that is better. Worse off, I think people who over hired and over expanded, yeah, they're going to be worse off. But I always tell people, you don't start a company to raise money. I hope not, anyway, you start a company that makes something that solves a problem that people will pay you for.
I also tell people starting a company is insane. It is fundamentally an act of insanity. There are many other expected probability things you could do with your time that are better value. So, the insanity has to match the opportunity. But, yeah, that's the better or worse, who knows?
Goh Yiping: (14:48)
I actually think that, of course, the context right now, like she said, write downs happening soon, recaps. I do think that in the next…the worst is not even now. I think the worst is like next year or so, right where there will be more massive recaps. Companies have to either go through slow death or suddenly realise they have so much payables because they haven't registered that.
I do think that in terms of if we can see in terms of the available funds it would be for a company probably is more conservative. Lots of VCs are now trying to concentrate on rescuing current companies. We have this consistent debate internally. Do we rescue or do we invest in new? Because new is a ray of hope.
Rescue, we don't know. So I think we are going through this kind of like this equilibrium. So we try to moderate and find what is the new norm. And in some sense, maybe on a capital side, it is not so good for the new start-ups coming up. But ShiYan just raised a new fund and they are also launching a new fund. So we have lots of rays of hope. But on the other end, where it's about, let's say, you're really testing the maturity of our ecosystem, I think it’s a good thing because in the last five, six years, Southeast Asia has this phenomenal growth that VCs are saying, my God, I got into this deal…is it like, am I just going with FOMO or is this really conviction?
The startup founders is just like pressuring us to sign within a week or today. I don't even have time to talk to the team. So we have gone to this very weird extreme of VCs no longer call the shots for the last several years, and not that we are able to call the shots exactly right now, but I'm just saying that we need that phase where Start-Ups also need to realise that it's not just about raising funds anymore as a vanity metric. And even if you have raised the fund, you still need to be cautious on where you spend it, where are really your growth levers, true growth levers that can be sustainable rather than you are burning millions of dollars a month just to acquire, but you have a huge leaky bucket, right?
So I think is good for the ecosystem and it’s going to shape how the next ten years look like.
Mohan Belani: (17:42)
Yeah, yeah. Actually, just to provide some data for context. And this just nice timing. This came in today. So, there was a 34% month on month decline in global venture capital. And there was a like a 56% year on year decline since July last year. So these are quite, quite large drops. So as of last month, there was about 27.7 billion in global VC deployed.
And actually this is the lowest number since apparently November 2020. So it's very easy to get caught up with large numbers like this and think venture capital is drying up and all of that. But when you when you go into the deeper nuances, right, you actually realise that the latest edge or large scale numbers are definitely reducing because the prospect of exits have been pushed back by a few years.
So there's a natural shift in investment in smaller ticket sizes on the on a much earlier level, I'm still very, very bullish on the Southeast Asian venture capital scene just this year alone. Right. I think there were more than five funds that have more than 500 million. Accel, Sequoia are looking to deploy capital.
Every other day. You read about some new early stage fund being launched, right? I think if you have a good company, getting funding is never going to be a problem. The major shift that I agree with what she said in the last five years is that there has been a complete disregard for a lot of the fundamentals and the unit economics with respect to funding partly because of the amount of capital that existed in the industry, but partly also because of the low interest rate environment and the bullish run of tech for the last ten plus years. So I think the investor mindset is definitely shifting. They are naturally into some level more interesting investment opportunities outside of technology. So we are in a situation where tech is going to go through a lot more scrutiny in terms of unit economics, in terms of the viability.
And I think I think that level of pragmatism and coming back down to earth is the right shift forward for the entire ecosystem.
Jeremy Au: (19:59)
What's interesting is that everyone is saying that the worst is not here yet. It's going to happen over the next six months to one year. And what’s interesting was I was talking to some bankers and they think maybe the stock market has hit the bottom, potentially hit a floor and may bounce up in time to come.
