There are few who would jump headlong into the Southeast Asian investment ecosystem after 18 years in Silicon Valley. Hustle Fund’s Shiyan Koh is one of them.
In fact, her move to Singapore was very much a homecoming. Koh, who is Singaporean, moved to the US in 2000 to pursue her undergraduate studies at Stanford. She then went on to join investment teams at JP Morgan, Institutional Venture Partners and Bridgewater Associates before landing a gig at US personal finance app Nerdwallet, where Koh led business and product development for close to six years.
Upon her return to Singapore, Koh’s former Stanford mates Eric Bahn and Elizabeth Yin invited her to join Hustle Fund. Today, she serves as Hustle’s managing partner, investing on behalf of the pre-seed fund in Southeast Asia.
The real reason for returning, she candidly writes in her blog, was because she wanted her two-year-old daughter to know what char kway teow (stir fried rice noodles with pork lard and cockles) tasted like. It helps that Southeast Asia is poised to experience “a ton of secular growth”.
“I love the beginning of things, I love starting new things. I love it when there’s white space in front of you,” said Koh. “I think, for too long, the venture industry has been kind of like an artisanal cottage industry. There are so many things that we can think about early-stage investing in a different way, and we want to be the fund to be able to do that.”
She acknowledged that while it’s still very early days for Southeast Asia’s ecosystem, that really is part of the fun of being here.
“When you look at all the macro stuff in Southeast Asia – it has a very young population, high mobile penetration, great internet connectivity, relatively stable governments – a lot of things that you can do here are not that hi-tech…”
“There’s a lot of opportunity around how you take technology and apply it to existing businesses and make it better. You don’t even need to be that cutting edge, you just have to be great at execution,” added Koh.
Hustle Fund is a pre-seed investor founded by former 500 Startups partners Bahn and Yin. Its first $11.5-million fund is anchored by China’s online gaming giant Shanda, Japan’s Line and South Korea’s largest search engine Naver. The VC firm is also in the midst of raising a second $50-million fund to invest in pre-seed startups in Southeast Asia and North America.
Koh told DEALSTREETASIA that Hustle has deployed about 60 per cent from its first fund, and intends to invest one-fifth of it in Southeast Asian startups. The fund will target about 100 companies in all, and has so far invested in 8-9 startups in Singapore, Vietnam and the Philippines.
Koh added that the larger $50-million second fund will target 150 companies, with scope for follow-on investments. Hustle Fund invests $25,000 in pre-seed startups after which it works with the team for 4-6 weeks before deciding on a larger $250,000 cheque.
Some of Hustle’s Southeast Asian portfolio companies include Blockpunk, a Singapore-based, anime tech startup; Moovaz, a Singapore-based logistics company; and Stendard, a software startup specialising in ISO certification and compliance.
Edited excerpts of an interview with Shiyan Koh, Managing Partner, Hustle Fund:
You’ve been in Southeast Asia for 8 months. What immediate differences have you observed between the ecosystems in Silicon Valley and Southeast Asia?
I think part of the fun here is that it’s still early and evolving. When you look at all the macro stuff in Southeast Asia – it has a very young population, high mobile penetration, great internet connectivity, relatively stable governments – a lot of things that you can do here are not that hi-tech. They don’t need to be self-driving cars, you know what I mean? It’s cool, but it’s not necessary. So there’s a lot of opportunity around how you take technology and apply it to existing businesses and make it better. You don’t even need to be that cutting edge, you just have to be great at execution. That’s the big difference.
In the US, a lot of the models that have played out are still in the process of being played out. Over here, it’s almost as important, or else more important to think about on-the-ground execution capability as it is about technology. People in the Valley really revere engineers and technical capability, but the truth of the matter is that most of the businesses here are built by outsourced shops or pretty junior engineering teams – and that’s totally okay because you just need to get the business running, you don’t need the fancy stuff.
The talent density is lower, but that’s just a function of the nascency of the ecosystem. You have fewer experienced people in every discipline you can think of – marketers, product managers, engineers. If I wanted to find an engineering manager in the valley, there are hundreds of them. Over here, it’s like – I can think of maybe five people available on the market who might fit your specified criteria and so on. So I think that’s an interesting thing to deal with.
How does this influence the way you shortlist and pick startups here then? There are plenty of startups to look through here.
