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Thursday, March 28, 2024

Behavior of investor directors on startup boards

We have a front row seat watching the ongoing growth and trials of the asean tech ecosystem scene. Since 2013, we have personally invested $9-10m into startups both directly and via asean Vc funds. We have interacted with thousands of founders and met many GPs and Principals of VC funds. On the side of larger organizations, we have been or are board members for stat boards, private entities, non profits which are relatively large with hundreds to thousands of staff and generate 7-8 digit profits or surpluses.

Lately due to the effects of the funding winter and the rerating of many tech stock valuations, we have been hearing disturbing stories coming out of startup boardrooms. There are stories of board members aggressively badgering founder mgmt who have opted for a strategic move towards profits. There are also stories of board members changing their minds about supporting with more funds at last minute creating cash crisis. And of course big ego board observers/members who just don’t add value but somehow still always want to give ideas and suggestions.

So it’s timely to share our views on this issue. Founders, feel free to share. GPs, while it’s normal to focus your personal time on winners, do make sure the less experienced board members you appoint to other portfolio startups do justice to the ethos of being a good member. Many of the issues raised below are happening.

1) Board member has a fiduciary duty to the startup. This means you think from the startup pov. Not your own career path at the investor , not your own investment value pov, not even founders pov. So if mgmt has decided to change strategy towards profit and not chase growth at all cost, you can question and debate but if the board has been updated and the topic discussed and voted, you need to go along with the new direction.

It doesn’t mean you don’t think, or bargain or try to improve chance of success. You can help mgmt decide better with useful datapoints that tell them on they are on wrong track. You can ask for mgmt to peg their pay and esop to delivering the profit with penalties for falling short. You can remind them they promised growth when fund raising from your fund. Get some goodwill even as they override you. But the truth is the market has changed. Good founders like those at sea and grab have already cut and turned profitable. Positive cash flow and profits matter as much as growth now. 

2) Board members should be professional. Be punctual, don’t talk down to people. Prepare for board meeting. Read the agenda, minutes, updates. If you are suggesting something, prepare the arguments with data points. Even if out voted, remember for the founders it’s their one shot, so they rightly should have final say.  If you are like most investors, you backed the founders more than the business projections. So remember that.

Of course there are caveats. In cases where investors own majority share, control board and want to keep growing and can fire founders, or founder did or wants to do something illegal, then investors need to remove founders and become mgmt themselves. That’s a totally different issue.

3) Do what you say. Never lead a founder on esp if it’s about funding. If you are not sure your side will follow on or will be a backstop investor, pls don’t say you will on something so important if you aren’t 100% sure and willing to stake your job on it. It’s a small blip on your career to have a failed startup but it can cost hundreds of jobs and 10 years of each founder life.

Pulling a backstop which you promise is one of the worst things you can do. In fact, it’s best if you are brutally honest to tell founders early what intentions are in terms of future funding.

4) Finally Board members should be empathetic. Listen to what mgmt is saying and corroborate with outside data and internal data. Don’t forget the business is the founders life and death. It’s just a job and one of 15 investments for you. When cash and exits were easy, it made sense for founders to believe in grow at all costs. Now they are just reacting to the listed markets when they want to go after profits and cashflow. Are you so sure they are wrong? And from any entity pov, it’s right to secure profits so that the entity can survive.

Yes, it does mean your investment is stuck longer or even down rounds for you. But that’s the nature of the markets right. Win some lose some. Winner can become dog, dog can become winner but 5 years later. Patience matters a lot when we invest. 

5) Stay at the governance and strategic level. Don’t go into the weeds and try to talk about sales mgmt or product development unless you are really an expert at it. And even if you are, I would argue the board meeting is not the platform. It should be a separate sharing and the company can even pay you as a consultant to help. It’s cleaner and clearer that way.

6) Finally and this is optional but ning and I do it. Be cheerleaders for the company and for the founders. We find having this basic mindset helps us be more empathetic and get better results in terms of founder- Director relationship. We give more benefit of doubt.

So what happens if we get it wrong on the founders? Consistent bad dumb strategies and execution, and/ or worse ,unethical behavior? Then we should write it off, learn from what went wrong in our selection, and resign from the board. That’s why we invest in a portfolio.

Founders, while this article is about how board members and observers should behave, your interest in and effort needed to build a cohesive useful board is even bigger. Done well, boards are a great source of perspective, network and advice. So you have to play the role to take its composition, quarterly running and updates very seriously and do it best of class. Spend time to get to know them personally if it makes sense. They are at least as impt as a key client. Remember no ego, only business.

Monday, March 25, 2024

Is a good IPO on the cards for Carro?

Carro latest fy ended March 2023 numbers.. Essentially they are now a car dealer + car marketplace + financing company. With some extras thrown in like selling ads, insurance etc. it’s a nice synergistic business on the financing & marketplace side where 1+1=2.5+. 

The marketplace bit is high gross margin but actually is at odds with dealer side as no smart long term big dealer will work well with a marketplace that also owns one of their biggest competitor. It will be interesting to see how they navigate this issue. The car dealer side is low margin as have to buy and sell the cars but it generates great gmv which  mattered back when revenue was the goal.  Finally the  financing side requires cheap capital access. 