So, when you say the worst is not yet here, how bad do you think it's going to get? What does it look like visually? Is it more news articles, is a more shame, more failed founders, what does that look like? When you said the worst is not here yet, what does that mean?
Koh Shiyan: (20:36)
Well, I think one thing to remember is failure is part of Start-Ups, most start-ups should not succeed. Otherwise, we're not taking big enough swings. But I think from the worst perspective, if you start with layoffs, you saw people do layoffs in Q1, Q2, and then you're going to start seeing people do more layoffs because they didn't cut enough in Q1, Q2.
So you already saw that Robinhood just cut another 20% because first 9% layoff was not enough. So I think that's kind of…you'll see more layoffs and then you'll see more start-ups die because they can't raise the next round. So, if they raised let's say, Q3, Q4 last year, they were probably planning to raise another round end of this year, early next year.
But what they're seeing is it's harder to get a meeting. Meetings take longer, all this sort of stuff, this cascading effect. And then on the VC side, we don't mark to market, right? So you do a quarterly report and then you do an annual audited report back to your LPs. So your last report was the end of 2021.
Everything looked really good and then everyone dies and then you don't mark all that stuff down. And so and then that impacts your next fundraise cycle, right? So I think that's kind of like what I think of as like the worst. And then I think, okay, maybe you can raise again, but the new investor coming in is like, hey, all you previous investors, you better pay up now.
Otherwise we're going to cram it down. I haven't really seen that yet, so I feel like that's just part of the cycle. And so you should start seeing that kind of happen.
Goh Yiping: (22:15)
Yeah, I really do think that all these activities of bad news are going to come up one by one for the first time. I think where we start reporting maybe next year for the first time, new funds or even longer vintage funds are beginning to see more significant write downs because the company officially shut.
In the past, I think you always have a little bit more like liquidity out there. You can still survive another year, right? You buy another 12 months of runway. But I think the runway is running out. Even for funds like us, but what is also invisible here and I'm beginning to see already is not enough new companies being funded.
That's why that was my first question here - Are you deploying?
And so both sites are deploying and I just feel like the more founders I'm talking to right now, the more they just cannot get into VC meetings. And so, I'm also advising the angel route. Angel is still proving to be a bit more resilient, at least I think 80% of my angel associate friends are still investing.
So I'm also doing my bit in the angel side. But it is true that what she said about if I also want to have visibility that you can raise your next round otherwise actually it’s just our personal money burnt, right? So in that sense, I think we're going to see that. We're going to also see more Start-Up Founders with very early ideas go back to maybe the corporate jobs or find something else.
Which, again, it's pretty normal. I just feel like also don't take it to heart because the cycle, the boom and bust is going to happen. And truthfully, yeah, most startups do not make it.
Mohan Belani: (24:27)
The best thing about going last is they're actually 90% of all the way through. So when I think of things turning bad, the part that worries me the most are founders that are optimistic because founders are generally optimistic. You kind of have to be, with all the shit you go through.
But when founders are optimistic to a level where they are lying to themselves and not making or doing the things needed to either cut or think through or rethink the business. That is going to be a problem. So what is happening a lot now is, of course, a lot of bridge rounds, founders are raising like half a mil to a mil in bridge rounds.
Some of their existing investors are supporting them. The challenge is when or the problem will come in when founders raise the bridge round and operate the company exactly the same way as they were doing before their round came in. And then it's really just a slow death. I think that way of thinking has to completely change.
And if I were investing in the company, I'll have a lot more scrutiny on what or how it is changing, how are they reducing costs or at least how it is getting to break even as quickly as possible to conserve runway. The second thing is that I think there has to be a lot deeper thinking of their unit economics. Naturally, because of the upcoming recession environment we're in right now there will be a lot of changes in terms of expectations that companies can pay a budget that they may have in certain areas.
So depending on the nature of your company, right, your ability to get revenue is going to change significantly. For some companies, actually, it could be a lot easier. So that might change the trajectory of your firm. But for most companies, right, it's going to be tighter, the ability to sell. And in your closing your sales cycles are also going to get longer.
