Message for Readers

If you find this blog post useful to your work or if you have interacted with me and have found my sharing helpful, you can pay it forward as follows :

1) Share what you know freely to all who are able to listen with no expectation of reward.

2) If you make big bucks, donate some of that to charity and give back to tech by becoming an angel investor or LP. You can learn more about AngelCentral at

Thursday, October 1, 2020

Analysis of Singtel Last 13 Years

Huh? “One of the most successful Singapore CEO ?” Is the Chairman of Singtel blind? At least do what the SPH Chairman said about Alan Chan. Don’t praise performance and people can read between the lines. 

Ms Chua and key management basically treaded water and tried to keep cashflow and profits. They failed to grow anything significant for shareholders. At best they are an average team and definitely no where near “most successful”.

Here’s a quick analysis on Ms Chua performance as CEO of one of our Temasek crown jewel. This is another example of why Temasek needs to become an active investor for our GLCs and broaden the talent pool for CXOs. 

1) Financials. 

Compare FY 2007 with FY 2019. I use 2019 as it removes effect on covid and 2007 as that’s the CEO appt year. Though arguably if they transformed well, COVID should have helped or be neutral.

Revenue grow from 14.84b to 17.37b. That’s 17% growth over 13 years. Not even matching inflation. You raise prices annually to follow inflation also make the same!

Net profit shrank from 3.681b to 3.095b. Think no need to say anything here.

2) Valuation and Returns 

Yes they managed to maintain dividends. Hurrah for them! But that’s a really low bar.

Market cap in 2007 was 62b, end 2019 is 59b. They have around 4.5% dividend annually paid out. So return to shareholders to end 2019 is probably 4-4.5%. Is this great?  Average at best to me.

Take note covid has shown they failed to transform, stock price has dropped 40% this year and their market cap is now 35b.

3) Execution & Strategy

Their internet foray is a disaster. See all the internet businesses they buy/build and close down. Consumer brand has been lackluster. I don’t even see any catalyst except for stakes in India, Indonesia and ph telco. 

Verdict? You tell me if this is best of class. I think it’s at best average and that’s being kind.

I truly hope the new CEO is cut from a different cloth and the board pushes the entire company to truly transform and perform. 

NB: by the way.. vested and lost over 100k on this stock so far this year. Bought cheap already but cheap can get cheaper. I think I may sell if new CEO don’t announce sweeping moves. Can’t imagine the poor people who bought end of last year. 

Wednesday, April 15, 2020

Are food delivery platforms profiteering?

(Addition: dbs just announced it is trying to help F&B and bring down commissions to 10%. If they can do it, great for everyone! Competition is the answer not regulation. Btw.. dbs is doing it to attack grab who is trying to enter banking space. Best way to fight is to hit your competition on their home ground! )

Let’s do the math for delivery providers before just slamming them.

1. For consumers, food delivery is not meant to be a eating out replacement.  It’s meant to be a way to eat restaurant food at home which is occasional. Meaning maybe 3-4 times a month max on average per household. Not daily which is how restaurants seem to hope it is used.

2. For restaurant, it’s meant to supplement their outlets income by using kitchen extra capacity. Normal times, it’s like 5% to 30% of total revenue.

3. Now let’s see it from delivery platform pov.

$50 per average order
30% fee is $15
Add $3 fee to consumer

Total is $18 to platform

-Cost per delivery is $8-10. Let’s say $9.
-epayment cost of 2% or $1

Gross profit per delivery is $8 or 45%. Bigger restaurants even a smaller gross profit as they negotiate 15-25% cut.

This 45% need to pay for overhead and marketing cost to acquire driver and restaurants. Don’t forget incentives for good drivers. And of course general admin and mgmt overhead.

4. Now, this does not mean commissions can’t come down. It can but it has to be by competitive behavior by restaurants, other platforms trying  get market share, maybe even taxi player muscling in? Saas player like Oddle is trying.

5. It also does not mean restaurant has to lose. They should charge 30% more to compensate. Or even 40% more to fully compensate. Btw big restaurants don’t pay 30%, they pay 15-25%.

6. The clear loser is the consumer as we have to pay more. But the fact is the service is expensive. Imagine what you are getting. Human drive to outlet, wait, get your food all packaged, deliver it right to your doorstep! Consumers who don’t want to pay will have to go hawker and take out. To me that is the best solution and not to subsidize delivery in a big way. Small way to help people who can’t leave their homes should do.

7. Another way to see this issue is to benchmark and check against grubhub numbers which is listed. They have a blended 23% commission charge.  5.9b gmv with 1.3b revenue in 2019.  Also if we check deliveroo and grabfood numbers I am sure they are all loss making still.

