How does a venture capitalist view himself? Is it someone who has helped built great businesses, or provided capital to bold ideas, or is it measured on whether one has been able to give exceptional support to startups on their road to success, or if the firm simply bet on the right businesses and sectors ahead of others? Are successful exits the best way to measure success as a VC?
The founder and Managing Director of one of Singapore’s oldest VC firms – Sirius Venture Capital – Eugene Wong has several successful listings to his name. Yet, Wong, who also served as the Chairman of Singapore Private Equity and Venture Capital Association for five years beginning 2008, has a different perspective on how he sees himself as a VC: “I see ourselves as farmers.” he said in an interaction with DEALSTREETASIA.
Farmers? Wong illustrates with an example: “When we invested in Paradise, the Chinese restaurant, they had only three outlets. Last year, when we exited, we made three times the money we had invested. We are a long term player. We believe we will be around beyond cycles. So if I consistently put down seeds, like farmers do, we will be able to catch one winner in every cycle.”
But where Sirius differs from the new VCs that are making a mark in Singapore is that the firm has constantly placed its bets on non-tech companies with the belief that one can find disruptive innovations in traditional businesses.
“We ask ourselves – will you be able to catch one winner in every cycle?” So in this current cycle of unicorns or potential unicorns, we were (invested) in Reboonz Pte (an online retailer of discounted luxury goods) at the earliest stage well – we went in well before (Temasek-backed) Vertex Ventures invested in that company. So we met our objective, right? Now we support (the company) and see what we can do.” he said.
Sirius’s latest investment was in Lalamove (originally EasyVan), which was founded in Hong Kong in December 2013. It offers iOS and Android apps that allow anyone with a valid license and car to sign up to be a driver. Sirius had participated in a $10 million funding round along with Aria Ventures and Crystal Stream Ventures.
Wong’s investment theory is simple: “If I can find a company that I can put half a million and make 50 million, those are the companies that I like. Of course someone will say, ‘who doesn’t like such companies’?”
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Wong doesn’t have a target for the number of startups he might invest in a given year. He shares: “I don’t believe in targets. Half a million a year. So last year of the $500,000 we invested in Lalamove, we had earlier wave we had invested in the mothership of Ajisen China Holdings Limited (that is now listed on the Hong Kong Stock Exchange), and we had also invested in Japan Foods Holdings Ltd.”
“So there’s no fixed rule, but as budgeting we set aside half a million and then we will do maybe a million in traditional business. So that’s probably the max that we will do. Unless something is so good, then we will put more. Our theory is that if we invest one million, it should make us three million. Our half a million should make us 5 times to 10 times,” he added.
“In the next wave of disruptions, we have already invested in Lalamove in Hong Kong – so hopefully that will become one of the harvest of the era. Now we are into food tech and are also looking at the Israel wave. Hopefully we capture one or two (startups) in the Israel wave. For the China wave we already captured Ajisen that is in the consumer market. So in every cycle we hope to at least, through this seeding, capture something” Wong added,
“I think in general in Singapore, the government plays a big role in any industry development. Without the government jumpstarting it, it’s quite tough because our market is small,” Wong said, commenting on Singapore’s efforts to have a robust startup ecosystem. “And without the Singapore government putting in schemes like the to inceltivize so many VCs and so many incubators, it wouldn’t have started.”
But there is also a flip side to it. “Civil servants are not the ideal persons to spot winners and not the ideal people to do direct investments. The challenge is they may end up putting a lot of restraint to their partner VCs which makes investing more risk averse and when you invest in startups, you need to have a lot of flexibility and you need not to be so structured in your investment terms.”
With major world investors getting into the SEA startup ecosystem, funding has become easier. And Wong sees it as a pitfall, as compared with the Silicon Valley where competition is much more intense.
“In this part of the world, having too much money from government would have a negative effect of distorting somethings. One would be valuation because when theres more money chasing fewer good ideas, the valuation goes up. And when the valuation goes up for good companies, their not so good companies that seem cheap that gets started.”
Sirius Venture Capital has invested in non-tech companies as well, which Wong feels have a tougher time in raising money and scaling up, although its becoming harder to differentiate between the two labels.