But the financial numbers so far are showing it’s not 1+1=5 or 10 for sure which I suspect was the investor pitch. And I am not sure they run well right now as each component business by right profitable but now combined it’s loss making?

Case in point, TIA article has their CFO saying that employee benefits as % of gross profit has fallen from 110% to 89% in 2023 as if 89% is good. It’s ridiculously high still! Profitable pure software tech companies have it at 30-50%. Also it sounds like a lot of financial engineering going with valuation of investment assets. Be careful here, companies like coassets and many more used such non cash non operating methods to boost numbers to very bad outcome longer term.

Mgmt is saying ebitda in fy2023 is 5m and probably will be 30-40m in fy2024 and that’s a projection and off 1-3 mth annualized. And overall loss making as shown. Down -98m  in fy 2023 which means fy2024 also loss making for sure.

The saving grace is they raised at perfect timing and so still have 160+m cash. By the way 160m put in fd is already 8m profit there….

Other saving grace is carvana stock has rebounded. But big difference is carvana is profitable and trading at 13-14 times ebitda. So carro if valued at 7-10 times ebitda (smaller size and loss making discount), then it’s probably worth $300m-400m at best? Still a lot of money but small for nasdaq. And it’s about right compared to how public markets have cut down asean tech stories. All about 60-80% off inflated last round.

Let’s see what happens next 2 years as they try to get more money in. If I am a long term backer… I would back only if serious smart new money coming in to lead and to validate a new mark to market valuation. Already overpaid don’t overpay more.  Remember the lesson of grab, buka, Pgru, ipo! Latest few Investors all lose money including ipo investors.

The other smart thing the founder has done is looks like cashed out via secondary. It’s less said but quite a few of later stage tech founders have deftly navigated the bubble and cashed out for themselves anything from 1-5m to 20m usd. Willing buyer willing seller of course. And they don’t just buy a home but reinvest some as angels! Now that’s good for ecosystem and I think it’s fair up to 10m as it helps them derisk and at least provide for family. 

Nb: disclosure we are angel investors in motorist which is a car ecosystem platform competing with parts of carro. Previously were one shift investors too which is now owned by carousell. That’s why I am sure this space is fine but need great execution to create the synergies. 

Friday, March 15, 2024

Year of reckoning for later stage startups

( Read my older post for more context and detail but it looks like my prediction of cash crunch for middle to bigger startups is coming true.

What a week for our portfolio with both high and lowlights.

First the good side, 4 startups updated doing well. One refused to die and kept so lean and now finally seem to have some product market fit. The leanness and hence super low burn is key. Similarly, another one we thought in danger of dying as no product market fit, got a reprieve as a new investor came in on higher valuation no less.

Third one, continue growing well at scale but this time turning solidly profitable with 10% PAT on 8 digit revenues for 2023. Last one only small loss last year with this year breakeven on 8-10m revenue.

On the down side, two startups running out of funds. First due to product market fit problem. Not founders fault just too early on the product and market not moving to adopt.

Second one is a scaled up startup that is in bad situation due to overspending in spite of repeated warnings that’s it’s not a given new or existing investors will back.

Key learnings?

1) seed or preseed can always raise more money so long as tech and story interesting and costs are very lean. Lean means less than $20k per month. Also if lean enough can pivot until find a good fit.

2) it’s not normal to can’t turn profitable on 5-10m gross profit. Many any other unfunded entrepreneurs across various industries have done it. You may sacrifice growth for now but at least your firm is alive and you are not beholden to new or existing investors.

If you find you can’t breakeven, either you have a broken pricing/business model and/or your mindset is not hungry enough. Rightsize in terms of manpower, geography , product lines. Many non tech businesses with 5m gross profit are already generating 0.5-2m net profit for their founders. 

3) money is not in until it’s in your bank. Stop trusting investors. I already know of several pulled term sheets and even pulled tranches. So don’t be so trusting and optimistic for something so critical.

Very disappointed with the minority of founders who clearly intellectually understand there is funding winter but feel it doesn’t apply to them or their company. Their internal risk reward assessment is very poor. So their actions don’t show real drive to take pain to get profitable. There are continued expenses, slow to cut, continued illogical pursuit of bad revenue.

Likewise the investors who string founders along but leave them hanging last minute should examine their own communication and policies so that they don’t make things worse. Not willing to back say not willing, don’t create a distressed situation by your inability to decide or communicate. 

4) I will venture to project there will be many more distressed failures or sales this year. Shoikmeats is one recent distressed m&a, many many many more of that scale and much larger coming. 

It’s generally not a sustainable business if you make 50m revenues and lose even more than 10m annually.  And there are too many financials I see like this or worse even in 2022/3. Many famous names.

5) As an investor, we are continuing our go slow for angel and new investment. Half of peak sum allocated. we want to see good exits next 2 years first before changing our minds. The  down cases I share validate the key tenets of correct bite sizing and making sure we invest diversely in many startups. Also overall allocation into this space must be something you are very comfortable with.