8. So for a much smaller scale Sg, 30% commission can cut down more but not much more. And don’t forget average basket size at grub hub is high at $80+usd.

The basic problem is this is an expensive service. It’s not reasonable to say everyone should be able to pay for it. And restaurants should not look to platforms to save them. Platforms are also a business and 30% does not look too high for our market size.

Btw I don’t think this crisis is restaurant and cafe owner fault at all. They deserve to be helped and govt is doing more for them. But making platforms the fall guy is barking up wrong tree.

In fact on a side note, the real monopoly making very fat profits is visa, MasterCard and Amex. But somehow everyone thinks it’s ok to pay them their cut of 1.5-3% fee on all transaction value!!!!

Tuesday, April 7, 2020

How COVID recession is affecting our startups.

I just wrote an article on what steps founders can take now to prepare for the downturn. As investors, it will be great if we can remind them on the various topics they need to think about. Beyond that, we can also give morale support by recognizing the stress they are under and also being patient as they come to terms with the new situation.

One interesting thing is that as Ning & I start surveying our startups to get a sense of the impact of the recession and their plans, we realize that our strategy of not having a fixed area or industry and our strategy to go for more conservative founders seems to be working well even with the COVID stresses. Of course, there is also an element of luck at play. Here's an interesting summary. Most of the VCs we know have also done this with their portfolio.

Out of 23 startups who replied.

New Revised Revenue for this year compared to original projection

same and up - 5
0% to -25% - 8
-25 to - 50% - 6
>-50% - 4

Cashflow runway with new scenario projections

> 20 mths - 14
12-20 mths - 4
<12 mths - 5

So while we can see that definitely the bulk of startups are affected by downturn in a big way on revenues, we are happy to note that most of them just raised their latest round last 6 months and so still have a lot of runway to tide through this tough period. We are focusing on the 9 which only have less than 20 mths to see if we can help extend their run way via loans if it makes sense.  Unfortunately, we do anticipate 1-2 failures next 6 months.

Hope this sharing is useful!

Steps to take now to prepare for the Covid Recession

Its happening as we speak. Last 1-2 months, many startup management teams and boards have been in emergency strategy planning sessions to figure out how best to navigate this deep downturn. And because data is coming in fast and furious in this new connected world, it can sometimes be tempting to wait for more data before doing up a revised plan for this year and next.  Don't be tempted. Do it now!

Ning & I have been on many video calls with our portfolio founders last 3 weeks helping them figure out what is the best path. I want to share our thought process and some steps today to help fellow founders.

Step 1 : Assess your situation.
Use latest sales numbers last few weeks to figure out the level of slowdown you are facing. So far it looks like travel is almost 90-100%, Events / F&B is 40-70%, B2B saas software around 30-50%, media up on traffic but down on spend=net down 10-30% expected and ecommerce/delivery/healthcare/edutech all doing better than expected. The list goes on and it will be interesting to see the follow on demand shock and wealth reduction effects on p2p lending and other fintech businesses.

Get a clear handle of your costs and start to think which can be cut. Get a calculation of the time frame and amount of wage and rent subsidy.

Step 2: Make a reasonable projection on forward revenues and collections for various scenarios.
Assume the recession will result in depressed sales for 6 mths (base case), 9 mths (bad case), 12 mths (very bad case). You should make cashflow projections for all 3 cases. What this means is for eg if 1Q2020 sales was $300K. But its falling off a cliff for March say to just 50k entire March . Then for the 6 mths scenario, extrapolate April-Sep will be just $50K mthly. Then project some growth and recovery from Oct - Mar 2021. Apr 2021 onwards back to $120K a month. Thats for base 6mth case.

Step 3: Project out a 24mth scenario and reduce costs
With 1,2, you can project out 24 months and see how much cash you will spend each month factoring in grants, reduced sales and collections. Next step is to reduce costs until you meet your desired goal. We are asking our startups to execute a plan for 24 month runway now. You figure out your own.

Step 4 : Get credit line. Then SELL AND INNOVATE OUT OF THIS CRISIS
Start applying for credit lines if needed to shore up finances. At same time, see if there are opportunities to grow other types of sales. During the GFC, recruitment advertising plunged. But employer branding budgets were still present in select FMCG, Govt, Tech sectors. So we created brand new packages that gave them branding. Interestingly branding packages were worth a lot more than recruitment ads and they helped us a lot. Go full steam to acquire clients.

Step 5 : Track cash and new metrics in mths ahead and tweak plan as things change.