And, unfortunately, with the inflation environment, your employees are also probably going to ask for more salary or switch jobs. So, there are a lot of these multitude of issues that if founders don't take very active, difficult steps now to fix this, it's going to kill them all very, very quickly. And I think that's going to be the nail in the coffin that will really push the ecosystem over the edge.
Jeremy Au: (26:41)
We do actually have a space and half an hour for people to ask questions. So please get ready to think of some questions and I'll be happy to repeat the questions for everybody. I think it sounds really scary right in the next year. A lot of fear and it is going to be bad news.
And I think one trend I've seen obviously is I think the news cycle and Mohan, you will be going first this time around. But there's been like what I call a lionisation of founders over the past few years in terms of media and so forth and bravery and so forth. And they're almost starting to feel like there's a de-lionisation, right?
I think was the founders faults. Responsibility, failure. I think we see that with recent profiles in the media of the founders in Southeast Asia and the Singapore ecosystem. And I always remember that one of the stories I've heard was in the media, you only have three stories, right?
You’re either the hero, a villain, or you're an idiot. Right? So those are the only three roles that you can have, right? And so the pendulum seems be swinging and the media story is very much like, it’s the founders fault or it’s the VC and the boss’ fault? I'd love to hear your perspective. What do you think is the…how should we approach this like a fundamental perspective in when we open up the news about these upcoming bad news and next year ahead and responsibility and culpability, how should we think about that?
Mohan Belani: (28:18)
Where we really go first with this because this is close to my heart, this matter. Even at each seminar we get like founders get pissed off with us because we may not write about their funding rounds or not feature them like unlike maybe other media outlets. And the thing is, I think, early on, we recognised very clearly, that media is a tool, right.
If used ineffectively, could be very detrimental to founders because they get distracted. I mean, you can look at the number of founders that spend more time getting press coverage or speaking at events than actually doing work. And I think that's a very bad thing. So we have taken the stance to do more thought leadership content, to do content that's really more how-tos and not just purely featuring the founder or featuring a round because we all know as founders right like raising the round is the start of the work, not the success metric that you should be aiming for.
So I think the ecosystem stakeholders and this involves like the media, the government and event platforms and all that do have a responsibility, a fair responsibility towards making sure they cover or showcase the right people and do the right thing. The second is also the founders themselves. The media is fundamentally a tool, right, to get an outcome done.
Media isn’t a tool, right to get you visible or to help you with fundraising. And I think that's another very serious problem that the founders should need to learn quickly that once you use media as an avenue to fundraise or as an avenue to market your product. I think it’s a very downhill slope.
The focus really should be on your customers, your users. That's what really should be the driving force behind it. The last part, with respect to the media in this entire landscape, some media companies will profit from your downfall, like it or not. There are many media companies where there is a subscription model or whatever.
The moment shit hits the fan in any company, they will leap on it and monetise it. Okay. But the unfortunate truth is that is the business model of the industry. So don't take it to heart, but take it too personally. The right or fair thing that you can do right is just provide information as much as you legally can in a fair manner as possible and let the ecosystem design. The investors, the employees and the general ecosystem is sophisticated enough, right, to know when you really screwed up versus when that idea didn't work.
And in a lot, a lot of times, right. The ideas don’t work, right? In media, the most important thing is to learn to control the narrative. So if and when you are put in such a situation, always be more vocal, more open to sharing it. Don't, don't hide behind the shades because the more transparent you can be about failure, about your own personal growth, and about the mistakes you've made, actually, the more respect people have for you. And I think in VC right, you want to be supporting founders that have maybe failed and giving them another chance because the lessons they learn. Could actually be very valuable for investors. So that's my quick spill on media.