It doesn’t really change the way that you shortlist them. You have to believe that the company you’re investing in is going to be 100x. For a pre-seed fund to make the numbers and make returns to investors, you have to believe that it will make 100x – it’s just that the path to 100x is going to look slightly different.
Different in what way?
It might be longer, it might be more manual. Your order of operations might be a little different. I think the only thing that may be slightly different is the follow-on investing environment. That’s a little different here as well.
As an early-stage investor, you need to think about who can support your follow-on investments later, and that’s going to be dictated by how much capital there is, but also the taste of the people who are making these rounds.
Because capital markets are broader and deeper in the Valley, there’s a wider set of things that you can fund early because you know there are going to be people who are going to fund this later on. But I think over here, there are certain things that are quite difficult to fund really early because there isn’t any follow-on capital for it.
What ticket size bracket are you referring to? Some investors do mention about this “seed gap” from time to time.
I don’t think it’s the dollar amount – I think it’s the types of businesses. The Singapore government for example, seems to be driving deep tech but there isn’t actually that much appetite for deep tech follow-on investing. There’s a lot of capital in the region so there is no lack of money, but it just looks different.
It is sort of akin to what you see sometimes in ecosystems outside the Bay Area in places like Washington DC or LA – there is money around, but there aren’t as many people who are experienced with technology companies. You’ll see entrepreneurs running around trying to cobble money together from all these various sources. It’s way more work for founders and the terms can be kind of onerous because investors are used to certain types of businesses, they don’t really know how to finance a technology business that has no assets. The help they provide or advice they give is also less targeted because they come from very different types of industries.
From that perspective, I think that’s part of the magic and value of the pre-seed funds. In the Valley, most of the deals are done by funds like ours or ex-operators or by angels who are by themselves operators. So you have a lot of experienced people who are doing the funding and can help the businesses along. So when you say there’s a perceived gap, there’s no lack of funding here – it’s about what’s shaping that cap table, what terms is that capital extended on, and what is the help that comes with that capital.
I’ve seen a few things – founders taking money who don’t really know what’s happening. They have very messy term sheets, very messy cap tables. Some aren’t very far along and the founders don’t even own that much equity anymore. I think that’s starting to change but we’re still in the middle of that (transition) – we’re not there yet.
I also think that a lot of people who are raising money don’t actually need to raise money.
I think that a lot of people seem to treat fundraising as a goal rather than part of the process of building a company. The reason of building a business is not to fundraise. The reason of building a business is to build a great business.
Maybe it’s paranoia? Or the idea that there isn’t an unlimited amount of capital waiting for you?
Yeah, maybe? But I think that venture financing is only appropriate for a very small subset of businesses that have the characteristics to really scale over a really short period of time. Most businesses don’t have those characteristics.
Just because you’re on the Internet doesn’t mean you should be a venture-backed business. So I suspect there are people out there who are better off trying to figure out the mechanics of their business rather than trying to raise money. Fundraising is a full-time job, and there are so many great businesses that don’t actually require money. I almost feel like when we make fundraising the point of things, we forget about the core mechanics of building a business.
It’s just funny to me when I meet entrepreneurs and I ask them – what are you raising for? What is your business? And they’ll say – “well, seems like the government is making a big push so I might as well try…”
I think part of it is probably a lack of sophistication, but I really try to focus founders – what is the core problem that you’re trying to solve? Will anyone pay you for this? How do you know? And how will you use the capital to give yourself more confidence to prove to yourself that this is true? How can you improve without using additional money? I feel like a lot of people don’t really spend a lot of time talking to customers or validating their ideas.
In Singapore, we tend to be on the forefront of a lot of these “trends”. How much of it do you think is hype? Or do you too also look into some of these spaces like agtech, deep tech…etc?
When people say stuff like that, I don’t even know what it means. Like AI or machine learning – what is it? It’s a tool. Or what do you think about cloud? It’s a tool. It’s a thing that enables you to do something way faster, cheaper and better than before. And our view on AI and machine learning is that everyone is incorporating it already, so when founders come to me and say we’re an AI startup – what does that even mean? What is your unique data set? Where would you think your unique merit is? How does it help you solve your problem more efficiently?
Bezos has this quote which goes something like – “People always like to ask – what’s changing? But I like to ask – what’s going to stay the same?” I think consumers will always want things better, faster, cheaper, so that’s an interesting thing to think about. There are a lot of technological trends that are happening that can enable things that were previously not possible, so how do you use these trends to enable people, but better, faster and cheaper?