Additional Point 1  - Get a handle on collections and clients.
AR is not cash. AR is you behaving like a bank when you are not. You need to do 2 things.

a) Chase down all the old AR and stop selling new contracts to clients who are not paying. This is particularly critical now esp for fellow startups who may not have runway left. But they will continue to consume your services if you let them.

b) Shift sales to sell to clients who can pay upfront or good credit. Divide your clients into 3 segments. First segment is the bluechip profitable MNC and govt clients. You can continue as per normal getting their sales and even extending usual AR timing. Second segment is normal customers who have always paid up on time and who deserve some trust.Third segment is unknown or risky credit clients. For group 2,3, you can still do their business but ask for cash upfront. You can even give a discount for it. It will work out better that way.

Additional Point 2  - Deliver all the bad news transparently  in 1 go and lead by example
It may feel correct to cut down costs and manpower as the revenue falls but that is not good for morale. Do it all in 1 go at the front and make sure management takes the biggest cut. At the same time be very transparent and overcommunicate everything. From the economy, how it is hitting company to your thought processes.

From there on, its off a low base and things hopefully keep improving. If it turns out the 6 mth scenario is wrong and its a 9mth, then do another cut 6 months later. But not small cuts month by month.

Additional Point 3 - If you are removing headcount, make sure it is done legally and humanely. Explain to remaining staff why. And yes, of course take the opportunity to remove poor perfomrers.

Good luck to all fellow founders and see hope to see a wave of cost efficient and super battle hardened startups when we emerge from this downturn!

NB: we also did a survey of our 31 startups to gauge impact on their business and runway. Situation better than we expected thanks to recent fund raising and emphasis on costs.

Monday, March 23, 2020

Startup Valuations in Recessionary Environment

Just 1+ mth ago back in early feb,  I was noticing that startup space esp early startup space, (Early meaning Series A , Seed space) seems largely living in lala land where valuations don’t seem affected by slowdown or is anyone worried about the spread of coronavirus.

Now the situation in my assessment should and will change  as the entire world economy is whacked big across the board and for the foreseeable future.

The funny thing is I still see startups thinking of valuing based on revenue or profit multiples that are totally out of whack with listed comparables. Here are some facts:

1) crazy guy in the room giving crazy valuations is in deep crap themselves having to sell prime assets now to redeem debt and show value. So no more crazy vision fund bets distorting market. And there is no one to replace them. 

2) loss making Uber is now worth about 6-8 times 2019 revenue high. i suspect if we use real revenue on grab and gojek they are really worth 40-50% less than last round which is validated by what secondary sales is showing. 

Slightly loss making grub hub is worth about 2-2.5 times it’s revenue. Saas which should benefit has also seen a rerating with profitable salesforce being valued at ps ratio of 7. The list goes on and the revaluation has happened and is not done.

So what to make of all this? Private Startup valuations should at least fall 20-30% just to follow market comparables. Add another 10-20% if you are not profitable or dominant in space. 

That brings us back to startup seed valuations at S$2m-4m or so. Or back to 2010-2013 levels which makes more sense. Series A should adjust accordingly. And maybe quick path to profit should be an indicator too. 

PE ratios back in 2002-2010 used to be 8-15 times for tech plays depending on strength of business. Go do the math..

This is not a sell serving article because I stand to lose a lot more if valuations go down than up having already invested in 31 startups and 7 VCs. We still intend to invest in 3-4 more startups this year and have already done 1 new investment and 3 follow on this year in engagerocket, worq and rara delivery.  For us it’s about backing founders. 

My goal is to tell founders to not live in lala land any more and don’t count on getting any easy outside money if this situation prolongs another quarter. And if you do survive, know that your business is probably worth a lot less than you think now. All this should generate actions on your part and behavioral change. I hope I am wrong and we get a V shape recovery 2nd half.. but we don’t plan on hope...

The only little silver lining is some VC at A and B rounds have dry powder. (Provided no pulling of LP capital. Not likely right now but we never know.) so this is a time to know if your VC really support you or not on cash infusion or loans.

Another positive note is that founders should also remember that many successful businesses grew out of tough recessions and were built with little or no early investor money. Building a profitable business in a recession strengthens your efficiency and mindset. And once you have a high quality profitable business, there will be lots of ways to monetize your hard work when the upturn comes!

Sunday, March 15, 2020

Staying financially alive in a crisis

(Shaoning has a great post on this topic and it inspired me to elaborate with more detail to help fellow founders.)

