Founder Patterns, VC Tiers and Southeast Asia’s Undervalued Talent – E584

"If you're a first-time founder, you have about an 18% chance of success. If you've previously failed and this is your second startup, then you have a 20% chance of success with your second startup. But if you have succeeded with your first startup and you're doing a second startup, then you now have a 30% chance of success. So this is basically talking about how successful entrepreneurs tend to repeat that experience over time. And what we talked about is how there are relatively several major components to that. What they were able to decompose and show was that, first of all, there were three components. The first component is that successful entrepreneurs tend to be better at timing. In other words, they tend to launch in a vertical that is not too early, not too late, and so they're able to start at a time when they're able to get the funding but also ride the technology cycle." - Jeremy Au, Host of BRAVE Southeast Asia Tech Podcast

"So basically what we have here is that the question people have is: do VCs add value, do VCs help? But basically, we can talk a little bit about some of the research that's available, and one of the key things we showed here was that in the early stages of startups, when it comes to angel investments, it is shown that if you receive the same quantitative score from an angel syndicate but one of you took money from the investors group and the other did not, it turns out that angels are beneficial and help increase the likelihood of survival 18 months after the funding cycle by 14%, increase the likelihood of hiring 40% more employees on average, and also increase the probability of a successful startup exit by 10%. So this is actually key information that we have here." - Jeremy Au, Host of BRAVE Southeast Asia Tech Podcast

"But what's interesting is that you can also make the argument that there's little arbitrage left in order to find talent. And so actually, even in that same analysis, they also talk about schools that generate lots of returns but are not necessarily overpriced in that sense. So for example, there's the University of Waterloo, which is a very good engineering school in Canada. There are a lot of schools that are good but relatively under-scouted. So for example, if you look at Southeast Asia—other than Ivy Leagues—for Southeast Asian unicorn founders, I think the top two universities that are overrepresented are the National University of Singapore, number one, and number two is actually the University of Indonesia. Now, you can make an argument about why and so forth, but what's true is that most VCs are not really looking at these two universities in Southeast Asia as closely as they are at Ivy League universities." - Jeremy Au, Host of BRAVE Southeast Asia Tech Podcast

Jeremy Au unpacks the real value add of venture capital beyond just funding. Using data and founder behavior patterns, he explains how investor type, timing, team building and university background shape outcomes. The conversation highlights what actually helps founders succeed, how top tier funds scout talent and where undervalued opportunities lie across Southeast Asia.

00:34 Research Insights on Angel Investments: Jeremy shares how angel backing increases startup survival by 14 percent, hiring by 40 percent and exits by 10 percent. The early investor effect is real and measurable.

01:36 Key Components of Successful Entrepreneurs: Success tends to repeat when founders launch at the right time, attract high quality resources and execute well.

02:28 Impact of Top Tier vs Lower Tier VCs: First time and failed founders see more benefit from top tier VCs. Successful founders already have momentum and get less marginal value.

05:39 University Influence on Startup Success: Southeast Asia's top unicorn founders often come from NUS and UI. Meanwhile, Ivy League founders get higher funding but often at higher valuations, limiting upside.

(00:00) Jeremy Au: So basically, what we have here is that the question that people have is do VCs add value? Do VCs help? And so, there's been quite a lot of research that's been done because we qualitatively understand it to be true.

(00:11) Obviously, if you are a bad swimmer and you get a swimming coach, you're obviously gonna become a better swimmer. And intuitively, we know that if you are like a champion swimmer, then if you get a champion coach, that is more likely to give you the chance for the Olympic gold medal, right? So, we also understand that if intuitively in the sub land, a lot of founders are looking for strong investors.

(00:30) But basically, here we can talk a little bit about some of the research that's available. And one of the key things that we showed here was that in the early stages of startups when it comes to Angel investments, it is shown that if you receive the same quantitative score from an Angel syndicate, but one of you took money from the investors group and other did not, it turns out that Angels are beneficial.

(00:51) And help increase the likelihood by 14%, the chances of survival 18 months after the funding cycle. And you are likely to hire 40% more employees (01:00) on average, and also increases the probability of a successful startup exit by 10%. So, this is actually key information that we have here.

(01:07) We also talked a little bit about some of the previous questions which is what happens if you're a successful founder versus a failed founder versus a first time founder. So, I think the answer to that directly, if you're a first time founder, you have about 18% chance of success. If you're previously failed and this is your second startup, then you have a 20% chance of success with your second startup.