“Non-tech startups have problem scaling globally because their concept sometimes is too localised or regionalised. Whereas tech can scale beyond language or geographical barriers. Second is talent. Non-tech companies find it harder to attract talent, smart people. And there is a limit to how much you can innovate in a non tech space if the cost keeps going up and we got to make a margin of profit.
“And once we want to take this product outside of Singapore, we are non competitive. That’s the danger,” Wong adds.
Among new-age startups, Wong is excited about foodtech for the long term.
He shared: “You watch the latest StarWars show right? So the latest StarWars show this new to be Jedi, she runs and she takes something like a pill or whatever. She just throws it into a coffee mug and puts some water and it becomes food. So my vision, my thinking is that one day we are heading there. That food, how it’s being prepared and sourced and the technology behind it will change. I’m excited. But that is like ten year view.”
Forget C,D rounds, go for listing
Asian startups outside of China have found it tough to raise later funding rounds, particularly post-Series A. Wong says that perhaps those rounds can be avoided by going straight to an IPO. “Forget about C and D. After Series A or B, use the capital markets. Some of our startups have gone to Australia. Compliance not so difficult because its actually less painful to deal with independent director than bad VCs.”
And banks find it safer to lend to listed firms, so that can be an easier source of funds. Wong illustrates that with the example of one of his portfolio companies. “So what happened in Japan Foods is after we list and $2.5million, we were able to get a bank loan for about $10 million and interest rate for listed company is lower than private company. So for traditional company, if you can get leverage once you’re listed.”
But Singapore currently lags behind the US and Japan because it doesn’t have an exchange for tech firms. “I strongly believe that Singapore, in order to fix and deepen the ecosystem, we need a NASDAQ equivalent.”
“Japan has JASDAQ and intact the tech market in Japan is very vibrant in terms of IPO, very vibrant. I have friends there who are able to list companies and do very well in terms of PE. Without NASDAQ, there will be no Facebook in the US,” Wong says, referring to the social media giant.
Wong says the environment in Singapore is better than the prior dotcom boom era of the late 90s, and might encourage entrepreneurs to aspire for unicorn-level status.
He observes: “We have signs of companies like Garena – I mean the thing about the so called unicorns, when I got involved in the 2000, we had also 3-4 unicorns. But all crashed. So I think until we get a $1 billion dollar exit, everyone is just paper success. One is you have very good incubators from the US coming here, you have VCs from the US coming here to look for deals. Southeast Asia is now becoming an important market because of the population, the grown middle class. So compared to 2000 we are in a much better position.”
Good ecosystems around
Wong also makes an important point that all cities where startup ecosystems are strong, are away from main financial centres because the slower pace allows more time for people to think.
“So if you think about it, Alibaba started out of Hangzhou and Silicon Valley is actually a very laid-back place right. I mean if you think about it, you play golf or drink wine. Because to innovate or even to read something, to do something you need a restful environment.”
He notes: “In a city like Singapore where everything is so connected, how do you innovate? I mean can you imagine a programmer whom someone will WhatsApp him and say, “What time to have coffee? Shall we go and catch up over drinks?” And then if you’re married, you’re wife will message and say, “Hey have you fetched the kids?”
Wong believes Indonesia might emerge as a strong competitor to Singapore, among SEA’s tier 2 nations in terms of how investors value them.
Currently, the Tier 1 markets are China, Japan and India for international venture capital funds.
Wong opines: ” Indonesia is going to be so different because they have great entrepreneurs, they have English speaking to the US, they have a market and they are… I mean I recently went to visit Batam and there is a company there that does like animation and they are able to hire, they don’t have a hiring problem, they are able to hire 100 animation programmers. And the way they hire is, ok I don’t need qualification, you just show me how you animate. So that kind of culture is amazing.”
His advice for entrepreneurs is to be sure they know what they’re getting into, and choose the market wisely. “First of all I think you got to seriously ask why you want to be an entrepreneur. Whether you are doing it for lifestyle or you’re doing it to make all too money or you’re doing it to change the world. And choose the market you want to expand to wisely. But I must say don’t try to do a me too business. In Singapore there are many. So put some hard thought into your startup. That means build a real engine.”
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