First post for the year and its against a backdrop of great uncertainty and fear in financial markets, business world and society in general. The COVID-19 coupled with the oil shock has as of today resulted in a paralyzed, shellshocked West and a winded East. What i have learned going through 2000 tech crash, 2003 SARs and 2008 GFC is that pendulums tend to swing to the extreme aided by self-reinforcing fears and panic. This does not mean that we should be cavalier about things and just work on a best case recovery assumption. Rather it means we recognize this crisis while large is not a world changer in any meaningful way. Yes some governments which are inept may be voted out, some people/companies will go bankrupt and most sadly, some people will die of the virus who could have been saved if we acted differently. But this will not change the world like the way democracy or religion or even the internet/iphone did.


So what should we do as investors and startup founders? First investors, take it easy and slow and have a plan as the market gyrates. Cash is king. Invest following whatever your personality fits best. Some people buy the way down, some buy the way up. Most important, do not Over-Leverage!. Never have to sell a financial asset due to margin calls or daily expenses. For our situation, we have a hard cap of 28%  on total leverage on all assets.  You need to figure out your own.

Second, keep to your asset allocation. A balanced portfolio or conservative portfolio would actually have only seen a 3-10% drop YTD. Its just part of last years gains. Compare this to stock market drop of 25% and  some individual stocks drop of 50-80%. 

Thirdly, keep the diversification. Don't own too much of one counter or industry. This means no single stock risk more than 5% of portfolio for me. Personally, i am prepared to buy 5 times of ETFs, dividend stocks and technology stocks all the way from S&P@3000 until S&P@1200 and STI@1200. This is below GFC levels substantially and at that level will involve some careful leverage (30% max) and selling bonds. It also involves being much picker. Why buy speculative loss making tech like EB or ZEN or Z when you can buy AAPL, BABA, FB, GOOG, AMZN at super discounted prices? This means at current S&P 2400, we have action plans for markets falling much more.

As for private equity investments like startups or VC funds, we have always espoused keeping to just 5-10% of net worth and to put them at book value. So these should continue on maybe at a slower and more careful pace. Esp if you are investing in early stage startups, i would argue valuations will get better and you can get better quality founders in times of crisis. No wantrepreneur would run a startup during bad times! 


You are in a much tougher situation. A few will be lucky and have huge demand due to your sector (healthcare, delivery, cleaning etc)  but most will  be in reverse situation.  The most important thing i can share is to take action and control of your destiny. Don't be passive and hide or be in denial. That will be worst attitude to take. You need to act on revenue , cost and cashflow to tide through this period.

Second, estimate your cashflow. Make sure you have enough cash to last at least 18 months. If you don't, cut costs and drive revenue until you can. Assume no more new investment money coming in. At the same time, apply and get credit facilities that will help you get cash in quickly. Now, some founders balk at personal guarantees required to get credit, all i have to say on this topic is do you have proper shareholding alignment and are you a wantrepreneur or the real deal? Don’t forget you raised capital convincing investors this is your do or die. 

And even if you do have the cash ( i know many more fortunate startups just raised capital), I suggest to still try to cut costs and extend it to 24-30mth.  Do a worst case scenario and an average case scenario planning. Then create trigger points where you take certain actions. 

Third, some actions you can take should cut across all functions and levels so that it is clear it is an all company effort. Mgmt lead by example.  So if you cut salary, cut your own the most first. It gives your moral authority.  If you don't agree (see the point earlier about personal guarantees). Areas to watch and change include :

Manpower Cost-  salary reductions/freezes (use the MVP component) , no bonuses declared, no pay leave, headcount reduction. For example, I just saw a early stage startup advertise for chief of staff role. What the hell?? The only Chief of Staff i know is in the US Cabinet. In bad times, founders need to roll up their sleeves even more so that the correct tone is set in office.

Marketing Cost - Cut marketing expenses to something commensurate to revenue. Don't try to grow ahead or just rely on LCV math. For example, if you normally spend $10K per month on conversions, try to spend $6 or $8K and just get the more profitable leads, dont bother with the expensive ones. And drop branding related advertising spend as much as possible,

Other Cost - Rent. See if you can make it 2% of your total expenses if you are a pure software play.  Do you really need downtown or coworking location? We had about 100 staff in 4500 sqft of space with meeting rooms and storage area and pantry. Be cheaper than us.

Other Cost - Staff welfare expenses. Do you really need to spend more than $200 per staff per year on welfare? A lot of team bonding activities can be free. This is not significant but it is setting the tone.

Cashflow Mgmt - Create packages that collect cash upfront. Chase AR religiously and don't be the bank for your clients.

Strategic - Stop overseas expansions and maybe close down new product lines or geographies that do not generate sufficient cash and which keep burning.

Talent - top performers should still get recognized, paid well and maybe even get some bonuses and increases.  Use the opportunity to remove bad performers. 

