Is it true that investing in early-stage startups has a 90 per cent risk of failing? Not in the case of 500 Startups, the VC firm claims. Recent analysis of the company’s first and second funds’ performance shows that only 20 per cent of portfolio had died within six years.
Another 20 per cent have not raised additional funding yet, but still alive. And the rest of them, by varying degrees or percentages, have gone all the way up to become unicorns or exits.
“Our failure rate after six years is 20 per cent. A lot of the 20 per cent had still been alive anyway but sometimes we had to cut them loose because we did not see any more hope,” managing partner Khailee Ng told DEALSTREETASIA.
Since its founding in 2010, the Silicon Valley-headquartered firm has now invested in almost 1,800 companies across more than 60 countries. It currently has over $250 million in assets under management.
The VC’s largest unicorns are financial services company Credit Karma, transportation app Grab, and Twitter (before it went public). In Southeast Asia, some of its almost-unicorns are secondhand goods marketplace Carousell and B2C marketplace Bukalapak.
In total, Ng said his company has had “a couple of hundred” exits, globally.
The most notable ones are exits from video-streaming startup Viki, which was sold to Japanese e-commerce giant Rakuten for $200 million, Wildfire (sold to Google for $400 million) and O2O e-commerce site Kudo (sold to Grab for $100 million.)
With a little bit of more patience, there will be more exits soon.
“From our experience from a lot of global portfolios, it takes 6-7 years until you see a lot of exits come out, especially when you invest in seed, you need quite a lot of time. Only very few startups, like Instagram, who only needed like one year to be sold for $ 1 billion, but that’s very rare. Most companies take about 4-7 years,” Ng said.
“But I have to say that the story of exits itself doesn’t always mean a good thing. Everyone likes to hear about exits and unicorns. But let me be very specific: sometimes you can have a unicorn and not making so much money. Sometimes you have an exit but you lose money because the equity is higher or something,” he added.
Complete the story
The true pride of 500 Startups as a VC is not the number of exits and unicorns, Ng said. No, we have to complete the story.
“Our pride is that we have a lot of companies that are actually profitable, that they don’t need any VC money anymore. When you don’t need VC money you’re not in the news, because the news only covers funding activity. Nor do you need to exit.”
“You keep quiet because you don’t want other people to copy you,” he joked.
He gave an example of beauty e-commerce site Ipsy, founded by Michelle Phan, a Youtube personality with 8 million subscribers who rose to fame for creating makeup tutorial videos. 500 Startups has been one of Ipsy’s earliest investors. Ng said that Phan now receives a “few hundred million” dollar in revenue per year from subscriptions, and so her site has not felt the need to raise any more money.
Another example is Credit Karma, which Ng said to be already $3 billion in value by now. The company is also said to be making a few hundred million and is already profitable.
“Yet another example, take a look at Bro.do (leather fashion goods maker, part of 500 Startups’ Indonesian portfolio). I can’t reveal to you Bro.do’s number but it’s much bigger than many people think. Now the VCs want to give them money. Last time we asked VCs to give money they said ‘oh this is not a tech company’, but now they want to come in. But Bro.do does not need it anymore because they’re already so profitable and growing.”
Ng emphasized that venture capitalists’ success stories should always include stories about real businesses that thrive. Chasing funding is not everything.
“We’re talking about real businesses. Real money and growing. I believe they are the ones who will become the strongest companies in a portfolio,” he concluded.
500 Startups announced recently that it targets to invest in up to 100 Indonesian seed-stage companies from its $50 million Durian Fund II. The number represents half of 500 Startup’s total targeted market in Southeast Asia, where it seeks to invest in about 200 companies. Investments by the second Durian Fund will have ticket sizes ranging from $50,000 to $250,000.
The company has recently appointed Malaysian-British actor Ashraf Sinclair as a partner for Indonesia, who along with managing partner Khailee Ng, will hunt for 500 Startups-worthy founders and teams with big ideas, and help them raise funding.