Regional VC Returns Skepticism, Structural Challenges & Value Creation vs. Sucker Trading Consequences with Adriel Yong - E403

· Podcast Episodes English,Q and A,Southeast Asia,VC and Angels


“On a fundamental basis, at the end of the day, I always say never let the tail wag the dog. VC is a starting function to allow the training of founders and give them the early risk capital, but the founders, the executive teams, and the CFOs are the ones who are fundamentally driving and generating value. So on average, if it takes 20 years for people to generate a billion-dollar company, then the primary source of capital should be private equity funds or open-ended funds, VCs that have decided to be open-ended, or family offices or government funds or debt.” - Jeremy Au

“The fundamental rule of economics, which is comparative advantages, is that some countries are better at some things and some countries are better at other things. So how do you play to your strengths? Even though America is more expensive, it’s really good at R&D and at space rockets. So they can do a cheaper space rocket and a cheaper semiconductor design than somebody else. One of the shame of the decoupling of the US-China side is that suddenly, China is starting to say that it needs to learn all these things. This is a very important economic concept because suddenly when we're talking about Southeast Asia, we've seen that happen multiple times now, where US MNCs are fighting to enter Southeast Asia. A lot of them were hiring executives that were primarily expatriates or US-educated and maybe to some extent, it was a bit Singapore-centric as a result. All those things made these cost structures fundamentally more expensive in some ways, on a per person basis. And it’s a little bit less responsive to the local markets.” - Jeremy Au

“Your initial pool of capital is underwriting a very small pool that will look more like an American type of startup. You make this assumption about America's strategy, and then suddenly you underwrite a different startup pool that’s more embedded into the regional economies. And you're starting to watch these people fall off. That's where your margin compression starts to happen, and there was a period where there’s relatively high multiples in that sense, then it got hot because the late stage came in and started people in Southeast Asia writing higher early-stage multiples. Now that the bear market is happening, most of them are gone now from the US side. And suddenly, the middle stage has started to realize that the early stage folks are starting to realize that. So everything's starting to recompress down as well. People are thinking about how they’ll fill up the cliff and build another mountain to make it a flat. Most people are lowering the height of this so it'll be a more gradual drop off.” - Jeremy Au

Adriel Yong, Head of Investments at Ascend Angels, and Jeremy Au frankly discussed the public's skepticism about Southeast Asia's venture capital (VC) landscape. They contrasted USA VC exit outcomes vs. the reality of regional exits: smaller at around $0.1-0.5B (refer to Cento Ventures report), taking longer than 10 years (vs. closed fund lifecycle requirements) and weaker trade sale + IPO pathways (NYSE/ NASDAQ vs. IDX, SGX, SET). Portfolio math models thus need to be updated in light of the young ecosystem's structural market challenges, resulting in the current funds' moves towards earlier-stage deals with lower pricing risk, secondary sales, deploying venture debt, and more disciplined investing with tighter economic and control terms. They contrast this to the small-cap private equity model and the usage of debt leverage for revenue multiple expansion. Founders must decide on profitability over growth, conflicting with VC mandates who are disempowered by minority ownership norms. They also discuss the Series B death valley / cliff, reverse human capital arbitrage (hiring expensive talent to solve low-margin markets, vs. cheap labor to attack high-margin markets), why VCs have to up their game at actual value creation (rather than trading on momentum), and how founders can better plan their fundraising with a honest view of reality and behind-the-scenes incentives.

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(01:44) Jeremy Au:

Good morning, Adriel.

(01:46) Adriel Yong:

Well, good morning, Jeremy. So excited for the 8:30 am breakfast show.

(01:50) Jeremy Au:

Yeah. We've obviously been having a lot of fun conversations about VC returns and approaches over the past couple of years. And I think you did a great job synthesizing adding a certain point of view and I wanted to take an opportunity to go through that. The context here is that, people are pretty bearish on venture capital and Southeast Asia's asset class, right? I think we felt like this many conversations that we've been part of just not impressed on the LP side about the average return profile of funds in Southeast Asia. And I think we've definitely seen and talked to many of our peers and also our portfolio companies about what's going on. And I thought, we had, A certain unique point of view, and hopefully, people just appreciate it as an honest conversation, specifically.

(02:30) Adriel Yong:

Yeah, I think it's really drawing together the different beats and why people think Southeast Asia venture capital is the way it is today. I think one interesting phrase I heard was that startups had to localize their approach instead of just copy pasting the American approach in Southeast Asia. And then consequently, I think that's also happening in the fund management space, right? Perhaps the last 10 years was sort of a, sort of copy and paste of the American venture capital approach to Southeast Asia, which did not necessarily fit in perfectly. So I'm excited to dive deeper into the different parts of it of what could be better. And, hopefully this is a sort of like constructive conversation for People thinking of deploying, but also to the founders thinking of fundraising from venture capital firms in

(03:12) Jeremy Au:

I love what you just said, which is that it's also a function, I think of the learning rate curves, I think for the startups, obviously they discover much faster because their timelines are every two years. And I think I feel like, we've always talked about how a VC, the learning rate for individual VCs is much slower than a founder, because you had a watch multiple generations and portfolios of your VC funded companies in your portfolio go through both the boom and bust cycle. And then you kind of get to see the whole market cycle and then you're like, okay, now I'm starting to understand this only after a certain amount of period of time. And I think to double click on what you just said as well, Southeast Asia has a lot of folks who were cross trained in the US obviously, the birthplace of venture capital, and then they moved to Southeast Asia, and now they're starting to localize to Southeast Asia. Always makes me wonder about if, folks had moved from India, from China, they might have learned different lessons, and brought a different flavor and approach, but I would definitely say that venture capital in the US is very US heritage oriented in terms of how to think about exit multiples, how to think about exit outcomes, even the fund models, the LP flow of capital historically overdate.

And I think obviously Southeast Asia is that of Singapore first, which was the most Americanized, I would say it'd be right there next to the Philippines there in terms of the cultural mix. So I think that's the first piece. And then obviously venture capital started to percolate into the local ecosystems, especially into Indonesia, now Vietnam, and of course Malaysia government support, and I think Thailand and the Philippines are about one bound behind, I would say, in terms of the venture capital density stack.