The above areas are all cost linked. Frequently, my experience is that cutting just helps you become more efficient and a downturn is a good reason to test your efficiency. I honestly feel most startups today behave like an MNC  in terms of perks but without the commensurate revenues and profits.  What is critical is that you comminicate the reasons for all the changes. This will be a good time to see if your staff trust you and whether you have built a good culture of teamwork and togetherness.

Next is revenue side.

Sales - If you are a startup with product market fit already, the one thing you don't cut is performing sales. If you can sell your way aggressively out of a recession, you tend to become very strong. For example during GFC, we created specially discounted packages to go after SMEs with a tagline that we are here to help them. At same time, we reminded MNCs and Govt that had recruitment freezes that even if not hiring they should spend a bit of money on employer branding so that when upturns comes, they have improved their employer brand. 

For sales, this is also an opportunity to fire bad paymaster clients and replace them with safer clients in terms of payment terms. Remember honestbee. They can always fold and don't pay. Then you need to write off the AR. That is even more painful and its usually better to not have that revenue in first place.

Sometimes, its just bad luck. You are in a sector that is really bad like travel or tourism. Then i would argue your leadership and strategy matters even more. As a small startup you have huge overhead and cost advantage over your big competitors who will be feeling even more low morale and burning even more cash. They will be pressuring their sales staff, cutting headcount and removing pantry benefits. This is the best time undercut and out sell them. If you have sufficient cash in bank, i would argue it is the best time to grow market share. This is exactly what happened from dot com crash in 2000 to 2006. The job portals basically stole SPH lunch in terms of recruitment advertising revenues.

One caveat though. If you find yourself mentally breaking down (much more than normal stress) or if clearly cash balance is not going to make it, there is no shame in calling it quits and shutting down. And pls assess risk properly, don’t wait until you owe employees and fellow sme owners lots of money before shutting down. That’s called self- denial, selfish and irresponsible!

Hope this sharing is useful. i may sound a bit extreme in my cost cutting thinking but it actually how most very profitable SME run. Its time our startups learn to do the same and who knows, maybe we will have a surge of profitable startups emerging once the winter ends. Imagine being so well run, you can fire your Vc and not need to raise anymore!


Saturday, December 28, 2019

On Purpose - 2019 in Review

Another year passes so quickly. I have always been searching for the right framework to live and the picture seems slightly clearer this year. Previous posts have always been on stuff done and learning. I think i have enough to now take a step back and frame all the stuff. See if it makes sense and is useful to you.

Life is about having purpose. Purpose creates motivation and challenge which generates plans, execution and hopefully reward. It also acts as a time allocation device. Goals are what we set to achieve our purpose. One can have multiple purposes though it’s best to keep it to a few at best. Purposes can change after many years.

Life is also about pleasure or fun. Pleasure can be physical, mental or spiritual.  Exercise, beauty, learning new stuff, travel, eating etc.

Life needs connections with others. Can be family, friends, fellow workers, volunteers even animals etc. the mental need for social interaction should not be underestimated.

Life is about balance. The trick is to exist at the dynamic moving intersection of all the above and be happy with the current state and future trajectory state. This requires me to cultivate gratitude and contentment to handle the inevitable tension and trade offs between various purposes.

And what of happiness? Happiness happens easily when above is achieved. However, personally for me,  the issue of focus and the problem of drifting and feeling like a bystander is still there because this more multi-faceted life is still in vast contrast to the obsessive single purpose life I had previously in JobsCentral. Ning says it best when she remarked about how life was simpler but when we only just wanted JobsCentral to succeed.

So bearing above in mind, here goes:

Purpose 1 - help and be there for family. Extend to friends if i can.
Purpose 2 - be as healthy as I can
Purpose 3 - Be a good custodian of wealth. help grow startup ecosystem as angel investor.  Contribute to broader society as volunteer.

From the above, I generate goals and results as posted before. Below is an update.

Purpose 1 :  Good relations with Family & Friend & contribute to their lives

Goals: High level of family/wife/friend time. Share more learnings with kids.

2nd son had O levels. Very proud of the way he studied hard without much pressure from us. Our boys are a major focus for Ning & I. Number 3 also did well and seems to have matured. Likewise number 1 and 4 are growing up nicely. Perhaps a little too quickly for number 4. Goal is to bring up well adjusted, contributing and happy people.

Celebrated wedding 18 years anniversary. Love wife very much. Dad still going strong and traveled with us to Taiwan for 20 days. He also went to South America for almost 4 weeks with my sister earlier in the year! Still miss my mum and think of her every few days.

A very old friend of mine finally found a life partner and got married in 2018. This year became a father. Its actually hard to keep in touch with old friends and it requires a special effort to always organize group dinners. Still, my experience is that its worth it each time.

