In a LinkedIn post, he offers: “Investors need to rely on their knowledge, experience, and gut feeling to consciously and, in many cases, subconsciously assess the hundreds of deals they see on a monthly basis. Although this might sound lazy to the layman, the best investors are successful precisely because their pattern recognition is so accurate; they can separate signal from noise with almost preternatural skill.”
But Hall also maintains strong views on exits, commenting on India’s exit mess in with a recent Facebook post: “If SEA wants to avoid this, we need to spend more time cultivating the end of the pipeline, i.e. the exit. More M&A, more education, more legwork by founders and investors to show that this is a region ripe for acquisition and roll-ups.”
He adds, “Anything that helps facilitate meaningful exits of any kind, INCLUDING improving the liquidity and appetite of local bourses and incentivising regional M&A, will go a LONG way to helping sustain and preserve the potential of SEA’s tech ecosystem. I’d argue this is far, far more important than facilitating new fund formation, both in Singapore and SEA.”
In an exclusive interaction with DEALSTREETASIA, Hall discusses his views on the startup ecosystem, the exit landscape, public listing, the Singapore Exchange (SGX), attracting tech talent and the relationship between VCs and corporate incubators & accelerators (CIAs).
In your experience working with VCs and startups in the Singapore and ASEAN ecosystem, what would like you to see an improvement in?
Right now, the primary and fundamental need is a clear pipeline to a meaningful exit for founders and investors. In terms of the work going into mitigating the deficit of Series B and growth stage funding, there are more funds specifically entering that space. Ultimately, the goal is to have an ecosystem in the region that can bring people from pre-seed all to the way to an exit.
There are always difficulties when it comes to hiring and market expansion, and Southeast Asia possesses a unique exit landscape and growth stage funding environment. In other ecosystems, you have a much clearer route to growth stage financing and exits, but in the region there is a nascent ecosystem that only really picked up in the mid-2000s.
What are your views on the current exit landscape in Southeast Asia?
The current exit landscape is relatively unknown and it’s that you either go public or get bought in a trade sale, acquisition or some sort of M&A transaction. Southeast Asia hasn’t proven its thesis yet but I’m optimistic that this will change in the next few years. Only time will tell but there is a positive writing on the wall.
Local countries are pushing more emphasis on educating local investors and preparing their exchanges to accept tech companies to publicly list. This is a conversation that needs to last several years before retail investors can understand the potential of tech firms in Southeast Asia and I believe that Singapore is leading the pack in this conversation.
On the acquisition side, the last few years have seen more acquisitions happening in Southeast Asia but they’re too few and far between to be seen as having a critical mass. But that will change sooner rather than later, with more trade sales and acquisitions happening rather than public listings. Extrapolating further, Southeast Asia will not reach the size of exit events in China, the UK, NYSE or Nasdaq.
If we’re discussing meaningful amounts, and we use the ASX as a proxy, then what we’re seeing are Series B stage public listings with IPOs (initial public offers) of A$10 to A$20 million and I think as an entrepreneur that you’d find it hard having that as an end goal.
For many startup ventures and entrepreneurs operating in the region, going public on the ASX is just another funding round while Nasdaq or NYSE is the end goal. A public listing in a regional context on a bourse like the SGX or ASX is just another step in the funding lifecycle, especially as it applies to a listing destination like Australia now.
A public listing can be an exit route for local companies but it doesn’t have the same cachet as listing on Nasdaq or NYSE. It represents a capital infusion for the venture, or it can be a way for investors and entrepreneurs to exit. This is because the idea of taking this infusion and pursuing a listing elsewhere – either a secondary listing or a re-listing on another exchange – might be beyond the ambitions of the entrepreneur.
What’s your view on agglomeration IPOs? Essentially, its structuring various operating companies into a single holding company as a vehicle for raising capital or realising an exit. Do you see VCs in Singapore and Southeast Asia using it as a tool for portfolio firms with complementary services and listing them?
I think it’s difficult to say that VCs will see it as a tool that they can rely on; they will use agglomeration or consolidation if it makes sens and it’s more opportunistic. In Southeast Asia, you don’t see it that often and you don’t have a fund that actively relies on it consistently. That said, it’s a great opportunity for the region but to my knowledge, no fund is actively looking at this.
In ASEAN you have six primary markets – Singapore, Indonesia, Thailand, Vietnam, Malaysia, and the Philippines – with different economic contexts and market expansion difficulties. It’s difficult to go from Singapore to Thailand or Vietnam to the Philippines and you generally tend to see only incumbents coming up and doing this due to them having the resources and experience.
M&A-like activity which involves merging two different corporate cultures together, as well as integrating and melding the different structure and operations, requires experience and expertise that is lacking in Southeast Asia. Many factors are keeping that at bay but there is a huge opportunity for something like that.
Let’s move to business trust listings. There’s supposed to be a rebound this year in terms of IPOs and given the differences between REITs and business trusts, and the growth of business listings in Singapore in 2013, particularly among Indian enterprises, how viable is it as a liquidity event for a VC firm?
SGX has really been pushing the local exchange as a meaningful liquidity event but that’s not been the thesis of many Southeast Asian fund. Meaningful liquidity events will come from an acquisition by a corporate or a trade sale.