Goh Yiping: (31:16)
I'm actually a very genuine empathiser of founders who really tried their best to solve that problem and have always been very thrifty in in the progress of doing that. Truthfully, even before the last five years, I think the normal stats in the US has always been companies, 80 to 90% fail and of the ones that survive, how many become unicorns? Like true unicorns.
I do think that when news do come out, I feel there's this big part of us that should be empathising that someone out there tried to solve a problem. And as a result, maybe it's not like a job where entrepreneurship often has this zero and one binary metric.
I feel like it's either you succeed or you fail like why is this all binary? I mean, it's also a journey. The founders are also learning what works what don't work, what is suitable for them and I think that there is that element that we should use that lens to look at that objectively. But then I also draw that super clear line where some founders can be ultra negligent.
The starting point wasn't great from the from the onset. It's a lot about I want to be this famous celebrity founder like Mohan said, overexposed in PR and you're just scratching your head wondering, are you really doing the real work? Most of the time I see good founders. They don't try to always snatch the limelight.
But, again, not that you are visible means you're a bad guy too, right? So, it really depends. What is that balance? And again, starting point. In the last few years, because of the mass amount of liquidity we have, the scene has favoured models that actually can try to use the growth at all cost model, which is I feel also created lots of bad habits.
I do see that founders starting to pay themself like super seller salaries and when we question, we’re like you don’t have to take Carousel level 500 a month for 3 years. You don’t have to take 1500 a month for 3 years. No, a fair level of leaving, etc, but not when you are corporate salary level. When we look at these news, really just try to land their eyes on facts.
And I’ve known certain venture investors who just want ensure that a company can grow like crazy and taking money as steroids to grow. There is that fair bit of certain investors thesis are geared towards that and the onus is on founders ourselves to really figure out the kind of money you take, what does that mean too, in the first place.
Is it a kind of grow-grow-grow kind of pressure that you get? Or take the money to really figure out, iterate and quickly figure out what’s working and what’s not working and just create a good foundation.
Koh Shiyan: (35:02)
Yeah. I think this is part of the maturation of the ecosystem. So I suspect a lot of the early hero narratives were like government driven to say like, Hey, it's okay to start a company. It's okay to take a riskier thing. And, you know, there were a lot of stories about that. But I also think part of an immature ecosystem is like like when a founder says, I want to pay myself 20K a month.
You're like, you do realise that is less runway for your company, right? Like let's follow this train of thought. All the way through. And also that, at least in the valley, founding is often a multi turn type of situation. A lot of people don't succeed in their first time and they come back again to market with their second Start-Up.
And if they behaved honourably in the first go around, people will fund them again. But I think here the Start-Up ecosystem is so new that I was like, Wow, all these crazy venture capitalists are like writing checks on God knows what. On no proof. Like, I should go try to get myself some of that money. And they kind of don't really think it through, right?
Which is like, hey, if I don't act honourably and treat my stakeholders ethically, I'm not going to get another bite of the apple. And so, you know, I think it's hard when the cycle is ten years because you're like, oh, my God, what's going on? But, you know, we look at the history of venture capital and you look at how people play through.
Once we get that flywheel going, I think it will reinforce better behaviours because then, all the other founders around you be like, Hey man, what are you doing? That doesn't make any sense, you know? And so hopefully, you know, this sort of crash or contraction will try to like remind people what better behaviours are. As an industry we should punish people who are not ethical and we should not fund them again no matter how compelling they sound.
I think also as employees or parts people who are part of start users and we also have to hold each other to a higher standard. Um, so like, that's how I think we like try to shape the narrative ourselves rather than allow the media necessarily to do it for us.
Jeremy Au: (37:00)
Thank you for sharing that. And I think we’re opening the floor for questions. So I believe you have one person here.
Audience Member: (37:09)
I wanted to ask about building doomsday scenario models for startups in these tough economic times
Jeremy Au: (37:59)
I'll direct this question to Shiyan.