(01:27) But if you have succeeded with your first startup and you're doing a second startup, then you now have a 30% chance of success. So, this is basically talking about successful entrepreneurs tend to repeat that experience over time, and what we talked about is how there are relatively several major components to that.

(01:46) What they were able to decompose and show was that, first of all, they'll treat components. The first component is that successful entrepreneurs tend to be better at timing. In other words, they tend to launch in a vertical that is not too early, not too late. And so they're able to start (02:00) at a time when they're able to get the funding, but also write the technology cycle.

(02:04) The second thing, of course, is key, is the ability to attract resources and both successful entrepreneurs as well as first time founders. One of the key differences is that if it's been successful, you are able to attract high quality talent funding clients. And this shows up in terms of your ability to perform.

(02:23) And of course, the last component is your actual ability to manage and perform. Now, what's interesting is that they're also able to look at this differently across two types of VCs which is top tier VC funds versus lower tier VC funds. And what they showed was that for first time founders or failed founders top tier VCs were really helpful in increasing the Oxford success.

(02:46) Whereas, if you're already a successful founder, then there is less of a uptick in value from having a top tier VC fund. Is that more raising a hand here? Or is that

(02:57) impractical is quite common? What you would definitely (03:00) see is that if you're a successful founder, you're more likely to get money from a top tier VC. But I think if you are first time or previously failed founder, you do still get a lot of people talking to you from the top tier VCs, because top tier VCs, if you are a successful founder, you tend have more capital already.

(03:15) You tend to pick who you wanna pick. But a problem for successful founders is that their rounds tend to be much more expensive. So, it's actually harder to generate outsized returns for a top tier VC if they are only investing in founders who have already succeeded before. Haven't heard your product or your economics of what you wanna build. But that being said, top tier VCs hire lots of people to talk to first time and zero founders. It's quite common, right? That's why this VC associates at every hackathon, at every demo day, iterative or YC demo day or 500 startups at every university accelerator,

(03:50) what you notice is that the top tier VC funds would normally have a, because they've been more successful over time, they have more money to hire and they tend to have a wider group of people searching (04:00) and scouting for that. So, for example, if you look at Monsu Ventures, you look at many VC funds, for example, they may have a scouts program, right?

(04:07) So, I launch one for the Monsu Ventures. But a scouts program is a way to, for example, share some of the economic upside with a larger network of people to increase the surface area to encounter the right person. There are also lots of chat bots and search bots right now, for example, they're busy scraping the internet based on the top funds,

(04:24) and basically, what they're doing is they're looking for emerging talent at wherever you are. So, I think if you are top tier talent, even though you're a first time founder, you can be scouted out, yes. But I think obviously, it's on you to increase your own visibility by either going on product hunt or speaking at pitching events as well.

(04:42) It's a two-way street as well.

(04:43) VC funds are fundamentally motivated to look for good founders at a low price, so they are incentivized over time to reduce the bias either, if they have a bias with experienced founders, there is a arbitrage is there. If they are making the wrong decisions because they're disqualifying people based on the wrong (05:00) attributes that have nothing to do with economic performance.

(05:02) They'll also get slowly attrition away as well.

(05:04) VCs do compete with each other to discover talent. It's like Hollywood, right? Every agency is fighting to find who is the next, I dunno, Scarlett Johansson or Tom Hanks or whoever it is, right? So, people are always looking for the new talent, so they're competing one another. Yeah, so, people will also hunt areas where they think they have a high likelihood of noticing rising talent.

(05:23) So obviously, your Ivy League universities or top tier universities are often heavily scouted. Obviously, you can think about all the way around. Universities are also working very hard to improve their entrepreneurship programs and the ability to support their student founders as well. So, I'm happy to share later on.

(05:37) But basically, there has been research that has been done by AngelList. And so, what would be able to show was that, for example, and obviously, correlation is not causation, but I'm just saying that in general, there is a higher set of returns associated with top schools for universities. That's one. That being said, they also showed that not all VCs, they measured two things for universities and (06:00) AngelList.

(06:01) They measured one, which was the ability to generate outsized returns from a startup value perspective. And the other side was the average funding round and size of it. And what they were able to show was that first of all top schools, and you can define them, whatever it is, the brand and so forth, but they do generate higher returns than tier two or tier three schools on an overall basis.

(06:21) So that's one. But secondly, what's interesting is that, some schools, all of that additional value is being captured by higher prices. So in other words, Harvard and Stanford companies may be on an average, more likely to succeed on average. But yeah, prices of valuation to pay for that is, has also risen commensurate.