Let’s see what happens in the year ahead. Good case is some major failures happen but at same time quality stories emerges and they get funding and IPO going. That will change things for 2025 onwards. Bad case will be many failures but no big successes. 

My base case is for the former as we have some startups at scale that are doing good stuff. Sea and Grab are examples. These need their ability to turn a profit to shine thru and will deserve to IPO and get more funding if they so require.  

But there will be much learning, much pain and what ifs all around as we get thru the process.

Monday, January 22, 2024

Positive win win deal for AsianParent/ParentINC

Recently more negative news from startup world than positive ones (Vizzio fraudulent founder, lomotif owner delisting/crashing, Live17 crashing etc), so it’s good to have a positive newsflow from a now considered old time entrepreneur tech Roshni who runs parentinc.

Met her way back in 2011-12, her Asianparent business just started not long. Got her involved in a founder peer group and I think her best takeaway besides hopefully some learning, is her now husband.

Long story short, she took some money from vertex and later from more investors and now just bought motherswork. Also expanded over the years to 12m usd revenue in 2021. Multiple countries and product now media and ecommerce. Only thing not so good is still very loss making at 6.9m usd losses. That’s 2 years ago during the crazy days, it seems like they got the memo to rightsize for profit and claims ebidta positive now. Time will show.

On surface looks like good buy if not too expensive. Some comments.

1) deal definitely accretive since AP still loss making. Gross margins may be worse in retail as online media is very high GP. Also helps revenue by boosting it 10-15m right away. I suspect that’s why can grow from 12m usd to 30m usd in 2 years.

2) Omnichannel as a strategy I am less sure. You can Omni.. but I think still must be either online or physical at scale first. And the skill sets to run either side are not the same. So need to build great mgmt depth for each side. So far retail Omni really strong one I can’t think of any… it’s either retail first like lulu, Charles and Keith and sell a good chunk profitably online or online first like neiwai, jd  with some offline stores for presence.

3) community always works if you can build it. Whether it’s for online media, e-commerce or retail. So this part I totally agree and they have a nice niche topic.

4) MW angle makes sense too. The 2 equal founders have taken it to this size over many years. Nearing retirement at late 50s. So probably negotiating some cash and upside in stock makes sense. Esp if no one to take over. 

5) 70+m usd target in 3 years is 24% growth rate on top line. I think it’s a good target and achievable if can integrate MW and expand Ecommerce sales. Issue is how do the margins look like? They are already experiencing the margin drag since starting to sell online in 2021 where revenue may have doubled due to ecommerce but the gross margins dropped further.

6) deal terms can’t tell. But can see MW Intl wing not big. 4-5m in sales and barely profitable. Local wing no filing est Sg probably similar size or slightly larger as just 2 stores. Price should be like retail valuation with maybe a slight bump as it’s not all in cash. My guess is <20m sgd depending on profitability. And likely below 10m. 

Nb: parent inc issued about 1+m usd in shares to motherswork owners. So likely deal was below 10m for sure. Using high valuation shares to buy is good move if you can convince the SME owner.

Sunday, January 7, 2024

Outlook for late stage asean tech startups in 2024

Having ongoing discussions with Shao-Ning Huang on investment allocation and plans for the year ahead. 

For the startup and Vc side in this region, we also came to same conclusion as article below. Essentially :

1) from 2016-2021 : ecosystem value growth way too much over cashflow sustainability. Investors and founders push towards ever higher valuation without any validation what public market will accept across in more normal times.

2) the various SPACS & IPO from 2020 to now - buka, Grab, Pgru, Moneyhero, Prenetics and most recently live17, proves that latest round private valuations went ahead by almost 50-80% to their current public valuation. Amazing!

3) so if you a late stage startup (last round above 500m valuation) like many many I know, you know markets are going cut you down unless you have great story. 

What’s a great story? To me it should be at least >50m revenue, growth of >25% forward and at least 5m net profit to be worth maybe $300-500m. And that’s a min bar and means local listing cuz too small for nasdaq. If loss making, then at least 100-200m revenue, growing at >30% and losses narrowing annually since 2022. And net losses must be less than 20% of revenue. This one depending on sector and potential can be nasdaq. And if Nasdaq valuation can still be 1+b.

4) so the options for founders and existing investors is to wait and let company grow more into right financials and/or for public markets to get more risk taking and frothy again. The latter is out of founder control and unlikely in 2024. The former is within control but I am shocked at how many startups still can lose more than 20% of their revenue per year. It’s shows cost is out of control and very bad decisions being made on sales side.

Ask yourself. Do you really need a PA or chief of staff?  Can a role be combined with another? Can you use a non pedigree grad or less experience grad to do? This product/market worth investing in or just because it helps revenue look good but actually barely viable?  If any answer is because it looks good for next round, it’s probably worth rethinking what if there is no easy next round.

Stop it with the moves to look good financially and actually be good financially. Role model after profitable players like sea, secret lab, charles&keith not Adam Neumann type and ARKK fund companies (except coin base, Tesla etc). If your thesis of capturing revenue is not working out, remove the product, don’t keep insisting on scaling something with bad unit economics.