Koh Shiyan: (38:01)
Yeah, it's really hard. I think, you know, you've probably already gone through this exercise of zero basing your budget into like ask yourself like, hey, if I didn't have all these people in the company today and I kind of build my model from the ground up, what is the must have and what's the nice to have and is there room if I cut the nice to have and retain the must have to compensate my remaining people or initiatives more.
And then I think also be really honest about like who is the A-plus talent in my company that I need to retain and that investing in their future and paying them more now and retaining them is going to, you know, over the next 18 months help me more than saying, hey, I'm not going to do the five, 10% increase.
But that's really hard, right? Because I think the inertia of a company is that if you're already on the boat, it's really hard to get people off the boat. It feels bad. Um, and then or thinking more about performance related compensation, saying like, hey, if as a company we do well this year, we'll pay out more in bonuses to give yourself some flexibility, there.
But it's a really hard one. So I don't have a perfect answer for you. Thanks, Jeremy.
Audience Member: (39:28)
It's less of a question, I just want to state that many great startups are founded or supported by angel investors who believe very early on even though the idea itself is not perfect. So, the point I’m trying to make here is that angels play an important role in the ecosystem and we should be wary if angels start to behave like VCs…
Mohan Belani: (40:27)
Yeah, actually I'll double down on what he said. Right. I think for angels, it’s not like you’re going in to lose money, right? That's not your intention. There are better ways to throw money, burn them. But if your incentives are just purely to make a return, then the initial original start process is wrong. I look at angel investing as shaping the world in the way I want the world to be shaped or in areas that I believe are going to make the world better.
But I can't do it myself. So I have to do it with people that I trust or people that I like or people that I believe in. And if that outcome results in a return, then it's a good environment for everyone. And then again, like what they rightfully pointed out, right? If you have the right actors in the ecosystem, if people are doing the right things, working hard, the outcomes should be positive.
And the VCs will come in. There will be a real business around it and it should have a positive return. But the angel investment layer, I mean the wrong convoys of the world really invested in companies purely from the position of like they want the world to be shaped in a certain way or they want certain problems to be solved that are just not getting tackled.
And here, if they found someone to do it deal with, they will give them money.
Koh Shiyan: (41:37)
But Mohan, should we just complain about it and then the government will fix it, right?
Mohan Belani: (41:41)
The government can fix everything, right? You need good founders to want to solve the problems in the first place. I mean, if you look at guys like for example, I don't know Steve and Wavemaker as an example, right? Like they're looking at climate technologies and their struggle is, they've got the money, they just don't have the founders to invest in.
And those are really big pressing problems to solve. Can you make money on the Climate Tech Fund? I think that's still very questionable for now. But is it a huge problem to solve, is it worth allocating capital? Hell, yes.
Audience Member: (42:14)
Great panel, Jeremy, great job with the podcast. My question is actually a two part question. One is, what do you think the objective of VCs in Southeast Asia is purely because I see it as I think this is already a source of growth, not really to invest in innovative start-ups to the level at which the investment folks in Silicon Valley.
Do you think that's true, or have their objectives changed since then from the market 15 years ago in terms of actually investing in startups that are not just replicas of something in Silicon Valley for like a localised version for competition or anything like that. That's the first question in terms of the effect of the funds. And second, I guess more for Yiping, if you have any thoughts on corporate venture building and corporate VCs.
Goh Yiping: (43:20)
Your first question on, what VC set out to do in Southeast Asia, you know, to be honest, I'm confused now, so that's the thing, right? Like VCs, we always think that VCs have the money, but every investor has an investor. So if our fund, the first fund, don't do well, the second fund doesn't happen, right?
So it becomes quite realistic that your first fund or your next fund must start to show that it is promising. Yes, early returns in paper because you're not really exiting. So you're also making the right choices. And in the last few years I've actually started seeing lots of, I guess, VCs for good or for bad, concentrating on a few elite deals led by very elite founders.