So on that note I think the fundamental question that we have today is how big are exit outcomes in Southeast Asia, right? And I think the big piece is that we previously talked about this actually in prior podcast episodes, which is that, we had Dmitry from Cento Ventures come. And he pretty much has spelled out, and from his perspective, I think he writes one of the best reports on Southeast Asia outcomes. I think Asia Partners also does a fantastic report and they both actually say the same thing but in different ways, but they're basically saying what is the optimal exit? I think that's how Asia Partners looks at it. Cento Ventures looks at it more what is the common outcome? So the slightly different ones points of view, but basically they both kind of argue that a hundred to 250 million exit is the most probable exit outcome in Southeast Asia, which is an order of magnitude lower than the American side, which is about, at least a billion dollars, but probably on the small side, but closer to five bill all the way up to 20 billion, we've seen even higher potentially coming out. So there's an order of magnitude difference between Southeast Asia outcomes and the US outcomes for

(05:32) Adriel Yong:

So I just want to double click on that, right? What happens consequently when you're now resetting to, you know, as a fund manager, looking at a startup as a potential hundred to 250 million exit outcome, instead of a large multi billion dollar IPO. How does that consequently affect deployment fund strategy?

(05:51) Jeremy Au:

Yeah, I mean, the truth is that the US approach classically is that out of a portfolio of 20 companies, one company will be a billion dollar IPO. And not just 1 billion these days, but you know, you can see to bill five built 10 billion. So if you have that projection, then the classic approach is that 19 out of 20 of your portfolios can be effectively lose all your money, maybe out of that or three, or maybe return your capital or have a small exit outcome. But really fundamentally is one of them will drive the outcome, right? And so the truth of the matter is that if you look at, the average US, I've often said about this number, about one in 40 seed funded startups will eventually become a unicorn.

And so an above average VC fund means 50% or above, we'll have at least one unicorn in the portfolio and in the bottom 50% we'll have no unicorn in their portfolio. And as a result, you could have 20% are plus when you are above average and if you're below average, then you're effectively, at zero, or worse.

And I think that changes the fun approach, I think, which I think we want to discuss further, but I do also want to quickly caveat and say, why is this happening? And one part of it is that Southeast Asia is an emerging market. So obviously there's some structural differences where one is earlier in ecosystem. Two is the overall economic growth is slower than that of, for example, China. Three is, the markets are subdivided into six different markets of different sizes, different market conditions, different cultures. And so it's not easy to scale across multiple countries the same way it would be to scale within China under one regulator under the US under one common market. Obviously common, the US market is at 90, 000 GDP per capita. China is growing at, 7 to 10% historically in terms of the GDP per capita. So it's a different approach that they had.

And then lastly, of course, is that the capital markets are very structured very differently, right? So the US there's the US stock exchange go through China still has Hong Kong and historically access to the US. India has access to the India stock market. And then when we go to Southeast Asia, then, Singapore stock exchange historically, it doesn't allow loss making companies to go public, which means it disqualifies, as you can imagine, all of the US type of IPOs. Reddit is still losing money. That wouldn't have been allowed to list in the Singapore Stock Exchange. You have the Thai Stock Exchange and then you have the Japan Stock Exchange, and then you have the Indonesia Stock Exchanges, which are all doable. I think they're all relatively well run and have enough capitals for, again, a hundred to a couple hundred million dollar exit. But then again, then you start to have this dynamic where companies are having to hit this dynamic where it's just harder to build out that company that's large enough for a billion dollar company.

And then they can't list because they're burning money after that stage using American approach. And so I think it's. structurally harder. So that's why I think, Dimitri was kind of saying that in the episode, Asia Partners also talks about why they're trying to build rhinoceroses, which is companies that are about a hundred million dollar mark, they're able to list on local stock exchanges. They don't fully push for their portfolio companies to go for, a billion dollar loss making tempo exit in the US market. So I think that's a really key piece, obviously that's important if you're a founder in terms of your exit outcome, also of course, now kind of circling back to your question, as a result, it's it is, you're not a VC fund that's like saying oh, we are pessimists and we don't want our companies to go for a billion dollar exit. What was it saying is that the odds is not necessarily 1 in 40. And if you're above average or 1 in 20, what if the ecosystem is, three times harder, on average. So it's 1 out of 120, right? Or if you're a pessimist truly, then maybe it's 10 times harder. So if you're one out of 200 portfolio, and then as a result, we're not saying that you can't be a high performing fund, but then basically what we're saying is that instead of being above average as a VC, in order for you to generate returns are similar to an American style VC competing with American style capital, looking for American style returns, then you need to be a top 10 percent fund. Maybe you need to be a top 1 percent fund that are able to generate those returns. But I think that pushes us VCs as a result that when you're a fund strategy, you still probably can, to answer your question, still set your target about having a one in 20 strategy, but if that's your approach, then I think you had to be much more disciplined. I think you had to be three times either smarter, wiser, more helpful, you maybe cheaper in terms of your deal terms or in terms of your conservatism? Versus an American counterpart to realize the same returns. And again, if you're bare, that may be 10 times more. And I think that's where I think folks are like having that strategic gap in that sense. Which is I want to have the VC style portfolio approach with VC style culture of the US assuming that Southeast Asia has a US capital exit structure. And then that breaks down very quickly because once you have that fundamental gap of that reality, then you can't realize those returns. And then your strategy kind of falls apart, which I think what's happening now today is I think everybody's starting to recycle that learning loop now in Southeast Asia.

(10:19) Adriel Yong:

Yeah. So I want to double click into what you said about multiples. I think that's a big topic. When I go to the US, I asked some of my VC friends there, Hey, how do you pay 40, 50 mil post money, at effectively sub one mil revenues, right? Because, Southeast Asia venture rally, underwrite at those sort of multiples the multiples at southeast asia vcs are more used to underwriting things at 10 to 20x, but I think when you start to look at what the US stock exchanges are trading at I think there's been different reports about how the median outcome or median PE for say, the magnificent seven for the SMP500 is roughly about 65x PE. And then when you look at salt, what the, local stock exchanges in Southeast Asia, whether it's KL, Bangkok, it's effectively, one or two magnitudes lower than that. So, curious to hear your thoughts on how should we think about multiples and how that's an implication there.

(11:10) Jeremy Au:

The truth of the matter is that it's really a function of the US rather than a function of like individual stock exchanges not performing well because the US really has a density of capital. They are the retail investors. They are the richest country in the world for now. And then you have all this liquid wealth, obviously that's there and they still have that wealth on a per capita basis. So imagine that the US stock exchange as a result is hugely supported by not just the global institutions, But also retail investors with a lot of capital who are investing in ETFs and overall stock market. So basically what you're having is that this this vortex of capital is basically sucking up more and more capital from the rest of the world. And so everybody who wants to list globally would pretty much list in the US stock exchanges, the New York Stock Exchange or NASDAQ because a Japanese institution can trade on an asset easily, but it may be hard for them to access a Japanese retail investor to access the Singapore stock exchange, for example, because you don't have the same market coverage. You don't have the same trading tools and so forth. So I think we just had to realize as a result that is very understandable, and I think a lot of founders get very surprised because they're like, Hey, I raised my Series A. They want to push me towards the US IPO. What does that mean?

