Spray and pray mentality doesn’t work with early-stage investors: Piyush Chaplot, Innosight

Every few months or so, Piyush Chaplot, a partner at Innosight Ventures, the Singapore-based early-stage investment arm of Innosight Consulting, would pen his thoughts and observations on his personal blog.

PiyushThe latest entry, dated November 6, 2015, talked about how entrepreneurs can get too caught up with managing and keeping costs down that they ignore opportunity losses that just may solve the issue and stop the company from burning more money.

He wrote that one of his portfolio companies was looking to hire a chief operations officer to share the burden of running the company with the founder. The founder, he added, was “very cautious” with remuneration matters, and hired “smart people” who did not have relevant experience. This in turn “eventually costed the company more”, opined Chaplot. 

In an interview with DEALSTREETASIA, Chaplot said that he and his team are all extremely involved with the companies they back, and try to give as much constructive input as possible to help the portfolio startups succeed, especially since most of these companies are still seed-stage companies.

Also Read: Exclusive: Innosight Ventures to raise new $50m fund, to target Series A investments in regional firms

These companies include Singapore-based peer to peer lending platform Capital Match; social media technology company Wildfire; online and mobile commerce logistics provider Anchanto; restaurant reservation platform Chope; customisable referral programme Referral Candy; online luxury hotel and villa booking platform The Luxe Nomad; WiFi solutions company YFind Technologies; social gaming firm The Mobile Gamer; and CloudDesk-acquired hardware company for privacy solutions iTwin.

Innosight Ventures typically invests up to S$500,000 in each company, and are open to co-investing with other venture capital companies. It claims to also have led rounds where the startups secured S$1 to S$2 million.

Edited excerpts:

How hands-on are you with the startups that Innosight invests in?

In the last five, six years, we have only done 10 investments. This has been a fundamental thesis that we have to be very involved, take care of our portfolio companies. It actually helps. Our track record has demonstrated that there is value in spending time with your portfolio and if you look at the spray and pray mentality, that doesn’t work with early-stage investors.

A lot of these guys are trying to refine their business model – they have a raw idea but not necessarily the first model is going to be the model. They will continuously iterate and find the model that is going to scale. Sometimes, and most of the times, they will need someone external to come in and be a sounding board. They will say, “Okay, this is what we plan to do… what do you think?” And then you give an independent — not completely independent — perspective. But you’re not clouded by the day-to-day things that happen – you actually can think a bit more independently, I would say. It helps a lot. A lot of our companies have either added on new business models to their original models, or tweaked it to a certain business model. So it does help a lot, being hands on.

How useful is an investor’s viewpoint when it comes to the day-to-day operations?

Assuming that the investors are only financial investors and they don’t know anything beyond numbers is kind of underestimating what people are capable of. I’ve heard that many times in the ecosystem: “Because you are not a techie, you would not be able to understand the tech business”. This is a myth. Eventually, somebody is going to use the technology. The application of the technology is more important than the technology itself. If you could understand and value it — what the technology is going to be used for, how valuable that is, and how you are going to execute — all that is not really something you have to be a technologist to understand what the impact is going to be.

There are real cases that prove it. Our ecosystem is pretty young, but if you look at Sequoia Capital, the most successful investor, if you look at Michael Moritz, their chairman, he is a chartered accountant. If you ask him, “Oh, you are an accountant – what do you understand about business?” Then there are many other examples. If you go to the Valley, there are a lot of VCs who may have a financial background but it doesn’t mean that they don’t have common sense, you know?

What you need is a lot of common sense. In fact in any business you need a lot of common sense. Is there a real problem to solve? Can you solve it? Is this the team that is going to solve it? Are they executing properly? If they are lacking something, what are they lacking? Most of the time, you would find the founding team doesn’t want to share bad news with the investor. Once you know, you have to assess if the story told is correct or not. Investing needs a different skill set than just a technologist. In fact, even if you’re a founder yourself – I mean, it’s good, you have a bit of empathy with the founder, you know a bit more — but it doesn’t guarantee that you’ll be a good investor.

Empathy is underrated. A lot of investors tell us that one of the biggest things they can do for the startups is to listen to them. How much do you agree with that?

100 per cent. Without listening, you would not understand then you will not be able to analyse, then you will not be able to act. I think listening is very important. Obviously, listening is not hearing. You have to listen to things you’re told and you have to listen to things you’re not told. A lot of founders – they don’t like to share bad news.

They will always start with “We’ve achieved this, we’ve achieved that” but eventually somewhere between the numbers there will be some problem hiding and they don’t like to share that bad news. It’s just the human nature right? They do not want to share… Some do, not everybody but for a lot of them, if they think they can get away with it and fix it next month, they won’t want to share. If there’s a SaaS business, this month let’s say the churn is high, but again, something else is good too and that compensates it – eventually they would say, “Hey, we did really well. We grew 24 per cent against this,” but then they will wait until somebody else asks, “Why is your churn so high?”

So unless you listen to the person, the data, the market, you have to ask competitors what is happening, and keep your eyes and ears open. You have to have the empathy as well. I’m not saying that you have to have everything perfect. Nobody is perfect. Some months will be good, some months will be bad. Investors have to listen. There’s no choice.

With Singapore rethinking grants and schemes like iJam and TIS, what do you think about the startup ecosystem here and its reliance on government support, especially with its neighbours quickly rising up as potential hot spots for building businesses?

In Singapore, there’s a genuine case for you to have government support because if you look at it, the cost of doing business is generally very high, as compared to Indonesia or Malaysia. If I were to build a startup, which is to say a software company, I have the option of going anywhere – I could go to Philippines, I could go to Bangalore, I could go to Jakarta… If I hire a programmer in the Philippines versus I hire a programmer here in Singapore, I end up paying three, four times more.

They are doing this because if you have a government scheme that forces you to spend the money locally, then you need that support to have local operations. If you don’t have that support, then you have that operation anywhere you like. What ends up happening is that if you don’t have that support, people will eventually move out. Now, what people are doing is: I want to start something. I have a development or back office in Manila or Jakarta or wherever, what happens is that the stuff that is supposed to be built here, ends up being built elsewhere then you lose out on the ecosystem. That skill is being developed in some other part of the world, not here. Then we end up complaining that we don’t have enough techies out there. That’s the thing.

It’s a balance. You can make a case that government support is needed and that also it is not needed. You can also say that if the opportunity is so great, people will come to Singapore, regardless of whether the government supports or not. The cases can be made both sides but there’s a thin balance. You have to be practical about things. In Singapore, you and me both know that having a local operation is expensive so if we expect local guys to start, set up companies here and hire and do business here, then there needs to be the support.

There was a time, because of the support and the schemes, a lot of founders from all over the region were coming here and setting up their companies, and that created a lot of buzz. That has already gone. Those people who were around, they are not coming. In fact, it could be the other way round — it could mean that the local guys could move out.

When the government had put in support for the ecosystem, the local ecosystem was booming and became a hub for entrepreneurs in the region. Now it seems that the government is trying to test if the ecosystem can stand on its own two feet, what has been achieved may risk becoming undone.

Also Read: 

P2P lending platform Capital Match raises S$1m Series A round led by Innosight Ventures

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.