And there is that path of a small handful that becomes the elite. And then there is maybe a very slim bottom of founders that actually I truly want to back, like truly fixing problems that I identify with. I resonate. I don't know if you're going to get the next round of funding or not, but quickly within one fund one can learn very easily and very fast that there needs to be this kind of equilibrium. John's question talks about angels, but actually John's question also has kind of a deeper meaning when it comes to VCs or actually any other VCs after that, right? Where I actually see a lot of deals are made like made into a very big giant very quickly within a span of one or two years, the growth trajectory to become a unicorn is less than three or four years, and that is that a group of VCs doing that.
And then many of us will try to stay true to, you know, try and still invest in potentially big bets, a big unknown, very good founder, may or may not come from super sexy backgrounds. We're still trying to, you know, ensure that they have this first round of survival quickly. Then we start to realise that they may or may not get second round of funding because maybe it's a bit too new, doesn't really fall into anyone's thesis.
But to make that long story short, I feel like VCs have a specific thesis. Number one, make money. Number two, go after the sectors of growth that can make money. Third is, invest in founders who can raise and eventually make money. So I think eventually this is, again, no right and wrong because we raised money from pretty, you know, expensive sources.
And the expectation is for us to return. And thus, a lot of us have to also work towards that. That's the playbook, right. And then is back to us, VCs whether or angel investors. Do we play the in a very intelligent way but we also have a small part of the portfolio or an allocation of portfolio that actually also fund some of these dreams that are not so usual or by the typical checklist.
So that's my take on the first one. But eventually I do think that the more VCs we have in the industry, the better anyway we will become, because everyone will start to figure out their thesis, the boom and bust will also help us all figure out what it means to create that stronger set of vintage funds.
Koh Shiyan: (47:35)
I mean, I think the Silicon Valley VCs come here because they want to make returns, right? Valuations get inflated in the Valley. They're looking for lower entry points. And so they're going there and their LPs are willing to fund it. So like everyone has a boss, right? So our boss, VC’s boss, the LPs all pay some endowment, some insurance fund or whatever, and they need to return money to, you know, their premium holders, their universities that they invest on whatever it is.
And so no one's in this. This is not a non-profit. This is not a social impact fund. People here make venture capitalists in the name capital right here to make money. But I mean, I think about the question of deep tech, like and are they here to fund proven business models or are they here to fund deep tech like, I think one of the magic things about Silicon Valley is that industry and academia are very closely intertwined and that actually goes back to the war.
And a lot of the Department of Defence spending that happened in the US. So between Stanford, Berkeley, San Jose State, Santa Clara, Lawrence Livermore Labs, like, I mean, I don't know if anyone here is in the university, but like in the Bay Area there are professors who go back and forth between academia and industry and that's very normal.
I can't think of the last time an NUS professor’s like, Hey, I'm going to get off the tenure track and go start a company that's just not normal, right? And so I think if you really want to be able to build that ecosystem more, we have to continue to build those relationships between industry and academia, to make that path viable.
Those things, by definition take longer, take way more capital to invest to see them through. And you need to have that practice. Like even in the US, it's not like other universities or areas do that as well as Silicon Valley because they have like the 60 years of practice doing that. And so I think that's why like if you come here, your risk adjusted bet is a model that has worked in India or China.
Hopefully with adjusted lower multiples and valuation entry points and you want to ride it and see whether it works or not.
Jeremy Au: (49:39)
On that note Yiping, could you share your point of view on CVC and keep it tight and we have space for one last question.
Goh Yiping: (49:45)
Yeah, on the CVC question, I think there are also like three things. There is venture buildings, CVC, and family offices. So I think on the topic of CVC, it's a there are several CVCs in Southeast Asia, mostly run by the big corporates or big family offices with very say, strategic value that they can provide. There is value in getting CVCs to be involved.
However, I do think that, you know, one, you know, a founder needs to be aware of the kind of alignment that you would need there after upon receiving the money. Right. Because some services want you to really use their resources more. That's how they also have synergy within the portfolio. That's how they have to justify back to the balance sheet holder to say that, hey, I'm investing in it on behalf of the company of the corporates.