But then of course, as you that if you are a Vietnamese company, and then you're trying to list on the US IPO, then suddenly you also have some structural disadvantages that we saw for both Grab, as well as Sea group. And so for them, they both listed in the New York stock exchange, as well as the NASDAQ individually, one through SPAC and one traditional IPO and what both of them discovered, of course, is that one is that as a company, when you're building from anywhere in the world, again, this is not a Singapore or Southeast Asia problem, but emerging markets problem, but imagine that you have to build out a great CFO, who's able to understand not just local markets, but also has a trust of a Wall Street, then you need to get initiating coverage from all the analysts. And then your CEO only spend a lot of time talking to all of them and a lot of the volume is being done by large institutions because they decide what goes into the ETFs. They decide what goes into, what they recommend to buy or sell, hold. And so it's actually a very different muscle because suddenly, you're tapping basically public market expertise that it's hard to exist even in Singapore. Primarily they are in New York, not even an SF to some extent. And then suddenly you need to have the expertise, be able to talk about Indonesia, Vietnamese market. So there's one angle of it, but you can imagine the other side of it, which is that you're a retail investor in the US and then, you don't understand Grab. You don't understand Sea group because you don't understand Southeast Asia. So it's hard for you to get bullish.

And I remember I was taking a bus all the way back in the 2012, I think, and I remember I was talking to this guy from the Sierra club. So it was environmental guy. He's in San Francisco, I was taking a bus with him in hiking the Pacific Crash Trail. And this was about, yeah, 2015 as well. It was around that time frame, 2012, 2015. And he was just talking to me about this talk called Tesla. I remember he was just chatting about the world and he's Jeremy, I'm so passionate about Tesla because I'm the chapter head of the Sierra club and it's going to save the world, but this guy's a great engineer. I've also, I was, I understand this because as a former engineer at Ford, and then I was like this new university student, I was like, Oh, I never have Tesla electric vehicles seem very far away, very sci-fi, and this guy was like, I'm all in, I'm putting all my money in, it's a good cause.

And so there's a retail YOLO in some extent, but that's going to be some of the necessary uplift that you need to have in order to have a great IPO rally and so forth. So that IPO pop that rally is really key because then you start working backwards a little bit, which is that if you know that there's going to be a high IPO price to earnings ratio multiple in the markets, which is valuing you at a high multiple, even though you're losing money on a net basis, right? Because the US market is able to be bullish enough to underwrite your losses in a short term in the belief of future expectations, which is a behavior that we don't really see in Southeast Asia retail investors or institutions. Then you can work backwards a little bit, but just that your late stage capital, your crossover funds from PE funds from the IPO stage. So your late stage private equity funds can, as a result, have higher multiples in the expectation they can go there. And then your middle stage funds can have expectations that have a high multiples. And then your early stage people can have expectations of high multiples, and then they can, themselves, can give high multiples.

So you kind of work your way through. So the question is like, why aren't Southeast Asian, I always remember those founder was like, Jeremy, Southeast Asian VCs are so cheap. You know, And it was like a negative way of saying it. It was like, you guys are just so cheap, and then versus American VCs, they're paying so much better. And, I think part of it is obviously structural in the sense that Southeast Asian VCs have less LP capital than the US, but also I think it's a realization that the the enterprise value multiples are also an order of magnitude lower for, again, the ecosystem pathing of the difficulty of Southeast Asian startups, which I think American VCs may not necessarily understand when they're meeting Southeast Asian founders, very American trained, American educated. So during the Zoom times, a lot of folks raise a lot of capital from US funds because this person looks like me, talks like me, but happens to be raising only at a 20X multiple when remember the top of the market, they were paying a hundred X multiple. And so they were like, wow, I was talking to American VC friends and they were like, wow, Southeast Asia is cheap, zero interest rate policy has not trickled into Southeast Asia. It's a 5X cheaper, from 100X to 20X. And then it was just paying. And the awkward reality now is that a lot of those stories have not panned out, unfortunately, and they're never going to pan out. And now, obviously we see the compression where US VCs, if they're investing in Southeast Asia, is an order of magnitude lower. And even Southeast Asian VCs, I think you mentioned, 10 to 20X, I think you can probably see 5X in the Southeast Asian side as well. And so I think there's this dynamic where the public exit multiple and what they're willing to bear and the quantum and magnitude of that exchange market size exit ripples into a late stage, which is a middle stage, which ripples the early stage. And I think that took some time to percolate through the system.

(16:28) Adriel Yong:

Yeah. I was in Hong Kong recently and just hanging out with some of my private equity friends, and they always tell me like. I don't understand venture capital because in private equity, they can lever up with that when they do their buyouts and they bank on multiple expansion, right? Which means, they come in really cheap at a really cheap multiple and they basically underwrite that the multiple for this category or company will expand down the road. But in venture, the early stage guys are like Underwriting at large multiples and you know that multiple just keeps getting compressed across your seed series a all the way to your growth stage and then, eventually if an ipo happens, it's like way tighter than what your early investors underwrote it at. How do you think about that?

(17:07) Jeremy Au:

I mean, there's entirely spot on, right? And if you look at it from a historical basis, it makes sense, right? So your VC funds that are very American centric in terms of their initial approach, and a lot of them were investing in Singapore startups, right? Which tend to be much more globalized. Singapore's GDP per capita is effectively the same as the US there's a lot of the tech. And so the early under type of startups, so initially underwritten to some extent, it felt like it made sense because you have similar VC strategy investing in to some extent, like very R&D centric moonshot kind of startups, I think. So I think the early stage underwrote a higher multiple relatively because it's got to start somewhere. Obviously not as high as the U. S., but relatively high. And then, the middle stage said, I can believe in this story as well. Let's underwrite that. And I think more importantly, the zero interest rate policy era came just nicely for this time period for the middle stage or series B and your late stage especially the massive printing of 2021, 2022, the pandemic era, there were a lot of tourists, US funds that were entering and they created a lot of coverage for what we commonly call today, the series B, the valley of death in Southeast Asia, which more like not just valley, I think, because it implies that, you get out of the valley, so it's just like a cliff, you just fell off a cliff and then you're just like struggling for two or three rounds. And then if you've managed to make it to the stock exchange, then you kind of get there. So it's more I think valley is, it's optimistic, in that sense.

And then I think what happened was that as companies had to fall off that cliff, over time, then all the early stage VCs are looking at us. I was like, Oh, okay. This was a great founder. And then obviously we also saw different types of companies being underwritten. So less pure play.

