Over the last four years, with the rise and fall of Chalkboard and building up the startup of my family for my wife and daughter, I have taken a break from investing and am in a portfolio management mode. After a year of corporate career and setting things up proper for my family, I have decided to get back into angel investing but building on a different model that provides me with the least hassle of dealing with paperwork but at the same time, the most enjoyment of angel investing: working with founders of a startup and helping them to succeed. One major philosophy change I am going to have is to write about the why, what and how I will invest here. Like my recent articles, I will make modifications to this document. Continue reading Angel Investing
My friend, Rama Mamuaya (aka @rampok) from DailySocial.net (the top tech & social media blog in Indonesia) wrote a tweet this morning, “How exactly does one measure a startup’s success? Exits?” I want to emphasize why exits are very important as a whole for the technology scene in Southeast Asia. It is one of the major reasons why top tier venture capital firms from US like Sequoia and Benchmark Capital and super angel investors from Silicon Valley only pump their money to China and India instead to an emerging market like Indonesia and its surroundings. I will explain why exits are important (as a metric) for the success of a start-up and how it impacts the venture financing in the entire region of Southeast Asia. Continue reading Why Exits are Important (as a metric for Start-ups)
A couple of incidents for the past year recently made me ponder about the way how entrepreneurs in Singapore, or generally Asians handle their potential investors differently from their western counterparts. Perhaps, in terms of Gladwell’s “Outliers”, the cultural legacy could be the major fact that contributes to their behaviour. Since raising money in such difficult times is so much more challenging, it may also be good to provide some thoughts for those who are optimistic and willing to give it a shot. Sometimes, it’s not their fault to sound that way but they have made it so difficult for the investors to really say yes, for 99% of the time, they really did not know what the other side is thinking. I decide to summarize a few general cases for them so that they don’t make such amateur mistakes.
- Do not sound arrogant to investors you meet: I understand that ego is part and parcel of the trait of an entrepreneur. However, there is a base line which each investor have with arrogance. Arrogance can deter an investor away easily. Never make the investor feel that they owe you a living or some entitlement. If you made it sound that your investor owes you a living, it is almost certain that he or she will never put a single cent in you. The problem with arrogance is the following: if you do not sound humble even dealing with him, how can he have the faith to entrust that sum of money with you? It also means putting checks and balances on you can be a pain for the entrepreneur to manage. I have seen very experienced investors turn down good deals because they know that they will incur more pain and depression dealing with an arrogant prick.
- Do not tell the investor that you don’t need money: The most common mistake that an entrepreneur made is to tell the investor that you don’t need money. Oftentimes, you don’t need it when it is offered to you and when you really need it, the person who offered the money will say, “Good luck with your ventures” which implies that he or she is not going to put money in you. It is alright to be polite to say that you are planning for future investments and tell the interested party that he or she will be informed, rather than outright tell the investor that you don’t need money. I have a story where a company was offered US$10M for 10% equity when the product was launched. They really did not need the money and told the investor that they don’t need it. In the end, when they are in cashflow problems, they ended up selling the company for a much lower price.
- Do not tell the investor that you are just checking them out: This is something that I learned the hard way in Asia, and I bet no business school actually teaches that. I once hear an interesting innovation by an entrepreneur in a business plan competition some years back as a judge. The entrepreneur was queried about the business model and the technology by the judges. After minutes of probing, we realized that the technology is not ready for consumption and we ask the entrepreneur why he took part in the competition, and he said that he was checking the investors out. The funny part is that when the judges discussed the team, we all agreed that they should be the lowest scoring team because they violated the cardinal rule of telling investors that they are “checking them out”.
- Do not ask the investor to share his contacts or share the privileges his portfolio companies receive with you: I often think that it is just basic etiquette that when you reject someone for investment, you should not ask for more. I have the unfortunate experience of being asked to share my contacts with investors or the privileges of the link-ups my portfolio companies have to China and other parts of the world. It happened with many people who I taught that they are professional enough to realize that it is not appropriate to do that. Let me put it in another way, if you made so much effort to build these contacts as an investor, will you share it if there is no value proposition for your business and even worse, you need to account to the other partners in your firm? Actually, when I was living in Cambridge and visiting Boston to meet potential investor, I was told by mentors and experienced entrepreneurs that there is a basic etiquette. Of course, some young entrepreneurs in Singapore think that they are being smart to squeeze something out from the investor, which backfired on them practically all the time. If you ask someone for something without reciprocation, you will not expect that someone will give it to you. Not to mention that there is the professional reason that the investor has to keep his core competitive advantage to run his funding business. That being said, if you meet up with one of the investor’s contacts by your own merit and ask the other person to refer to you for reference, that is allowed and completely appropriate. In fact, some businesses ended up getting funding just on that account where the investor did not get directly involved.
- Do not press your investor or even tell him how to conduct his business: Never try to press your investor to give you money and tell him how to conduct his business. Even if the process is taking a long time, you should not lose patience and demand an ultimatum from the investor. That is just suicidal and if not stupid. Perhaps, it might be easier to share with you the other side of the story. Every investment an investor makes, depending on the stakeholders who they need to account for, they need to ensure that every stone turned and every page flipped so that their money will gain returns from the opportunity.
I am not advocating the entrepreneur not to negotiate and suck up to the investor without principles. The essence is that there are issues which are negotiable. The equity stakes and some aspects of the term sheet can be debated and argued. If you don’t think that the valuation is fair, you can always walk out. Here is the part which I find it ironic when I do my deals. The shortest deals I have concluded within a span of a month is inversely proportional to the potential of that deal. In fact, those companies are the best in my portfolio that has potential for greater heights. Sounds strange, partially because the entrepreneurs made none of the mistakes above and in fact, have done another company before this venture. Hopefully, it might help those to bear this in mind when approaching potential investors.