5) another less desirable option is force a small IPO/spac/reverse listing. Most of these are 100-200m market cap, inject less than 10m and the underwriters earn a big chunk for the risk they take. 

Then company pay the price in terms of poor publicity, bad stock pricing and subsequent drop in valuation. Moratorium will be an issue. If not lucky, day traders punt your stock and plenty of strange price movements. See ohmyhome initial mths. To me this move is a bad one and is just slightly above distressed round or sale.

6) how about trade sales then? It’s possible but most trade sales are <150m usd. Any larger need a really big player to swallow. So for those unicorns and almost unicorns it’s a massive down round too. And that’s provided any buyer wants a loss making startup in this climate.

7) the same late stage issue will hit the mid stage startups who are doing 10-30m revenue too. So my advice for this group is the same. Chase good revenues and run a lean ship assuming no more or expensive minimal new money. 

8)  unfortunately, I do think those b,c,d onwards startups that run out of money this year without any compelling story are in big trouble. It’s either a big down round like 30-70% down to match listed comparables or distressed sale/closure.  It’s good for ecosystem but it’s painful for employees, suppliers, investors/founders. 

Those that have cash until 2025, things on exit and IPOs and even funding  should be better from 2h2024 onwards. But anything can happen. Eg bad usa recession or worse inflation coming back…. So again it’s back same story.. get cashflow positive and profitable to create good optionality. Let’s see how our founders and mgmt react.…..

As for our portfolio, we invest and count on private markets 20 mths to 120 mths lateer. So it’s not that affected by current listed sentiment. So it makes sense to always invest if have unlimited cash. But we do not obviously. So it’s like buying when crashing, we decided to invest still but at same slower pace (3-4 new startups and some follow on) as in 2023 which is a good 50% down from peak back in 2021. 

Barring big situation change of course. If we have a big exit, we will relook as it is a good time to invest into seed/A rounds due to more grounded valuations and founders. If a recession hits, then maybe can invest a bit more as its easier to build a new startup during a recession.  Read about our startup portfolio here.

Tuesday, January 2, 2024

Startup Portfolio Review for 2023 - Navigating the Funding Winter & Green Shoots

(Please read 2021 and 2022 reports for context. This post is my annual review of our startup portfolio, you can read my overall life review for 2023 here)

Navigating is truly the apt word. Because of the funding winter (and it was a real winter with 1H2023 funding falling off a cliff and listed loss making tech not rebounding until 2H2023), high interest rates and shaky tech demand of 2023. These factors affected our startups in very diverse ways. Some who rely on the domestic mainstream economy continued to grow revenues well, others were badly affected as they depend on tech firm budgets, still others were hit hard as they are too deeply loss making and need new funding which did not materialize etc. But there was one thing in common, every founder of ours finally got the message that if they were not profitable, or on path to profit quite soon, or growing super rapidly in a blue ocean space, they are now worth much much less than their last round raised. One silver lining is by end 2023, listed markets have stabilized and in fact profitable tech are near all time highs. Though with loss making tech still 60-70% below highs, it will interesting to see how 2024 plays out for our startup space. More on that later. But first our activity and performance.

We continued investing in 2023. But this time even more cautiously with a big portion of funds reserved for follow ons. In total, we invested in just 3 new startups. This is a low for us. And the thing all 3 have in common is they are all profitable in 2023. We also did 6 follow ons for our existing startups. Total new money committed into startup is 33% lower than 2022. Don’t forget 2022 is already 20% lower than 2021 which was our all time high of investing into startups. We made a conscious decision to not add anymore allocation to startups until we get a clearer picture ecosystem/portfolio wise.

The good news is we hit our 50 startups midway goal and the overall IRR since 2015 went up to 33.8% from 28% last year. TVPI stayed dropped marginally to 2.57 due to more capital added. These top level portfolio numbers hide so much variance inside. In 2023, the failures and down rounds came in significant  numbers as VCs pulled back on the founders who couldn't grow revenues and cut costs fast enough. We had one startup take a down round that resulted in our stake worth just 40% of last round. Sabo by an investor that kept putting off signing on the deal. In the end, existing investor save them but on a down round. Another one totally failed as cannot secure funding.  That resulted in a 400K writedown for us. And finally another 2 that we already wrote down in 2022, closed down in 2023.

On the positive side and boding well for 2024, 4Q saw a flurry of new A rounds where 4 of our startups had term sheets with 3 closing the deal before year end. It was these final uplifts that negated the 2 big negatives. The rest of the portfolio also had a lot of variance in performance internally but because no new round, it doesnt affect the IRR. But we are glad to see that almost all of our remaining 41 startups are alive and kicking and got the message that funding is no longer easy.  Hopefully they permanently have a mindset shift to rely more on sales and cost control rather than focusing on new funding to build  their business.

On the VC portfolio front, i commented last year that its amazing how there were no write downs and speculated on the reasons. I am glad to see realism come into play this year as the VC side suffered 10-15% writedown in value. Overall TVPI is at 2.34 vs 2.6 last year. This is much more realistic in my opinion. IRR hard to calculate but definitely down a fair bit to mid to high teens.