For example, we saw Traveloka, Gojek, Grab. These are all pure, relatively pure play digital, primarily obvious, obviously very strong logistics piece and travel piece and all these other dynamics, but I think we started to see also the expansion to like very deep into the Indonesian economy, the Vietnamese economy, and these have a GDP of capital which are 10x lower than Singapore, right? And 10x lower than America, right? And then again, their market size is not as big as India, even though they have similar GDP per capita, they don't have the same growth rate as China, right? Which kind of doubled their economy pretty much across the decade plus.

So when you don't have these factors, then suddenly you're also underwriting, suddenly a different type. So your initial pool of capital is underwriting a very small pool that will, kind of look more American type of startups. And then you make this assumption about America's strategy. And then suddenly you underwriting a different startup pool, with the more embedded into the regional economies. And you're starting to watch these people fall off. And I think that's where your margin compression starts to happen, and so I think what's happening now is there was a period where there was relatively high multiples in that sense. And then it got hot because the late stage came in and started people in Southeast Asia, sort of writing higher early stage multiples. And then now that the bear market is happening and they are, most of them are gone now from the US side. And now suddenly middle stage has started to realize that the early stage folks are starting to realize that. So everything's starting to recompress down as well. So I think people are like, how do we fill up the cliff and build another mountain to make it a flat thing? And I'm like, I think most people are kind of like lowering the height of this thing so it's still a drop off but maybe a more gradual drop off. So that's what we're seeing.

(19:57) Adriel Yong:

I think you, you talk about this quite frequently within Orvel as well, right? Which is that there are essentially two kinds of economies in Southeast Asia that we are investing in. And then, each type of economy requires its own nuance and evaluating the startup, the multiples, how we think about their go to market product, hiring strategy, and all that. Do you want to elaborate more on that?

(20:16) Jeremy Au:

Yeah. And, this will be coming in a brief episode that we'll hyperlink in this once it comes out as well, but I think the one angle about it is really GDP per capita, right? And I mentioned this earlier. So the US is about 90, 000 GDP per capita. Obviously San Francisco as a city and New York as a city, actually both multiples higher of that on a city GDP per capita. So Singapore GDP per capita is effectively the same as America, 90, 000 GDP per capita. Of course, Singapore is a city, right? So the volume is 300 million people of this thing versus Singapore is at 5 million effectively on a consumer basis. And then suddenly you go to the next bound, which is to look at Malaysia and Thailand, which is around 15, 000 GDP per capita. And then you have the rest of Southeast Asia, which is Indonesia, Philippines, and Vietnam, which is about half of that of Malaysia and Thailand, which is around the 7,000 to 9,000 GDP per capita. And of course, these are larger populations as well, actually. So that's interesting.

And I can imagine like this two diagonal lines, right? It's like the country's at the highest GDP capital, very small. And the ones that have lower GDP per capita currently have larger populations. And so I think this is interesting dynamic as a result, which is that when you're building for your domestic country versus are you building for the US right? So actually we see this in India, right? There's a lot of SaaS founders who are saying I'm not building for India because India's GDP per capita is similar to that of Indonesia, Vietnam, Philippines. So the Indian founders are also separating two tracks. One is I want to sell to my local, so we're doing like quick commerce, which is another thing altogether, but you know, some level of e commerce, which is embedded local financing, working loads. So there's all kinds of local stuff they're doing. And then the other part of doing is, I want to build SaaS for America because I have an Indian diaspora. I have an Indian engineering team that has worked previously for American SaaS companies. And now that accelerators and VC funds are they literally have big VC funds. I won't mention, but they literally have offices, one in India and one in SF and one in New York. And then they train them as like,, we're going to train you how to sell, then we'll bring you there, shop you to the US VCs who understand SaaS multiples, but also shop you to the US potential customers because then suddenly you have this dynamic where you're paying Indian level wages or emerging market wages versus a US price point. And we also kind of see that actually for a lot of the Chinese companies today, which is that expanding the US because you look at e commerce folks like Terumo and Shein, from that perspective, it's historically we've been fighting for the Chinese market, which is very low pricing power because of the GDP per capita, even for them. And it's also highly competitive and cannibalistic as a market, but we have the Chinese cost structure, which is the white label, the manufacturing, the logistics chain, and they're like, wait, I can go to America and pay 10x. And then I can give this massive discount off the Amazon market structure and then suddenly they can exit.

And so the e commerce players in China are doing what the Indian SaaS folks are doing, which is trying to take advantage of that arbitrage or that multiple difference on the pricing power side versus the cost structure side. And so I think Southeast Asia is a result, we see two types of companies that are, for example, we see this for the Singaporean folks who are all or who have very American centric in many ways. So they kind of build American style companies of the institutions, and then we see this obviously for the US educated Southeast Asian, so US educated Vietnamese folks, US educated Filipinos and Indonesians. So they're also building for the US market at some level is using that structure. I think Athena is a great example. So they're doing electronic assistance, right? And so what they're doing on one level is they're using Filipino EAs, and then they are kind of using some level of organization, but it's selling to American executives who want an executive assistant, right?

And so they're taking that. I think we see that for call centers as well, why we have American call centers, American customers being have Southeast Asian or Filipino call centers as well versus I think if you're building for your Indonesian real economy, then suddenly you're building cold chain for Indonesia, which we've invested in. We're also looking at, chicken farming, right? You know, it's As brick and mortar, as local as you can, it's Indonesian chickens for Indonesian consumers, which we have also invested in. And so I think that's really that crux, which is that suddenly you have to that bifurcation of type of companies. And in the episode that we're going to link to as well, we'll talk about the other different subcategories and niches of this that's important, but I think those are the major clusters. Ah, I forgot to mention the, I think there's also a lot of diaspora, floating around Thailand, the Philippines, the Chinese, the Russians, the whoever's but you know, basically they have a global European mindset, for example. Some of them are going to tackle, I think we've seen them tackle the local market and they tend to ally with a local founder. And then some of them are really going to start tackling the, global, their home markets, right? The European market. So I think you see a lot of crypto folks, they're all at Bali or whatever. And they're like, okay, I'm servicing crypto. I can't do this in my country because it's banned or it's too dangerous, but I can do this from Singapore, Bali so, I think those are the, bifurcations I would say in terms of company build outs, but as a result, multiple slash approaches that they have.