Arguably, Singapore is head and shoulders above competitors in showing listing on the SGX is a viable path to an exit but what many investors and entrepreneurs are unsure of is the uncertainty and seeing that happening en masse.
Speaking anecdotally, there’s a lot of fear that the retail investors or investors trading in local exchanges don’t fully understand fully in the context of Southeast Asia, compared to what you see in the US, Europe and China. You have this genuine fear from both VCs and startups that if they publicly list, the investors simply won’t understand what they’re investing in and that won’t be reflected in the pricing dynamics and valuation.
Snapchat is a good example – you have investors in the US that’s 60x P/E ratio that’s burning through cash but doesn’t seem to be growing their user base. Yet, they have investors willing to support a $25 billion IPO. Investors here haven’t been proven wrong that local retail investors on regional bourses are capable of supporting multiples like that.
In terms of being a Singapore-based VC, how viable are the SGX Mainboard and Catalist as an IPO destination? What needs to improve? What’s your view on having a third board for tech companies?
SGX is doing an incredible job in speaking to investors and identifying companies that can publicly list and I’m confident that they understand the VC/PE space better than most exchange in the region we’ve spoken to with the exception of the ASX. I think the SGX sees the ASX as the model and for Singapore and ASEAN tech startups it’s a needless and unnecessary loss when they list on the ASX.
SGX has a very good shot of attracting those companies here for a listing in Singapore. In terms of having a third board for tech companies? That potentially overcomes the issue of those that don’t understand the tech space and negatively affecting the IPOs thereof.
But there might not be enough investors interested in looking at this dedicated tech exchange, so there’s pros and cons. Nasdaq a dedicated tech exchange but the capital on that exchange is in a different orbit. Is this is the right direction? Personally, I think so.
Blockchain and smart contracts seem to be in the middle of a hype cycle. Any thoughts in a personal capacity regarding the viability of such ventures?
To be clear, what I say next is a personal opinion and doesn’t represent the position of Golden Gate Ventures, which doesn’t do much in blockchain or smart contracts space either way. It is in the middle of a hype cycle and as an investor, my greatest concern is its practical application; a customer base savvy enough to see the benefits of the blockchain in the region are lacking.
Southeast Asia can be a lagging indicator when it comes to tech adoption and in terms of enterprise-grade solutions for banks, the banks themselves have been reticent to use any kind of tech, let alone smart contracts.
What’s your take on the current reforms to the Entrepass scheme and other reforms articulated in media reports? Any views on how a startup visa scheme might promote Singapore as VC/PE destination, with reference to Israel’s innovation visa?
Golden Gate has always pushed the idea of a startup visa and we definitely see the need for it. But we’re also cognizant of the political environment, and while it’s definitely helpful for new entrepreneurs looking to set up shop in Singapore, there are many factors that keep this from being a politically viable solution.
There are many other ways, especially where it comes to immigration, where the government can help with the hiring practices. What they can start doing is to allow startup to bring in operators with strong managerial experience from other ecosystems.
You can work off the local employees with difficulty, but there is a gap when it comes to mid to senior management but in terms of having people that can manage teams of 10 to 20 people. We’re talking about very large offices or silos for a fast growing company and that is where breakages occur. I can definitely understand why a startup visa could work, but there are other areas where the SG government can go the distance to mitigate the difficulties for tech companies and their investors.
For example, a management visa of sorts would be rather useful. We’ve had portfolio firms that took a long time to hire VPs and what you’re starting to see is that VCs are playing a much more active role when it comes to talent recruitment to help fill up key management positions in their portfolio firms.
In terms of M&A and buyouts, there are many buyout variations (i.e. employee, management, etc). For that sort of exit, how do investors benefit and where?
If it’s a typical MBO or EBO, nobody is really benefiting. But it represents an exit and people can then write home and say “We’ve cooked the crab!”
They’re useful in that they clear up a portfolio so that more time can be spent on portfolio companies and help those particular firms reach the liquidity event. These buyouts and variations thereof are those where investors make 1X on their investment. They can be common across the board and for Ssoutheast Asia, personally you’re going to start seeing that more frequently within a year or two.
To be clear, it’s not a bad thing and more frequent in more mature ecosystems; they’ll happen as a natural evolution of the startup ecosystem.
Any specific views on corporate incubators & accelerators (CIAs) and how it relates to VCs?
We work with CIAs around the region. Not everyone is a winner of course, but its a source of potential deal flow for us. In fact, most funds in Southeast Asia have one or two companies within their portfolio that hailed from from CIA. Many corporates, especially telcos and banks, are jumping onto the bandwagon.
There are some countries such as Thailand where the corporates do CIAs very well and we’ve worked and partnered with them. Many investees from Thailand originate from CIAs, as well as some from Singapore. But bear in mind that many models are still untested and untried.
If they disappear two to three years from now because the corporates are disappointed about the lack of return or they realign their strategy and priorities, I would not be surprised. But by that same token everything is still so new.
Bear in mind that they do have some considerations where their goals and needs can be drastically different from the entreprenuers and institutional investors like Golden Gate. But there’s enough of a strategic overlap between all three where they can collaborate. The breakage is at subsequent funding and exit events; an exit for a corporate may look very different than what the entrepreneur or institutional investor wants.