What's most positive and promising for 2023 and indeed even in 2022 is that our cash inflow from PE is positive each year. We are getting distributions that exceed the new cash we are investing. We need that to continue and grow even more next 2-3 years if we are to hit our 100 startup goal and stay active in ecosystem. We have been in investing mode from 2013 to 2021 and have hit our cap for this asset class already. So we need to be using recycled capital moving forward. 

And this is the biggest issue with our ecosystem - distribution for many startup portfolios is  bad. The data from one research report I read puts 2016-2018 vintage funds at just 0.04 dpi and 2013-2015 vintages at 0.4. Ours is at 0.3 and can be considered mostly a 2015/16 vintage. Anyway  even 0.3 is way too low to be attractive for 7-8 year portfolio. For comparison, our American side similar/younger vintage PE/VC funds are already at 0.4 to 1.2 dpi.

On AngelCentral side, the picture mirrors the larger market and our personal portfolio. AngelCentral also ran a behavioral survey of 100+ angels which shows a marked slowdown in funding activity. Our angels funded about 3.6m in 2023 which is a good 25% down from 2022 number. Membership stayed roughly the same but some angels are cutting smaller cheques or pausing/dropping out. One advice,  if you are an angel, do remember it’s a portfolio game. So you need to have at least 15-20 startups before stopping/pausing. If you are thinking of angel investing, this is a good time. Valuations are fairer now and there is much less competition.

Looking forward, macro picture looks like the fed will not be increasing IR any further and inflation seems under control. So capital markets side should stabilize but I think at least for this year, we won’t see a return of loss making growth stocks doing very well. Case in point, ARKK fund is still trading at 35% of all time high. Or closer to home - grab, buka, moneyhero,17live are all trading way below their most recent private rounds done and of course below their spac or IPO price. I don’t see any macro catalyst for them to rerate upwards. Consumer spending is not going to be strong with high IR weighing on household mortgages. Salaries also won’t grow much this year. There is also still a risk of recession happening in the USA and continued China weakness. These will definitely weigh on all ASEAN businesses.

So if I am a founder of a larger startup, I would continue to focus on getting profitable so that I have more options and don’t have to take big dilutive down or flat rounds. Being profitable consistently and maybe still
growing moderately will also give your company a valuation multiple pegged to QQQ rather than to ARKK. And if possible, don’t be in a position where you need funding and have big losses at the same time. 

On the topic of big losses, I have been monitoring the Acra reports of quite a few VC funded names that are in series B or C and I find their latest 2022/3 financials still ridiculous in terms of losses they are making. We are talking about quite famous startups that make X (where X>5 or 10) million revenues and lose 0.5Xto 1.5X.  I comment on them sometimes in my fb posts. I hope these companies financials improve this year and I truly wonder which investors are willing to back them in 2024/25 when they run out of cash. Maybe it’s better for them to shut down so that they don’t suck up capital and talent.

As an investor, we should continue investing if we can. Be more discerning and picky and walk away from founders who haven’t got the memo. Ning and I are quietly confident that our ecosystem will deliver next 2-3 years. One key thing to look out for will be successful IPO or large trade sale of companies like kredivo, ninja van, moglix, carsome etc. One caveat is that looking at current market conditions, the pricing multiple could be quite weak if they try for exit/IPO this year but at least they will generate some liquidity for many investors. Eg. live17 is now 33% of de spac price. To me that’s fair value. Likewise for moneyhero and many other asean startups. Anyway for angel and early investors, even exiting at 0.5-1b instead of 3b will probably give solid returns!

Thursday, December 28, 2023

A Purposeful Life - 2023 in review

2023 has been a much better year than 2022 for me. 2022 was a year of waiting and limbo with house hunting/renovation, portfolios crashing and 2 older kids going thru NS. But in 2023 many of these things came to an end or resolved themselves and life got going well again.

Year started with a new addition to family- Kody our black dog adopted from SPCA. He has really changed our family life. Now Ning and I have to walk him daily for 1 hr each time, kids have to do the evening one. Nights now include saying goodnight to him and lots of time spent consoling him during thunderstorms!

We also resumed travel a lot more. Managed our first post Covid full family vacation to Taiwan. And year end managed to bring Dad and mother in law to  Australia for a pretty long drive. Also discovered Ning and I really love nature in Iceland. In total we traveled about 76 days this year which is more than in 2022 but less than the usual 80-90 days pre Covid

Main reason is we are a lot busier with angel work, volunteer work and also want to be around for the 4 boys. Number 1 finished NS and entered NUS. Number 2 finishing NS probably going to do law next year, number 3 took up badminton as a key sport and Number 4  continues to surprise us with his willingness to twist what we say and assert his personal reality distortion field.

To recap no change in life purposes, i have centered myself on the 3 purposes below.

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 and knowledge. help grow startup ecosystem via angel investing & AngelCentral.  Contribute to broader society as a volunteer.

Purpose 1: Be there for family. Share and guide kids more. Maintain friendships.

Overall rate this purpose a 7.5.