(24:49) Adriel Yong:

I think your American offshoring example ties in very nicely to the next point, which is really an elephant in the room, right? Your traditional economic arbitrage is, hey, I'm a American company selling like things that, a hundred US dollars to the consumers, I want to grow my top line, but at the same time I also want to reduce my cost structures over time and I do that through hiring cheaper labor often in an emerging market. And that's how your profit margin massively over time, but in Southeast Asia, yes, there's that try, there's that attempt to grow your top line, but at the same time, people are also increasing their cost structure, right? Like people are importing expensive talent to solve, oftentimes, cheap problems and I think that's also why we have seen a lot of companies fail to go on that path to profitability, right? How has that manifested in your experience?

(25:37) Jeremy Au:

I think there's a hundred spot on and I think credit goes to you for saying it. You sent it on a WhatsApp and I saw that I laughed because you call it reverse economic arbitrage. I don't know what the right phrase is. I'm sure there's a catchier one because reverse economic arbitrage is not the right phrase yet. I don't think it's the right way to capture it, but I thought it was like really spot on because like the reason, I know people always like, okay, why did America experience high growth and low inflation? And then they're like, basically it was like, Walmart was basically like selling these really cheap clothes. And then it got cheaper and cheaper right over time. And then Walmart grew huge. And it's yeah, because Chinese manufacturers were making this t shirt cheaper and cheaper. And so, you saw American prices or, and then you kind of have this giant Chinese manufacturing machine getting cheaper and smarter and obviously trade sanctions have broken this relationship. So all these Chinese manufacturers are going to sell to Terumo, who's going to go direct to consumer in America, and then inflation is going up and blah, blah, blah.

So, but you know, that's like the fundamental rule of economics, which is like comparative advantages is that some countries are better at some things and some countries are better at other things. So how do you play to your strengths? Because even though America is more expensive, America is really good at R&D is very good at space rockets. It's very good at all these things. And so they can do it cheaper. They can do a cheaper space rocket and somebody else can do it. They can do a cheaper semiconductor designing than somebody else. They can do cheaper product design because it's all about, the ratio. of that versus the ratio of that. And I think one of the shame of the decoupling of the US-China side, obviously, is that, suddenly China's starting to say, Oh shit, I need to learn all this stuff. I need to learn how to do rockets. I need to learn to do manufacturing.

And on the setting, there's bad news for America, but it's going to be another future episode, right? But I think the reason why I say this is that this is a very important economic concept because suddenly when we're talking about Southeast Asia, I think we've seen that happen actually multiple times now where US MNCs are fighting to enter Southeast Asia. So we saw that with Uber. I think we saw that with Rocket Internet and a lot of them obviously were hiring executives that were primarily expatriate or US-educated which obviously, and I would say maybe to some extent was a bit Singapore centric, as a result. And so all those things kind of made these cost structures fundamentally in some ways more expensive, obviously on a per person basis. And then two is that a little bit less responsive, I would say to the local markets, because it depends for, Grab and Gojek both out competed Uber, right? Grab was faster, more understanding of local market and Uber. So Uber got out competed even though Uber had a headstart in terms of technology stack, capital stack, all that stuff. So, sorry, but Uber lost, fundamentally. And Singapore was the, and it continues to be the most important profitable market, that's really key to play here. That's one.

But on the other side that we have here is that, Uber lost or choose to lose to Gojek, which also kind of makes sense also because Indonesia as a market is very expensive, but I want to say is but then of course, why did Uber choose to leave Gojek because the cost structure fundamentally was going to be more expensive than Gojek was hiring locally, but also using Gojek, right? The local motorcycle taxis to do it, which is a lower cost structure, low commission, but also honestly, a better experience, not not necessarily a safer one, but a faster experience in terms of time. And so, that's the piece where, you know, as a result, you're using expensive labor that's not in touch. And high velocity to tackle local problems. And kind of goes back to the earlier point, which is as a founder of VC was on a board, the question then as a result is, are you pushing for the same outcome as the US? Do you believe that? Or do you believe is a low outcome? Because if I think this is why we're kind of saying here is it's not wrong to hire American style executives and have American style VC board strategy if you believe outcomes are going to be American style, because then you're like, look, it's also going to be a 10 billion outcome. And you'll still be able to exit a New York Stock Exchange on a loss making basis. So we might as well hire the same type of talent. And that talent understands the strategy way better than the local folks.

And I think what we've started to realize that almost every startup since then, I mean, obviously to continue to draw from alumni from the rocket and, the Uber folks, I know they're still around, but I think you see that bifurcationing folks are either going into the global SaaS piece, right? Because they're saying that they're comfortable with that, but I think what we see as well as maybe they become executives, but then the team is very local. And I think we've seen. I won't mention, but there was a Chinese founder that we met. And then, their first company to have was primarily Chinese executives, Chinese operators. And then that didn't work out because even the cost structure of that, of the Chinese folks was too high for the Indonesia market. And so the next startup they had to do was, using more local folks rather than Chinese folks. So think about it, the Chinese executives being transferred from China is too expensive, for the Indonesian market, right? So how can you even do that for German or European or American style talent, right? So it doesn't even work.

And then also, I'll say one other aspect about it as well is that this plays into the single country versus the multi country strategy as well, which is a single country. It's a single tax code, single financial code, single market. To some extent, there is economies of scale in terms of scaling operations. Obviously in Indonesia, tier one city, tier two, tier three, Dagangan Ryan Manafe and Wilson in the previous podcast episodes that we're huddling to explain this pretty well. Obviously they're like still worlds apart, to be honest, in terms of GDP per capita and structure and infrastructure. But at least from a labor perspective, somebody from Jakarta can be like, I can be the expansion team, but I think if you think about a jump from Singapore to Jakarta expansion, then can the Singaporean or American or European or Chinese person actually be able to do the expansion? Well, I would say that it's not that they can't do it, but you know, like the ease of, Jakarta tier one to tier two to tier three is way easier compared to a market expansion from Singapore to to Ho Chi Minh city.

So those three jumps are just fundamentally way harder, but of course I'll say, tell you this from a flag perspective on a VC slide is way sexier to me, you know, like, Singapore KL, I mean, people to do Singapore, KL, people are like, Oh, okay. I was like, Singapore, Jakarta. Ho Chi Minh City, Manila, like that's a sexier path. Whereas I think you can probably make an argument, maybe singapore, KL, Bangkok feels a little bit more rational. I'll say from a capital city, or you can even say Singapore, Hong Kong, Tokyo, Seoul feels like a more rational GDP per capita, cultural, similarity, market structure, government approach, but from a flag perspective, it always looks sexier to be like, put those flags, on the slide deck on the go to market slash usage of funds slide.

(31:26) Adriel Yong:

I think that's so spot on right which Is the country that you're expanding into worth it to hire another whole like country executive team layer, you GM, CFO, and that hinders the path to profitability, right? Imagine if you're now trying to do like a shallow regional play. You know how I have to hire five country GMs, five more CFOs, like how do you even break even on that before your next route comes in, right? Whereas if you go deeper locally that generate those massive economies of scale on the GNAPs.