Purpose 2  : Be Healthy Mind and Body

GOALS: Keep lean, weight below 70kg. Pick up more outdoor sport. Control mood even better through exercise and mindfulness.

Body - improved with cholesterol dropping a bit. Weight maintained at 68-70kg range. Health screen all clear. 5-6 times exercise per week.

Mind- mentally up and down but not too dramatic. Regular contemplation of death helps keep perspective and having Gratitude. Mindfulness keeps my attention on right things. Boredom and bystander issue is still there.

Traveled 72 days. Less than last few years 80-90 days but it’s due to our commitment to stay at home for the various kids exams.

Purpose 3 :Portfolio mgmt & Work role in Society

Goals: min 6% long term annual growth on net worth.  hit 100 startups for angel investment doing well as a portfolio. Quality volunteer in any such work I take up.

Portfolio Work

Portfolio YTD gains of 17%. Tracking the 6+% annualized since 2011. Big mistake on baidu + overallocation to value funds + 1H delevering so took some money off a little early. Big wins on sea, fb, alibaba and shinvest help us to at least match index.

Still in progress to switch to even more etf index investing. Can’t significantly beat index so might as well don’t try. We also want to be more disciplined in giving. Will have more discussion with Ning on this. 

Startup Work 

Angel side very active. I think because we now see so many deals, we actually hit our upper limit and did 6 new investments. Also had 3 big up rounds from previous startups. Almost all grew by revenue. 30 startups now. Thats 30% of the way to the 100 startup goal. Portfolio doing well  if mark to market.

AngelCentral side ramp up a lot. 130 paying members and we ran angel education workshops for easily 200+ more. Also spent lots of time vetting and meeting the 700 startups that register with us.

Volunteer Work

Still volunteering with ITE, PEP, SWCDC. This year a bit less time due to AngelCentral but the education related projects are still very meaningful to me. Of note, spent 4-5 sessions on an  ITE project. It is a highlight as it involved helping plan continuous education pathways which is something I firmly believe in. 

So for next year, should be continuation of the same and reminder to self to focus on 
Purpose, Fun, Balance & Gratitude.

Wednesday, October 30, 2019

How Should Angels Think About WeWork?

There has a recent spurt of bad news coming out of startup world this year. Readers will know Ning & I are conservative angel investors - is there such a thing? We take calculated risk in angel and VC investing and worst case, are prepared to write off our money. Of course,  we are obviously doing it because we like the activity and believe we can generate returns worth our time.

Lets do a recap just for this years news alone. Locally we have :

- Honestbee on brink of bankruptcy.
- Carousell taking a less than ideal round with OLX
- Rotimatic losing $1 for every $1 they sell.
- Propertyguru shelving IPO due to poor valuation offered by retail investors

I also buy the ACRA reports of many startups at Series A and B and they are inevitably all loss making. And to make things worse, the losses are not narrowing but sometimes expanding faster than revenue!

On a global basis

- Wework failed IPO and subsequent writedown/bailout by Softbank
- Uber & Lyft poor post IPO performance
- Grubhub stock tanking 40+% in 1 day due to poor earnings guidance

So how do we read all this? Especially as an angel investor? Does this mean we should just stop investing? Wait & See? Every angel needs to make up their own mind. For us, these are some of our thoughts:

First the good, positive stuff.

1) The fact that Carousell & Honestbee can raise so much with such bad revenues and/or unit economics is actually a sign that the ASEAN ecosystem is really strong with liquidity and interest. It is also the reason why SEA has decided to go all in for Shoppee so as to really stake their claim as a major ecommerce player in the region.

So ecosystem is growing and doing well. Liquidity is there as we see more and more VC funds raise and so will deploy capital next 3-5 years. And this is across all stages. At AngelCentral, which is an angel investing club, we have seen amount funded for our pitches grow at least 50% YonY.

2) Market growth is real. ASEAN really is a strong demographic play. GDP growth is strong in Indo, Vietnam, PH etc and this growth will accrue to tech related plays.  Just see how fast revenues have grown in Shoppee or Grab or Gojek.

Now the not so good stuff.

3) However, because of (1), many founders have decided to go for revenue or even just metrics without the cost discipline and patience to grow revenue and cost in tandem. This has led to massively loss making entities who all claim that their ultimate market size will justify the losses. In industry speak, we hear founders talk about their unit economics and the LTV of each customer.  This all makes sense provided capital is sufficiently patient and that the unit economics assumptions are real and market growth assumptions are accurate. Unfortunately, asssumptions are often wrong and unit economics or market size sometimes does not bear out.  When this happens, valuations have to come down dramatically.