It’s tough being parents to 4 kids aged 9 to 21. Every day we need to switch mindsets as we help each of them navigate school, sports, NS, university etc. What works well is to discuss with Ning and come to joint decisions on key strategic items and operational issues. Dad wise, he now comes to stay with us every alternate weekend but in time, he may want/need to stay with us more. Arrangement seems to work fine. He had a scare with his eye and it was quite worrying. Lucky it resolved itself and he was even able to resume traveling - to Iceland no less!

The most important relationship with wife is mostly good as we both practice being mindful of each others priorities and desires. She too is learning more each day about ourselves and the world we live in.  I must say I am very proud of all the 4 boys and my dearest wife. 

Friends harder to keep in regular touch. Still the same catch up over dinner or drinks every few mths. But it’s nice to see mostly everyone grow older happily.

It was a good move to move into current place as our older boys appreciate the privacy of having own room. We also at least now have a study of our own and dad has a room too.

Purpose 2 : Be as healthy as I can mind and body

Rate this 8.5

I lost weight more as walking the dog daily made Ning and I lose weight. Now weight range is 64-65 consistently. Diet wise is still eat anything I want but can’t eat too much and definitely can’t eat post 10pm. Also manage to tone down on wine consumption to about 3-4 bottles per month between 2 of us. Sleep is fine and have added magnesium pills before sleep as it helps sleep better. Fell sick only twice or thrice of which once was repeat Covid a few mths back. 

If I am honest, I do get mentally bored at times esp when everyone is up and about and I am alone at home. But filling up all the time with work just to keep busy also feels like a cop out and lack of imagination to me. So I try to exercise and meditate and entertain myself. Am toying with online courses in history or literature as a good use of spare time.

Purpose 3 : Preserve & Grow Wealth - 10% annualized net IRR on networth+ Quality startup angel work for 100 startups+ build AngelCentral + good volunteer 

I would rate this 7.5 this year. Much improved from 2022 as markets all rebounded and even our startup portfolio  thawed from the funding winter and started getting some investments in 4Q2023. But we made a major allocation mistake by keeping 30% of stock portfolio in sg and China stocks. This drag pulled down our overall stock performance to 20+% in sgd terms which is about acwi but below SPY. But it’s still a great rebound and we are almost fully allocated into equities all the time which is very important for long term investors. Cash is a drag, bonds marginally better and market timing is very very hard.

Will write more on startup side in a separate post as always but in summary - overall its down for PE side as the VC/PE funds we invested in write down their NAVs over the year. 

We also crossed 50 startup investments this year with clear green shoots appearing 4Q2023. Not just new uprounds for our startups but also some exits from our PE and VC funds.  Not a lot but at least this year it’s more cash in from PE than out to our startups investments. 

Couldn’t hit the 10% investment/networth IRR this year with PE not contributing and in fact negative. But we believe over time, PE will kick in strong again. Long term IRR since 2012 is now down to 9% or so if we mark to market all the PE.

AngelCentral also saw the same decline with our angels funding easily 25% less than year before. Membership is stable, though not growing. The good news is final quarter had 4 startups going into up rounds so it’s good vindication of our clubs selection ability. 

For startups, we also had 3 startups go into distress and still undergoing liquidation. What’s painful in these cases is when the founder doesn’t want to let go and close down and when the founder starts to plan only for themselves and obviously doesn’t care about investor fairness anymore. It’s mentally not fun to have to deal with the uglier side of human natures. Easy thing to do is write off and ignore them but Ning and I believe in fairness and things being done properly. So we push back sometimes if we feel treated unfairly even if there is no economic rationale. 

Anyway have made a in depth post on startup portfolio here.

Finally on volunteer work, I finally retired from my District councilor role with SWCDC after 14 years of volunteering. Reason is because the HwaChong volunteer role is quite involved. So to do a good job, something has to give. Rest of volunteer work with PEP, ITE, IPOS, NRF remain.

So overall, 2023 has been a good year. Kids all growing older and we think we are managing ok as parents. Spousal relationship is better than ever as we both settle into more synched expectations of life. Still get lots of mental and emotional challenge with the portfolio and startups so that’s good. But the interactions that expose the ugliness of human nature is quite draining.

I do think 2024 will be more of the same where our key challenge is parenting well. Startup side should rebound more and I expect more exits from the PE/Vc fund with later stage startups and maturity coming up. Valuations will be the issue. It seems like public markets no longer buy a story of high multiples because revenue growing well or market potential good. They also want profits or near profits and cashflow. See latest 17live, moneyhero spacs as examples. And rightly so.  As for listed portfolio, I don’t think there will be another 20% gain on equities or bonds…will be lucky if eke out a 7-10% return. Maybe China will surprise us all…

Tuesday, November 14, 2023

Sea testing new low?

Update for 4Q2023. Solid rebound in revenue growth for Shopee. Overall much more positive 2024 guidance from sea. Main point is TikTok and lazada aren’t taking market share from them. Garena stabilizing and I see much opportunity to grow MariBank further profitability. Glad I did not sell anything and in fact bought call options at 45 since last earnings. Blended breakeven now 72. Sold a put at 48 to express mild bullishness but recognizing already big position so won’t add more. Let’s see the quarters ahead. If they pull off 2024 with improved profit and revenues in 15-25% growth, back to 80 -100 won’t be a problem. 