(31:54) Jeremy Au:

And I think it's spot on. I think, one example of that is a lot of SaaS founders, for example, in Singapore, they're building and then they try to go to Indonesia and then they're like, Oh shit, like nobody wants to buy SaaS. Right. And it's hard to buy SaaS. And the reason why we talked about is that is the SaaS fundamentally is about replacing labor, right? So I'm willing to pay a subscription because it helps me save time. So I'm doing financial accounting and I have a pay for SaaS. I pay 50 a month, right? Let's say a hundred dollars per month, because it saves me the cost of one Singaporean accountant, which has cost me 90, 000 GDP per capita. So it's Duh, I pay 1, 000 on a year basis, I save 90, 000. Whereas if your cost of labor is, this is what we see, is like Malaysia and Thailand is 15, 000, then the trade off is doable, but, it's still a trade, right? Which clusters, which industries make sense. And then, if you're going to Indonesia, which is again, another order of magnitude smaller, we talked about it earlier, then people are like, hey, I can hire people, interns or university students to cover that, right?

And so, a lot of SaaS folks are like, okay, I want to do. service region. And then that's where they kind of run the problems because they start building a GM in Asia and they realize they don't have the same profit margins. And then they either have to cut costs and then they have to lower the price a lot and then use it more as a way, as a flag, but also hopefully the market improves over time, which is a very long, expensive play. They choose to exit the market. And I think of course people say, product led growth, which also doesn't really work as well as product led growth only works in high GDP per capita country is really fundamentally right here.

So the TLDR is that all the American truisms on startups and venture capital just burn in Southeast Asia. Yeah, It's like watch YC videos and then go watch BRAVE, but I think we don't do a good job. Actually, I think we do a good job talking about that. If you listen to every podcast and every founder kind of says the same stuff, which is like PLG didn't work for us and the price sales is about cost of labor. So I think we listened to all of it. And you're like, kind of like really thoughtful and talking about this dinner conversations we're having you stitch it together. You understand. What's wrong with some of the YC slash Silicon Valley truisms. But then of course we, I think, honestly, I think one of the things that we're going to do in the future is and then this conversation is one of them is I think we've got to be a bit more explicit about that the US logic makes sense.

And I think for example, YCBD still makes sense. If you're in Singapore or Phuket or Jakarta or Manila and you're building for the US market, I think it still works. But if you're building for the local market, which is an order of magnitude, lower GDP per capita. And with fundamental infrastructure gaps on that ladder, then I think things start to fall apart, especially on the fundraising side as well.

(34:13) Adriel Yong:

Yeah. So what you basically just talked about is, you know, the first part of I guess, possible solutions and Southeast Asia, when we think about what went wrong over the last 10 years, right? What other solutions or what other things we consequently adapt when we think about venture capital in the region?

(34:31) Jeremy Au:

Yeah, I mean, you just reminded me that we did sound very bearish, but again, we want to kind of clarify that if you're a company going after the US, you still can go to the US style approach, US fund returns right? So that's one. But of course, being honest about and I think Dimitri said, it's if your revenues are coming from Southeast Asia, then you have to be aware about those exit outcomes. So being honest, super clear. I think the second part that we'll be thoughtful about is being very thoughtful about the risk versus reward structure as a result of your company exit outcomes, both from a founder perspective, but also from a VC perspective, right? So, I think from a founder perspective, I said, there's nothing wrong using expensive Western labor if you're going after a Western problem, right?

And then you feel free to just use zoom and hybrid to lower your cost structure the way you want But I think that if you're building a company that's going after a domestic problem, because, you care about it, you're a patriot of your country. You want to work in your local market, then you can, but you just have to be aware that, the exit outcomes of the companies that have their, and I think that's where you look at the Chinese stories, you look at the Chinese, Indian stories as well. And some of the explosions, but also some of their success stories about why they're much more capital efficient and why much hungrier than the American counterparts , or even the European counterparts. And so, what I'm trying to say here is that if you know that exit outcomes are automatically smaller, then it changes how you fundraise, right? Which is that one is I think that you're much more disciplined about your fundraise, right? So fundraising, maybe smaller quantums at more disciplined valuations because you want to preserve your ownership. That's one aspect. Or the other way is that, you honestly structure yourself more for a private equity kind of outcome. So you're taking on, friends and family capital, some early stage capital, but you're basically telling them, look, my outcome is a hundred mil. I'm going to do a trade sale.

And so as a result, there's a very you can consult conservative by historical standards, but I would say very prudent and wise capital deployment, being very disciplined about structure. And we saw that, for example, in our company, like Baskit, which is just doing Indonesian supply chain. So one of the things that we said Hey, so many supply chain companies have failed in what's the key takeaway. And he was like, I got to be way more conservative on my cashflow than other people. And so, I think structuring your mindset, to have that structure opens up some new opportunities.

So I was talking with a B2B marketplaces company and one of the key structures that, they always have is Hey, when you are in a low GDP per capita country. your customers are very budget conscious and your suppliers are not very efficient or effective, not able to adapt, right? And so the classic B2B marketplace is saying, I'm going to charge suppliers a fee for accessing buyers. It doesn't really work out because they're not the capital or margin structure. Oh, we are going to convert our suppliers to improve their efficiencies. And then they're going to give me a percentage of that upside to, pay me.

Which doesn't really happen either because everybody's too staffed but then if you look at it from a private equity perspective, then you're saying like, look, why don't you buy out one of the suppliers, right? And run that company because you're saying that and this is where the, Thinking about it from a private equity kind of play comes in. And we talked about this, small cap private equity kind of like kinds of sharpen up is even though as a VC, you have lower multiples, but they're also low multiples for buying a factory, right? Even lower multiples. And so if you're able to access debt or equity that we talked about, you mentioned about, private equity funds being able to assess debt for leverage, for example, there's no reason to stop a decent local executive, a founder to access that as well. If you had the right connections, the right approach, but also the right promises to the Bank that you're not running a giant net loss every year because the bank will definitely say nope, but if you're able to build that profitable company that has that profitable set of revenues, then the banks are able to lend you money. And then you, then that's where you can start snowball that set to have private equity outcomes, but then of course, when you start doing that, then of course the bad news for the VCs is that then founders will say Hey, I can pay myself cashflow and salaries. And I don't necessarily need to achieve that public market exit in 10 years.

And this is where I think the tricky part for VCs are, which is that if you are trying to go for a public market exit, In 10 years, because you have a fund promise within 10 years. Ah, that's a tricky part. Suddenly all of a sudden, right? Because if your founders are going to go for a private equity piece, because they're basically saying, okay, I still want to be a billion dollar company.

