In January 2016, Entrepreneur First (EF), one of the UK’s most promising and successful early-stage talent investors, set foot in Singapore to launch one of Southeast Asia’s first venture builders in the region a year after.
Today, EF remains one of the very few firms dedicated to grooming top deeptech talent in the city-state, but some of its bold ambitions appear to be fraying.
Several employees have left the organisation, a development that started gathering steam early last year after Anne Marie Droste and Alex Crompton, two core members of its launch team, returned to the UK.
Since then, EF’s Singapore team has lost a number of its key executives across various positions in fundraising, talent acquisition and in-house entrepreneur advisors, some of its former staff and founders told DealStreetAsia on condition of anonymity.
Among those who quit the firm in the last year include Oleg Kurochka, Saptarshi Nath, Tanya Zakowich, Doralyn Chan and Francois Le Nguyen (who left to launch EF Canada).
A former EF staff member privy to the developments said many of the staff members hired to replace these exits lack the entrepreneurial experience required to provide sound advice to founders. “Many do not possess the same standard of expertise as their predecessors. This is causing standards to slip at EF which is unfortunate,” the person said.
EF’s former fundraising head for Asia, Elise Tan, is also understood to have been let go by the London company. A separate source close to EF shared in confidence that Tan’s departure was linked to poor follow-on funding for its Asian startups.
EF’s CEO Matt Clifford dismissed concerns about the organisation’s staff churn in Singapore, citing these to be at “ordinary startup” levels. He acknowledged Tan’s departure but explained it to be a byproduct of a wider organisation restructuring that the UK-based firm was conducting across its international offices.
He added that EF intends to have two people working on fundraising per site, who would be Tanuja Rajah (launch manager) and Alyssa Ng (launch associate) at EF Singapore.
Elise Tan declined to comment on this story.
EF Asia’s recent cohorts struggle to raise follow-on funds
Fundraising hasn’t been easy for EF’s startup graduates of late.
According to an independent check by DealStreetAsia, only a handful of 26 startups – such as Fairphonic and Divigas – which graduated from EF Asia’s batches 6 and 7 this year are understood to have successfully secured follow-on funding from external investors.
The rest have either folded or are barely surviving. Others are said to have jumped ship to EF’s competitor Antler. These include names such as Chloropy, Zealth, Nife and Form Factor Labs, which were all from EF’s sixth batch.
EF’s Clifford declined to disclose cohort level data, explaining that it is still too early to report fundraising progress but added that he expects funding volumes to be down 20 per cent this year due to the COVID-19 pandemic.
In order to plug the lack of seed funds in Asia, EF Singapore has begun raising a Special Purpose Vehicle (SPV) for future EF Asia cohorts. One source said that the firm is looking at a fund size of around $20 million with an intention to invest in the top 25 per cent of each cohort. Clifford declined to verify the corpus of this fund.
“The point of the SPV is to give us the resources to expose more of our companies to the best investors globally, rather than seeing the immediate ecosystem as the only source of capital,” he explained. He further urged seed founders to look overseas to seek funding if they are not able to find it within their local ecosystem.
He added that EF is also becoming more selective in its investments.
Clifford explained that while EF has trebled the sizes of its cheques at the pre-seed level (excluding fees) from S$25,000 (Batch 1) to S$75,000 (Batch 7), these are going into fewer startups compared to before. For its seventh batch in Asia this year, EF invested in just 10 companies compared to 23 companies in Batch 3 in 2018.
“One thing I’ve seen a lot over the last decade is that it’s easy for startups to get trapped in what you might call, a “big fish in a small pond” syndrome – where they aspire to be the best company in their city, rather than the world,” said Clifford.
Southeast Asia’s seed funding gap
EF’s current circumstances point towards a much larger systemic issue – the lack of seed-stage investors and funding in Southeast Asia.
According to proprietary data collated by DealStreetAsia, out of 81 Southeast Asia-focused VCs that raised capital in 2019 through the first half of 2020, a mere 16 firms were fully focused on seed stages. The majority of 57 funds had marked themselves as “early-stage funds” investing in pre-Series A rounds and above. The rest targeted growth-stage companies.
Southeast Asian startups meanwhile have closed more seed deals this year than ever before.
In the first half of 2020, a total of 106 companies successfully closed seed rounds, 35.9 per cent more than the same period a year back. In terms of value, the figure remained stable throughout the period, with startups raising about $1 million per deal.
SE Asia’s seed-focused funds
(announced closes in Jan 2019-Jun 2020)
|Name of fund||Fund size ($m)|
|MAVCAP Superseed Fund||10|
|Kinesys Debut Fund||20|
|500 Tuktuks II||20|
|Obor Capital Fund||30|
|Ooctane Debut Fund||55|
|500 Durians III||75|
Source: DealStreetAsia data
“Most of the VCs now are Series A based,” affirmed Huang Shao Ning, partner at AngelCentral. “Since VCs invest based on their mandates, they are not likely to suddenly switch to seed companies. How I would read the VC’s large reserves is that all the VCs are relatively weather-proofed and they will continue to support their portfolio companies.”
Meanwhile, the COVID-19 outbreak has also further exacerbated fundraising issues prompting investors to pull their purse strings amidst uncertainty. The travel restrictions are also posing a serious problem for founders since this is the one stage at which they are most dependent on personal connections.
“It’s really hard for seed founders right now. Doing deals has taken a lot longer because I have to do a lot more calls and background checks just to get a good impression of founders,” said Cocoon Capital’s managing partner, Michael Blakey.
“You may consider me old school, but I still like meeting people in person. As a seed investor, these meetups make a huge difference because what I’m essentially investing in is the people,” explained Blakey.
It’s an investors market
A slew of investors have also begun taking advantage of the COVID cash crunch to pile pressure on fledging founders. At least two industry sources told DealStreetAsia that they have either directly experienced or know of founders who have had onerous terms demanded by investors in exchange for capital.
Some examples include investors asking for 3x participating preferred liquidation preference compared to the industry standard of 1x; or demanding a 20 per cent drop in valuation on the day of signing. Some have also asked for 30-35 per cent of equity upfront compared to the industry standard of 20 per cent and below.
This was in addition to instances of investors reneging on agreed terms, pulling term sheets, and sometimes dropping interest altogether after a startup has rejected all other competing offers on the table.
All’s not lost for EF
Despite the current challenges, EF continues to command respect among investors in Asia. But it too is navigating through its share of challenges as a seed investor at scale. Little is known about EF’s fund performance, but Clifford confirmed that it had closed its global fund at $140 million in mid-2019, below its target of $255 million declared in its SEC filings.
Clifford did not explain why the fund was closed at that size, but one source close to EF told DealStreetAsia that this was due to fund performance. Seed investors like Wavemaker Partners, however, continue to laud EF for its work in the region.
“Deep tech is hard. Founders know it. Investors know it. Few are willing to stick their necks out and make a go of it,” said Paul Santos, Managing Partner of Wavemaker Partners SEA.
“We understand it’s early days, but we believe this is progress. Progress is never neat nor perfect. There will be hiccups along the way. You deal with them and move forward. The bottom line is that many companies like Transcelestial may not have been launched without EF. This is why we see them as true ecosystem partners and we continue to look at each cohort,” he added.