So deep tech is one of those things where I’m like – what does that even mean? Whose problem are you solving and is this a real problem? That’s what we’re super interested in. What are some good problems that people are solving, and what is your unique insight on this problem?
The move from Silicon Valley to Southeast Asia is certainly a huge jump, ecosystem wise.
First of all, starting a business in general, is an act of insanity. Anyone who starts a business by definition is a little bit crazy. And then you need to be surrounded by other crazy people so you don’t feel like you’re crazy, and you can tell yourself – oh yeah I can do this thing! And you need that at every new stage, because that’s how you keep it going and how you get ideas going and start to do things. But if you feel like you’re fighting every step of the way, it’s going to feel really tiring. You also wouldn’t know what good looks like, so it’ll get really difficult to even imagine what good looks like.
It’s unlike in the Valley where literally everyone has this story which goes something like – oh five years ago I was drinking with that guy and today he’s a billionaire. And then you think to yourself, if that guy can do it, why can’t I do it? And you look at it and you think – wait. It isn’t about some sort of genius. There’s a fair amount of luck, but there’s also a fair amount of just doing it. And I think that’s a little bit of what we need to build in this ecosystem.
I’m teaching this class in SMU about product management because everyone is complaining to me that product management is very thin, we don’t have any product managers. Before I got here, I was pretty confused. I was thinking – product management isn’t really rocket science. There are best practices for product management, but it’s basically an apprenticeship discipline. You learn it by doing. I didn’t get it then but when I came, I understood why they said that.
There just isn’t that culture and mindset around product management. And some things I took totally for granted, I can’t take for granted here. For context, it’s not that I’m trying to be critical – it’s just that I have students who spend a lot of time on a powerpoint presentation and I’m asking them – what are you learning by making this powerpoint presentation? Why don’t you spend your time making a prototype that you can hand to a customer and you can learn from?
This to me, sounds like a very natural thing to do, and it’s ingrained in the Valley. Like – why are you running around with a powerpoint? Do you have something for me to play with? Show me your product. We’ve not crossed that yet. If you’re in the Valley and you’re in someone’s house party and someone says – oh I’m working on a thing, and you say, oh great! Can I see it? They won’t say – oh great, can you send me a powerpoint?
So we don’t have that kind of critical mass here yet. Part of why I’m teaching that class is to try to build some of that structure and language around making things that people want.
Any particular Southeast Asian markets you’re looking into these days?
I actually like Vietnam a lot. It’s got a lot of these great demographic trends, and just really great, hardworking people. The Vietnamese are really entrepreneurial, they all have their side hustle going on.
I have this thing where I like to look at people’s home screens. When I ask Vietnamese what’s on their screens, you’ll see they have a lot of educational apps. They’re all trying to improve their English or do MOOCs – massive open online courses – and I like that. I think those are really good ingredients to make stuff happen.
I think there’s more investor interest in Vietnam now. They’ve got some homegrown funds and some Singapore-based regional funds like Monk’s Hill which has Justin as a permanent person there. You also see interest from the Chinese guys investing in some of the big commerce players there, so that will also be a great shot to the ecosystem. Their science and technology education is pretty good, so Vietnam is a net producer of tech talent so that’s the fodder for businesses. It’s not going to be 260 million Indonesians but there’s almost 100 million Vietnamese, so it’s going to be a really interesting place. We just wrote our first cheque in Vietnam so I’m pretty excited about that.
The Philippines is an interesting one. We have two deals in the Philippines actually. You would think that there would be more there, but I think they suffer a little bit from the capital perspective, which tends to come from big conglomerate, family money. Those businesses tend to buy up startups before they even have a chance to succeed. But the nice thing about Filipinos and a lot of Southeast Asia is that they have this returnee population as well. A lot of people coming home from the US, Europe and say they wanna go home and start something. It’s also really helpful that they speak English, so I think good entrepreneurs can actually do a great job in the Philippines. If you talk to some of the old ecosystem veterans, they’re always like – forget about Indonesia! Come to the Philippines!
I think they’re all good markets. It’s just that it’s going to take a while. You come back to this talent issue, which is – how do you get this critical mass of people to build and operate these things. I think being out in the Valley for 18 years does give you an appreciation for things you don’t always have here.