I want to do this over 20 years and I want to use a mixture of debt and equity and are willing to be profitable at each stage of it, then I think VC funds have under different strategies, right? One is they can go earlier where they're still. A VC type of outcome, but obviously you need to have a longer time horizon, so maybe a family office, some extent or you start, I think, so you see some funds in emerging markets becoming open ended funds. So basically it's a perpetual fund. So they don't have to exit within 10 years. So the paper returns continue to go up. I think the other way that you can potentially do it is you focus on us style companies that still have that us type of return profile. Underlooked by the Southeast Asia market.

And so I think there's one other angle of it. Or you just say, Hey, I'm actually a small cap private equity shop, and I'm, that's what you promised all of LPs. And I think actually a lot of VC funds, we know actually have made that discussion already with LPs, which is Hey, we're actually going to converge close to the small cap private equity in terms of the type of companies that we want to fund or invest, but that also changes your portfolio mix, because instead of having one super high return, 10 billion exit on the US stock exchange and the rest being like, not returning capital, you're actually losing money. And suddenly it looks more capped PE. Maybe it looks like, 10, nine, one. I mean, I don't know what the right answer is for the right mix because people don't really know, but I think that's where I think people have to fundamentally, if you look at that, yeah. Fun structure and yeah. Fun model. At a very different way.

So, and I think that's hard because suddenly you have, VC, sorry, you suddenly have founders who are like, Hey, if I build this on private equity way, I can actually, don't need to exit. I can just pay myself a couple hundred thousand dollars a year, live like a King had benefits and I don't ever need to exit. And then you suddenly have VC funds who have a minority ownership of these companies. And then they can't get out because they can only get out through secondaries. And today's market secondaries are being traded for at least 50 percent off, if not 60, 70 percent discount, which is a horrible way to exit because again, is there's not enough liquidity for those trades, but also there's not enough buyers who understand Southeast Asia as a market. So hopefully maybe the ecosystem gets better over time. So I think there's one angle of it. And I think that's where the private equity approaches buying at least a 51% hold and the company means that you have the bought rights to say okay, I pushed a company for that higher growth IPO route still cause I control, I don't want them to slow down or I can replace the CEO if they want to slow down. They push them to go for a private equity trade sale, which is still doable. So they've, they can force effectively, not force, I mean the owners anyway, right? So they can sell it to another private equity fund that sees that global opportunity.

So private equity companies are a little bit more globally thoughtful, I would say, acquirer friendly, you could sell to a corporate strategic acquirer still as well, cause you have the ability to pull that trigger or, I think I've seen some private equity funds. I was just like, look, we can't sell right now. It's a bear market, but let's just hold the asset. We have 51%, 75%, a hundred percent. Let's just hold the asset and just get cash. And that's the lever in more debt to unlock value from assets. And we use that to buy another asset. We roll up and We go buy another asset and roll it up. And so there's a lot of different ways that a private equity player with majority control.

And again, I want to say is that you saw a lot of those measures actually are what founders can do. Founders can also roll up and use that cash to buy other companies. They can themselves can also sell to a strategic acquirer or sell to a PE shop. Yeah. But then of course, is if you diluted yourself like crazy in the early years and you sold, you split it like crazy because you were like spending like crazy. Then obviously then suddenly this private equity outcomes look terrible to you because suddenly, you look like you, you made yourself a billion bucks, but it took you, 20 years to get there on your stock outcomes. So that can break down pretty quickly.

(41:35) Adriel Yong:

I mean, I think there's so many good points that you mentioned there, right? Raising for M& As, which actually is a great time to do it, given how a lot of companies are struggling to fundraise. I think this is a time where strong companies and strong teams can raise money to go and buy out and consolidate, then leads to some level of, vertical, integration and better margin structures. I think there's also another interesting piece about how do you as a fund make your entry price sort of lower as a function of de risking the investment. You talked about like how private equity does leverage, but I think what we are starting to see as well is that people are doing more secondary transactions. I think that was historically very you know condemn, you don't believe in your founder, some level of taboo, right? But the truth is that it's a win situation for a lot of parties here, I think, for all the investors, it's great because they have, quick liquidity and, the sort of return profile for all the investors might just be like a two, three X and they are happy to call it a day. Whereas your funds need a much higher return profile because fund models and strategies but that, for the person buying it, you know they come in at a much lower price because of the secondaries and then for the founders they're going to clean up their cap table They're going to bring in more helpful and strategic capital. So what do you think about enabling secondaries transactions? What's the state of the market on that today?

(42:53) Jeremy Au:

I mean, I, this is, I have mixed feelings about that, but because I think it's true that from a technical basis as a VC fund, you need to realize returns, right? So realizing two to three X returns within four years, it's actually really good because basically you're realizing your 20, 30 percent LLR at least, you're able to do that. And you don't need to unlock 10X, for example, 100X years, right? So I think there's that shape or the convexity of your curve is really important. And this obviously applies to fundraising and margins compression, but also I think secondary transactions as well.

And you don't want to be in a situation, on the other end of the scale, we'll just say you have a 10 year fund, and then you're done. Because you are a closed fund where you have to finish within 10 years, then you're forced to sell year 10 effectively or ask permission from your LPs to extend your fund life. And then the secondary buyers kind of know you have to sell and then you're in a deep bad position, especially because you happen to sell during a bear market or flat market rather than a bull market. So to some extent, if you're able to be smart and you're like, you sold during the bull market, your optionality, I think there's this technical piece that I think funds everybody's doing right. And so I think every fund has started hiring a cop, deaf person to help them figure out the transactions. But also I think we're starting to see, I think the converse of that is, I think we're starting to see more secondary funds being launched in Southeast Asia. I think it was to see some Hong Kong or Chinese secondary funds also starting to explore Southeast Asia market.

Again, I think it's family offices. It could be a good asset for family offices to hold because they don't have a fund life requirement of 10 years because it can hold forever, right? Multigenerational asset. And I think we also see, I think the entry of like private debt companies as well, because Heliconia, for example, the structuring debt, because they see that opportunity again, the sophistication of the VCs and to allow that on a board, but also to allow the CFOs who have the ability to understand that is there.

(44:34) Jeremy Au:

So I think the technical side, I think I agree with you. I think that's really how to solve that in this current bear market. Is this that I think on a fundamental basis, at the end of the day, I always say never let the tail wag the dog. VC is a starting function to allow the training of founders and give them the early risk capital but founders and the executive teams and the CFOs are the ones who are really fundamentally driving and generating value, right? If that makes sense. So if it takes on average 20 years for people to generate a billion dollar company, then a primary source of capital should be private equity funds or open ended, funds that are like, VCs that have decided to be open ended or family offices or government funds or debt, right?