(06:40) So, one key takeaway from a VC perspective potentially is that everybody's looking at Harvard and Stanford. And so, maybe there's some sort of correlation equal causation. Obviously, they generate their own success and so forth. But what's interesting is that you can also make an argument that there's little arbitrage left in order to find talent.

(06:58) And so, actually in that same (07:00) analysis, they also talk about schools. They actually generate lots of returns, but are not necessarily overpriced in that sense. So for example, there's the University of Waterloo, which is a very good engineering school in Canada. There's a lot of schools that are good, that are relatively under scouted, right?

(07:16) So for example, you look at Southeast Asia, some other than Ivy Leagues in for Southeast Asian unicorn founders. I think the top two universities that are overrepresented in unicorn founders Southeast Asia is the National University of Singapore, number one. And number two is actually the University of Indonesia.

(07:32) Now, you can make an argument about why and so forth, so forth. But what's true is that most VCs are not really looking in Southeast Asia as closely as these two universities, as they are at Ivy League University. So, it kind of debate depends on your strategy in terms of competition.

(07:46) In general, startups do emerge from these universities like in US and there's a very large number one contributor of unicorn founders in Southeast Asia. And I have invested in NUS founders as well. I invested in (08:00) Zenith education which is, and at a point of encountering, I met this person who was building this education tech startup.

(08:07) He was a junior in US and he already had millions of dollars of revenue as a junior. And I made a decision to invest with him after a year of working with him and coaching him. Because, my perspective was that he would do even better once he graduates and is able to focus full time on working on a company.

(08:24) And he has since graduated and he continues to be doing very well. I have invested in NUS startups and people have made me money investing in NUS students or recent NUS alumni.

(08:33) I think in general, a top tier VC is defined to some extent by the track record which roughly correlates to their brand. 'Cause in other words, if you have a bad track record in terms of performance, in terms of selecting and helping founders, then in general, your fund will die and you would not have the resources to be able to invest in supporting as well.

(08:52) So in general, they tend to be correlated, but they can have different differentiation strategies about how they support. So some VC funds are (09:00) focused more on coaching the founders in terms of like, life and decision making. Some VCs are much more focused on value add, for example, through connections or networks.

(09:08) Others are more focused on technical like marketing or market entry or even regulatory support. So, I think VC funds do differentiate, and to some extent founders do get to make a decision about what kind of VC they want to pick and choose so they may say something like I'm a Korean startup and I'm expanding to Southeast Asia.

(09:27) I am intending to build my market in Singapore, Indonesia, but I don't understand these markets. So one of the decisions they can make, for example, is to have a lead VC who's south Korean to obviously lead the round, but they may choose to allow some space for follow VCs that come in from Singapore and Indonesia to join the round to basically participate in the equity round and get some of the risk, but also get some of the reward and as a result incentivize the Singapore and Indonesia VC funds that have more local market access and understanding to provide that support.

(09:59) (10:00) So obviously, there's a massive hierarchy of needs. Similarly, there's a VC hierarchy of needs. And so, we talked about how I think it's bit of a iceberg effect. Almost all VCs primarily talk about their advice, their coaching, their ecosystem and platform.

(10:12) I think that's the top of the iceberg. But actually there's a whole bunch of work in terms of financial investment being non-toxic, being able to reinvest, and being a good shareholder. That is quite key for discharging the responsibilities as a VC. And so, we talked about how in general VCs are very optimistic that they add value.

(10:30) 92% of VCs think, say that they add value, but only 39% of founders would say that the VC does average or above average value add. And we talked about breaking this out into more specific domains, and what we see is that in an asset analysis, VCs are overly bullish on their ability to support and recruitment,

(10:48) marketing, connections, growth strategy, as well as corporate connections. But that being said, founders do sometimes get support, right? They may find, for example, that some of (11:00) them may have, so there's some variation there. But that being said, founders do get support from their VCs.

(11:05) They are appreciative of it. And one domain where VCs are quite bullish about the ability to provide support, and their founders also find that they're very helpful is really in terms of follow on funding. So, helping signal and convince future investors to also join in the round. And lastly, to some extent some of the performance differentials.

(11:23) I talk about how VCs, for example, tend to invest in people who are relatively between 20 to 35 years old. In the early parts of the career, but however, if you're an older entrepreneur you have a higher probability tries to succeed.

(11:37) One is that older entrepreneurs tend to more experience, more connections, more capital, more understanding of their target problem, but also conversely they also have the opposite. They also have more self-awareness about what is a bad idea and what are bad, other ideas for them to pursue as well. So, both of these aspects can be true.