Eg. I suspect this will happen for all the coworking spaces. None of them have succeeded beyond being a property play with some ancillary services added on. This makes them a 1-3 times revenue multiple play which is exactly how softbank values wework now. Thats a 50-90% valuation haircut.

Will this play out in more verticals? Unfortunately the answer is yes. With softbank licking its wounds, IPO market rejecting expensive listings, the froth has been blown off somewhat.

4) So there will be more bad exits or failures coming. Where will they come from? My bet will be on those low gross margin or pure traffic plays. B2C and with loads of cost and who have raised loads of VC money. The pressure will be intense to deliver on actual revenues next 1-2 years and profits thereafter. Quite a few names come to mind but i will reserve my judgement and see what happens.

So what should angels do?

Personally, we are sticking to our investing thesis. Remember VC/Angel investing should be just 5-20% of your total portfolio. So you probably made that same 10%-20%  in public equities and bonds last 5 years. So it must be money you can lose. We cannot stress this enough.

Next, we invest base on the founders skills and ambition, business model, product and market sizing. We invest systematically on a portfolio approach with discipline.  We want our companies to become profitable with superior unit economies and branding. Then they have the luxury to decide to trade sale or IPO. We do not want to invest just because an area is hot or if there is a high valuation ascribed to the vertical overseas or if a famous VC is investing. That is called investing blindly and greedily.  You need luck to behave that way and do well.

And if the shit really hits the fan on the ecosystem, i would argue it will be the best time to fund great founders who make it work even without much funding. Talent also becomes easier to find and of course, round  valuations will adjust downwards to compensate for risk and capital scarcity.

What should startups do?

To me, founders should take a long hard look at just what your unit economics are. And have a plan if funding is less or dries up. Because I can tell you having gone through SARS in 2003 and GFC in 2008, operating a startup without any outside money requires a mindset and hunger and obsession that is very absent in many founders mindset today.

Capital efficiency should be your buzzword. So many local Series A//B b2c startups need to spend 5,10,15,20m over 5 years just to make 1-3m of gross profit. In lean times, this is a ridiculous sum and implies a lot of wasted dead ends and maybe just plain waste! It may take a few years longer but I suspect often it is possible to spend much less and achieve same results.

In Summary

We don't think things are so bad right now like back in 2008. In fact it is nowhere near. Our assessment is that the pendulum has merely swung back to more normal state and there is still much interest and liquidity. Of course, if the rest of economy swings into recession and more failures like wework appear, then all bets are off. But we do believe sticking to consistent disciplined investing will work through both good and bad times.

NB : if you are keen to learn and hear our sharing as rather prolific angel investors, come attend our next workshop for Angel Investors.

Monday, September 23, 2019

How Should Angels conduct Due Diligence?

Its been almost 2 years since we founded AngelCentral. We now have a  quality pool of angels who are investing with (hopefully) a considered portfolio strategy, selecting from a large pool of varied startups and who have a framework for evaluating founders, market and deal terms. The next question we get from more experienced angels is on how to conduct due diligence on the startups they wish to invest in. 

(For this article, i will assume the angel is not a lead investor and are still following a VC or syndicate lead)

Philosophy & Mindset
I will start by saying due diligence happens after you decide to invest in the round. In an ideal world, you complete DD then decide to invest. However, the real world does not usually allow you the luxury of telling a founder to share detailed datarooms before you at least soft commit. So the normal way nowadays is to evaluate the startup via a few meetings and within 1 month, decide to invest provided everything else in DD process works out. 

So i would encourage fellow angels to have a mindset of verifying key information when it comes to DD phase.  This is very different from the pre-commitment mindset of finding reasons to say no when evaluating the startup for investment.

How Deep Should Early Stage DD go?
By definition, there isn't that much to DD for early stage startups. Less legal documents, simpler product and fewer years of financials to look at. Also, for angels, we must be prepared to sometimes be given a smaller dataroom. Eg, the lead investor will rightly want to see all salaries and even some client names, but angels probably don't have a business doing that. It really depends on how comfortable the founders are with you.

Areas to DD
So what do we find in a typical startup DD dataroom? In this folder (usually a cloud folder), you should have access to :

1) Corporate Structure & Shareholding Matters

Eg. ACRA filings in SG case. Shareholder tables pre and post investment, Past & Current Subscription Agreements, Latest & Proposed Shareholder agreements, Founder agreements etc. 