Update for 3Q2023 earnings where SE reported flat DE, 18% growth in ecommerce and 36% growth in financial services. Revenue at 3.3b beat expectations but unfortunately they fell into a 140m loss when expectations were for small or no profit. To me this is telling of competition they are facing on Shopee side and is a big issue. My thesis for sea is that they will be top winner in the e-commerce marketplace battle in ASEAN. If TikTok or Lazada can overtake them then sea is not a no brainer long term multibagger bet anymore.

Reading the transcript, what Forrest identifies as the 3 main levers and metrics makes sense. And he is saying sea wants to entrench themselves deep for the long term and since cash flow allows for it, he would focus on that rather than focus on delivering more profits. What market did not expect is that 330m profits would turn into 140m of losses.

Personally, we had a full sized SEA position accumulated since 2022 to now at average price of about 88. It’s now 60% down again revisiting the low formed after 2Q results where Forrest also spoke about being in investing mode again. For readers, so you get right context, our full size for single stocks is at most just 4-5% of total equity positions. Bulk of our positions are in ETFs always. So this year is still up mid teens due to indexes rebounding.

So what’s our plan? Can sell, add or hold as always. Sell is out for now. I don’t think mgmt has lost the plot. They are certainly facing strong competition. Otherwise how can grow revenue 18% and still move into losses? Must be spending more on marketing, vouchers, incentives etc.

Hold is my answer for now just like after 2Q. Can trade some options to play the volatility but not adding more cash to main holding. It’s ok to be underallocated from max. We need 2-3 more quarters at least to see if they are indeed holding and growing against competitors.

We will only want to add if it hits ridiculously cheap values. Right now at 20b valuation less 2b net cash, sea is trading at 1.4-1.6 times annualized sales. If it ever falls to 1 time or between 25-30, I think risk reward is excellent and will double down in large amount. Amzn is trading at 3 times, meli at 5 times, baba at 1.6 times. So SE at 1 will be hard to ignore.

In terms of what it means for startups, using sea and grab as apex startups from ASEAN, the picture is not too good actually. Our 2 biggest asean tech players are worth $32b usd combined. Smaller than any of SG 3 local banks.  What does that say of the value created last 10 years? 

Sea and grab impact on consumers is clear and large. Between the extremes of current pessimism and past bullishness for these tech companies, I think the final fair valuation answer is probably in-between and it all depends on their execution, growth and profits next few years.


Friday, November 3, 2023

Tech in Asia exit - new norm lens

Nice ending to an entrepreneurial journey. Kudos to team for working at this business for 13 years and securing what looks to be an ok outcome for early investors and founder.  We need many more such exits for our ecosystem to be considered successful!

TIA last raised 6.6m usd in 2017 led by Hanwah on a post money of about $25m usd if I remember right. In total, raised about 17.7m sgd and founder end up about 16+%

TIA did about 7.6m sgd in 2022 and reverted to loss making of about 600k. Profitable in 2021 with 900k profit on 7m. 2022 subscription weakened and they grew poorer margin production business. 

It’s also important to note that revenue growth from 2017 to 2022 is barely 6-7% per annum from 5.5 to 7.6m.  So it has plateau and is not a growth company any more. So selling is probably a good move. Remember my last post about growth being worth something only if profits are good too? TIA got the memo.. slow down growth but move from very loss making on 5.5m to nearer profits on 7.6m. 

I do think SPH media won’t overpay as a non profit funded by taxpayers but TIA shareholders also won’t sell unless in distress (I don’t think so). The number will come out in due time but my guess is between 30ish-50ish million sgd. Revenue multiple between 4-8 seems fair. Probably no meaningful PE to use. 

If use midpoint of estimate at 40m sgd, then everyone ok and it’s a decent story in terms of capital efficiency vs outcome. Management team I would expect them to be incentivized further via some form of earn out.

The interesting thing to see is post deal, whether the new SPH will be better at integrating acquired assets. It’s mostly new management so should give them benefit of the doubt. And it’s a good acquisition of production and media talent for the new entity. Also give them a regional subscriber base. The big question is how to integrate and how to resume the revenue growth using existing team  if that is the goal.

Thursday, November 2, 2023

Valuation outlook for asean startups - what’s the public market saying?

It looks like the worst case scenario of a bad recession coupled with high inflation won't happen. Instead, the scenario playing out last year is one of decent wage growth underpinning consumption and so ensuring any resultant recession will be very mild. In the meantime, the fed has indicated it is quite happy with overnight rate at 5+% and will keep it here while waiting for core inflation to weaken further. This situation may take another 6-18mths to play out.

So while the broader economy is looking ok, the pain is being felt more and more clearly in the startup and growth space as the high IR environment drives major reallocation and behavioral change by investors.

I have multiple post Series B startups telling me investors are bearish and investors are very slow in cutting new cheques. This is a consequence of the above environment.