So I would like to use that as a way to create, let's say, a pipeline of start ups that in which later on you can tap onto. So there is that good and the bad and the good tend to be that they always have lots of relationships internally to introduce you. Then the cons is that if you are aligned with one specific corporate, are you also thereby making some other corporates uncomfortable?
So they may not invest in you. So then the other way sometimes I think that it is a little bit safer to take family office money rather than CVC, because typically a family office also tries to have run like a VC fund. They have less strategic need to map a start-up back to the wherever they are taking money from there is that relationship but less that need of requirement.
So I think generally speaking as we see money becomes a bit more conservative or might be concentrating on existing portfolio. I do these days I actually recommend folks to also consider family offices where they are also generally speaking seeking a more sector agnostic diversifying type of portfolio. So there is still money there provided that it’s not coming out of the stock or the crypto portfolio.
So, I think I quite like family offices and there are many right now. So while we say that, you know, money has dried up a little bit, there is new pockets, right, coming up all the time. And these are new like new forms of money coming in. And that's also another interesting rise, in venture building.
So there's so many venture building right now. I'm with McKinsey Digital, which is also in venture building. And we help later stage Start-Ups to really try to differentiate from the competitors and for big organisations like corporates to prevent disruption. And also there's many types like rocket and so many names these days. Right. And I feel like the rise of venture building is an interesting one is rising quickly.
I wouldn't call it maturing yet. Everyone's just trying to find a model that would be one day neutral enough, more VC palatable. Many of the venture building outfits take too much of stake away from the initial founders. So thereby making it not very VC palatable. So I think the models are changing.
And recently I think many of the rocket offshoots becoming more palatable for VCs to fund. So that in itself is also quite interesting and I would also not so much say totally recommend, but I think is something that one should consider to be with an outfit that can provide different skill sets.
Jeremy Au: (53:59)
One last question out there, anyone?
Audience Member: (54:02)
All right. Thanks so much. My name is Daren. So I have two questions. The first one is in the past six months, have you guys recommended any of your startups to somebody else? And then the second question is based on experience, I see lot more start-ups in the US. I don’t really see that much here in Southeast Asia, do you think it’s because we are more conservative in terms of valuation or you know it’s going to come sooner or later?
Jeremy Au: (54:28)
Sounds like a question for Yiping and Shiyan.
Koh Shiyan: (54:32)
I'm a pre-seed investor, so most of my companies actually pretty early mostly have not hired up that much, so they don't actually have that many staff to lay off. I would say that what we have advised companies in the last six months is to take a good look at their budget and to run scenarios, as Mohan has said, and to think about, Hey, if I can't raise on my earlier timetable, what does that mean for my plan B?
And I think, you know, the layoffs in the US that you see are really from the bigger companies and that's because, you know, imagine you raised 30 million bucks, you had this big ambitious growth plan and you went hired up against it, right? So a lot of people in that growth plan aren't actually delivering revenue yet. They are delivering the promise of future revenue.
Right. So you think you can't raise in the next 12 months, you're going to cut them first before, you know, to try to stay alive long enough and do what you can with your existing crew.
Goh Yiping: (55:28)
Generally speaking, I can safely say all investors are asking the start ups to take a very good look at their runway. The guidance is to extend your runway by at least 12 months if there's even money left. But if not, if you just raise the round, we recommend extending from two suddenly to three years, right? Yeah. So cost optimisation can come from reducing marketing spend, you know, to really hire what you need.
And so I do think that right now everyone is saying that. So it's not unusual and it's going to be the norm for the next year too.
Mohan Belani: (56:10)
You know, none of my portfolio has even laid off actually. So there's only one change that happened in one of them where they did a merger with another company. So they actually consolidated their efforts and they became a bit leaner. So it wasn't a layoff, but it was a consolidation of people in two different firms doing more or less the same thing.
Jeremy Au: (56:29)
On that note, thank you so much for sharing.