Verify - shareholdings, post/pre investment numbers, investing in holding company, ESOP contracts, rights of shareholders, founders agreement terms etc

2) Financials 

Eg. excel mgmt reports, audited previous year reports. Cash flow, balance sheet and P&L, AP/AR statements, Bank statements

Verify - key expenses like mgmt salaries, marketing costs etc, cash in hand, AR/AP etc

3) Asset Ownership

Eg. domain name registration, software contracts, property titles etc

Verify - ownership of domain names, apps, source code, databases collected. 

4) Contracts & Legal

Eg. employment contracts, client contracts, JV partnerships, MOUs etc

Verify - terms are in compliance with laws and same as shared pre DD

5) Product Development/ Traction 

Eg. analytics snapshots, login access to product demo, big picture milestones/Dev plans, customer interviews, production BOM etc

Verify - usage and milestones as shared during evaluation, key contracts, client renewals

6) Any Other Information

Eg. Investment Deck, Financial Projections etc

That's Way Too Much Work!!!
Truth be told, most angels don't do all the above. That is why we are not lead investors! For deals which Ning & I are not leading, we usually just pick a few key ones to verify and take about 1-2 days to complete DD. Usually i like to check on mgmt salaries, make sure traffic is real, check out product and customer feedback a bit more. I rely on the lead to make sure hygiene stuff like cash, shareholding, legal issues are all sound.

When Do I Cancel the Deal?
Shao Ning & I view DD as something we do to tick the boxes. We will only cancel the deal if something is very off or which gives us a feeling founders were not ethical/honest. Eg, if founders said they pay themselves $4K per month post round but in projections they say it will be $8K. And when asked, they say its because they are raising more money. That will be a sign for us to walk away!

But if it is last month sales reported at $10K, but in reality it was $9K. And mgmt has a good reason why they reported wrongly, we will usually give them the benefit of the doubt.

In summary, due dilligence is something angels should do just to make sure the key reasons we are investing are verified. The amount of information we go through and which the startup shares has to be commensurate to the stage of investment. We can and should rely on quality lead investors to do the full due diligence work but do remember if they make a mistake, all they will say is sorry. So end of the day, we have to feel comfortable.  Good luck and have fun!

Saturday, June 15, 2019

AngelCentral/Angel Portfolio Report Card

AC goal is to build effective angels by offering quality deal flow, investor education and syndication services. Our community manager zijie has written a wonderful summary of what AngelCentral has done in 2018. You can read it here. Some highlights:
  • Hit our goal of doubling investment commitments. From 3m in 2017 to 6m. Of that about 3.7m actually funded.
  • Signed up over 100 paying members from 0 in 2017. Lovely mix of entrepreneurs, corporate types and family/corporate funds. Best part? Almost 40% of them actually cut a cheque.
  • Trained more than 200 angels.
  • Successfully ran 3 syndicates. 
For 2019, Ning set more ambitious targets to grow everything and we are off to a good start already. Of note, we just launched our 2 sided online platform to facilitate discovery and dealflow.

As for own angel portfolio, we now have 24 investments as of 31st May 2019. Using the 24, it’s a TVPI of 2.6 since 2011. If it is over the 19 investments made since Jan 2015, we are at 3.3 TVPI.

In terms of IRR, it has been 23% since 2011 which includes all our early mistakes and 68% since 2015. Hopefully the numbers show we are getting good at our game and that all our fellow AngelCentral investors are working with a good formula. Hard to say because the high IRR also coincides with increasing liquidity in funding ecosystem. But I do feel we are picking better since retiring and focusing on angel investing.

A few observations
  • mostly paper gains based mark to market so really need to wait for exits to realize those gains
  • 80/20 rule definitely applies. The top 5 startups account for almost all the paper gains.  
  • Angel/vc/pe part of portfolio can act as a barbell to overall portfolio. It helps add 2-3% to overall returns which is very significant. 
  • Early exits are no good. We need 30x returns not 2-3x.
  • It’s really all about founders and depth and scope of their hunger.
Personally, I want to share that helping to run AC has given more purpose to my life. So it really validates the point about having a meaty identity to sink my teeth into that takes up time, is intellectually challenging and also hopefully pays back.

Now Ning and I call ourselves full time angel investors who not only invest 4-5 startups a year but help hundreds more find angels via AC. We are now useful again in a concrete economic way. It’s also a lot more fun to co-invest with other likeminded investors. 

The tricky thing is how to balance it all so that I don’t end up getting obsessed.
It’s quite easy to get back to old mould. I got disproportionately frustrated over a failed syndicate and I had to remind myself that it’s just part and parcel of running an angel grouping.

Hopefully things will continue to balance well and our angel activities continue to grow and add value to the ecosystem. Key thing in my mind is monetization for existing startups and real exits that generate founders who can invest back to spur our ecosystem even higher!