Bottom line is valuation metrics and multiples have changed. Some recent datapoints to share: 

1) Listed tech giants have held up pretty well. Latest quarter, they have still managed to show 10-13% top line growth and solid profits. So it’s not surprise QQQ is up 30% YTD still while the broader based SPY is up almost 10%. This attests to the FAANG pricing power in face of inflation and their ability to squeeze out more profit. QQQ is trading at 28 times profit while SPY is trading at 24.5.

On the much smaller market cap and loss making side, the picture is not good still and many usa listed tech are flat to small gain for the year. A good proxy is ARKK etf less Tesla gains which is 11% of portfolio. My estimate is ARKK barely gained 3-4% this year after a disastrous 2022 once we strip out Tesla rebound this year.

2) China tech giants have fallen a lot due to a combination of actual slowing growth/profits/weak Chinese economy and western/developed world sentiment on China. Baba and tencent are trading in their teens. A good 30%-50% cheaper than USA tech giants. 

3) from ASEAN perspective, our listed tech companies are not doing well. SEA, Grab, Buka, Goto, PGRU are all down YTD anything from 10-50%! in spite of their USA counterparts staying flattish. The main reasons are partly rerating for asean tech stocks along with China stocks and partly due to unimpressive financials and outlook.

4) More specifically,  here are some listed valuations which have many unlisted startup counterparts in asean.

a)  Financial comparison space. There is a giant in uk called moneysupermart trading at 3.5x sales and 19 times profit. Our asean moneyhero just ipo via spac and even after 60-70% plunge in stock price is trading at <1 times revenue or barely 50m usd because it’s grossly loss making. But even if they turn profitable, at most they do a 5-10m profit. That’s a valuation of $200m at best. Moneyhero reached unicorn status last private round so later round investors should be quite concerned. Likewise moneysmart which is Singapore’s best player would need to get solidly profitable if it wants to ipo and be valued well like moneysupermart instead of like moneyhero.

b) Coworking. Wework is about to go bankrupt. But even a profitable IWC - Regus which should benefit from wework closure is trading at just 0.4 times revenue. So all the coworking space players should assume much weaker valuations until they prove out solid profits.

Closer to home, there is a rollup trying to spac and I suspect wework bankruptcy is going to give big problem.

c) Car disruption space. Carvana is trading at 0.4 times revenue and is loss making still. This is just 10% of peak in 2021. Perhaps a better comparison is trading at 18-19 times profit or about 10.9b market cap! Now that’s a solid business. If you are loss making car player, you want Carsales type of steadier financial metrics rather than be valued at 0.4 of gmv which again will be huge downrounds for later round investors of carro or carsome.

d) Property tech space. The benchmark here is propguru locally and rea group in Australia. PGRU Ipo via spac and stock price has been rerated to 1/3 of ipo price. Now valuation is an undemanding 5-6 times revenue. To get a better valuation need to be profitable and dominant in good size market. The benchmark here is Rea group is worth 20b aud and is valued at 17 times ttm sales. 

The above explains why ohmyhome has been crashing. Market cap of 50m usd on 4-5m sgd revenue and loss making points to it being overvalued even now. Why buy ohmyhome when Pgru is cheaper and much better. Now what does this bode for still private startups? I would not want to be classified unless very profitable. Perhaps being a tech enabled property agent is better.

e) Logistics. This space is more advanced and more positive with J&T, lalamove, cainiao all ipo or ready to IPO on Hk exchange. Valuations are significantly below last round highs but at least public markets validating their ipo and J&T has managed to ipo at 3x revenue. This bodes well for ninja van actually.

List goes on. It seems like among loss making ipo or listco, only saas businesses have held up decently with valuations cut by 30-50% only. 

My advice to founders of larger startups who are nearer trade sale or ipo stage?

Nothing overcomes a bearish climate and sentiment better than clear net profits, strong positive cash flow and some growth. If you used to put a 20% emphasis on profit and 80% on growth, perhaps flipping it would be wiser in the near to medium term unless your area is very special and blue ocean like openAI and you are growing 2-3x or more annually.

For the rest of the more normal tech/growth companies - I remember before 2012, later stage valuations were never about just multiple on sales or future potential. It was always more weighted towards multiple on net profit. Not operating profit, not adjusted level profit but GAAP standard net profit. 

So if you can, build out both profit and growth where profit is now more important than growth. It is very disturbing to scan our series c, d companies and see them very loss making even on 50m or 100m revenues. Makes one doubt the quality of their gross profits and margins.

I cannot stress how much freedom and options you have once you make your own profit. You can use it to further invest, buy out impatient shareholders, pay yourself better etc. Don’t  forget many many successful entrepreneurs have not taken Vc money. And outcome can still be great. There are 2800 gcb in sg, I believe Vc funded tech founder owners account for less than 1% of them.

How about founders running early stage startups and early investors? Actually this space hasn’t been affected that much. Valuations have gone down somewhat but because it’s very far from exit, investors are still cutting cheques but maybe 20-30% less. To me, founders in seed and series A should still do the same thing of building great product, proving product market fit and then scaling it further. Early investors are also fine. If you invest below $6-7m post round, an exit at 30-50m is still not bad. For example, the early investors of a recent exit techinasia or affable are still fine. But I think their last stage one esp for TIA will not have done well.