I mean, these are all like, so what I'm trying to say here is, but if you are building in a way that could become, a billion dollar company within whatever it is, you're a Singaporean or a diaspora person building for the USmarket, there's a UStype of style returns. Or maybe you just found something that was really lucky, right?

Maybe something unlocks that at the fundamental makes sense. Oh, you have a bund of hidden advantage, right? You have regulatory advantage, you have network advantage or capital advantage that most people don't have. So you want to push that faster than a organic business could get there. Then you should take it. So what I'm trying to say here a little bit is, this is why I'm mixed about secondaries at some level, because I think What happens is that I think if every VC becomes very secondaries oriented, then we end up becoming momentum, you trading game where it was just like, and if you believe that it's fundamental value creation, then it's fine because basically we're saying what we're trading risk reward curves for that is if it's no value creation, there's no exit. Then, they call it, the suckers game, who's left holding the bag, which we saw a lot in retail crypto, who's the person who understood the least of the company is left holding the highest multiple company and they can't sell the secondary and they can't exit.

So I think what I'm trying to say here is that feels okay. Technically, because that's what everybody should do. And I think everybody's already doing, but I think I'm worried that if we are not disciplined at the board level, helping founders with the fundamental realities of the unit economics and the business to get that value creation in, and we let the companies implode because they were left with the backholder, at the end of that thing we're just honestly screwing over great founders. Learn the wrong lesson from the VC. And we've seen that a lot, actually, I think Gita and I were discussing that in our last podcast, which we're also linked to, but we just seen VCs have a real huge responsibility to up their game, to understand the business, to spend time in the business and stop reading sub stack or YC videos.

And then, repurposing, repackaging it, old wine, old, expensive wine in an Asian bottle, but then, And then it doesn't work, and the companies explode, and then, the VC, or principal, or the partner just exits the VC and joins some other company. I mean, the consequences are on the founder. It's on the employee. It's on the jobs, on the suppliers. It's, I feel like VCs have a real responsibility because they have the ability for us, like what we're doing, to discuss this, pattern match, have the real frank conversation within ourselves, and the real frank conversations with the founders, right? So I think the VCs have real responsibility. That I feel like personally, I don't think VCs are really stepping up to that thing because you, it's not just the secondaries game, but it's about the value creation game. Otherwise it was just destroying the ecosystem at some level, because then at some level, every American VC that's late stage is going to be like, okay, I thought Southeast Asia multiples were cheap.

And so I was going to pay a multiple that's lower than America, but higher than Southeast Asia. But it turns out it was a badly run board or the accounting was shit. Or there was fraud and so I'm never going to do it again because I'm going to lose my face and I'm going to, not be able to be promoted or generate returns for my pension fund or for my hospital system or generate funds for my endowment fund for the university so, so I think, I think there's a certain amount of, real politic around that we're talking about, but I think that's where I think the VC is when you step out of the game.

And I think the reason why I think you and I enjoy talking about this is because we want to be super honest because we both have builder experience and we both have VC experience. And so I think for the founders, it's hopefully, You listen to this podcast or you listen to other people really honest.

I think obviously I recommend Gita. She's super honest. Shiyan is also super honest. Wings is also super obvious. And they're all co hosts of the podcast. But they're all honest in their own way. So Shiyan is doing a global fund. She's not doing that Southeast Asia. And so she's picky, but she's also very direct with feedback.

A lot of people like, I personally like, but a lot of people don't like it, cause they're like, Oh, is this too pessimistic? Wing also does actually, this, right? His portfolio selection is actually quite interesting. That reflects, I think his American perspective, but also his understanding of some of the ecosystem pickups that he make from Bangkok. And then you also see that for Gita as well, right? She's very frank and thoughtful about the local economics of the business cause she was a former. Found an operator as well. And so I think that's my fundamental obviously solution one is be super honest, everybody's be super honest.

Then number two, of course, is be thoughtful and wise about your capital efficiency. Therefore your growth strategy, be super disciplined with your strategy and therefore be very disciplined by fundraising strategy, because you have to understand a series B cliff. Slash, flaw, that's happening. And I think, the third that's really key for me is I think secondaries is a subset of creating immediate value because there's no other way to do it. But I just don't want to see the whole game to be secondary trading. I really think if I was to say, it's if there's a very strong community, I really hope that brave is that community hopefully is that really focused on discipline, capital execution, value creation, because we understand those two things. We're honest with one another earlier. And because we understand that the market is tough. What I'm trying to say is that, and I think one people, sometimes people tell me as a, Hey, Jeremy, are you being pessimistic? Are you just, you don't like the ecosystem? I'm like, no, I'm a patriot. I came back from the US ecosystem and I said, I'm not going to maximize my career and my enterprise value in SF or New York because I get maximized, if the fundamental ecosystem and the fundamental industry is growing a certain thing, even though it's bull and bear market, there's a high EV, right? Yeah. I mean, So I'm a patriot for Southeast Asia, but I'm not saying that I don't like the ecosystem.

I'm just saying that we're early. It will get better if we're honest, if we're disciplined, and if we're focused on value creation. But if we're honest, we're disciplined, and we're all focused on trading to one another, effectively in a shower game, to be like, Oh, who's the sucker? Oh, I sold that guy at 20x multiple, and I bought it at 3x multiple then you're just like, you didn't create value, right? I mean, okay. Technically you did create value because you believe in the founder before anybody else, but still you didn't, I mean, that's not why you got in then. Yeah. I mean, or if you are like, we lie to one another, we're disciplined and we create value, then a lot of people get burned if honest, we try to do value creation, but we're not disciplined at all because we spend like drunken sailors. Then we're also not going to get there. And so I think the ecosystem has to have that Darwinian hope and obviously aspirational. approach to be like, I think you need to be all three things, be honest, value creation, and discipline, which I think, it's actually kind of a community values for Brave, funnily enough. But I think that's, I think how I think about it.

(50:53) Adriel Yong: And I think with that, we have come to the end of the Jeremy and Adriel breakfast show. I'm looking forward to the next one. It's been a real pleasure to talk through like different sort of like reflections about Southeast Asia venture capital over the last 10 years, the sort of reverse economic arbitrage of hiring expensive talent to the sort of like realistic exit outcomes, we can expect in i. e. 100, 250 mil MNAs or even IPOs rather than your multi billion dollar IPOs in the US so even things like, fund strategy, deployment using leverage, secondaries.

(51:23) Jeremy Au:


(51:23) Adriel Yong:

Awesome. Thanks, Adriel.