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 https://www.angelcentral.co/investors/membership


Tuesday, January 19, 2021

Startup Portfolio Report for 2020 - Impact of COVID

It has been a good 5 years since we started being a whole lot more active on angel investing. We now have now invested in 35 startups in our angel investing portfolio and 8 VC funds which probably have another 500 startups between them (skewed due to 500 startups large portfolio numbers). 

Our 5 year ago thesis was that we enjoy meeting and helping founders, we have knowledge of the space, we think the startup space will boom in ASEAN and also since we made money as startup founders, lets give back to pay it forward. So we set aside the equivalent of a commercial shophouse to invest. I deliberately use this comparison because it shows very starkly the difference in the amount of activity and value which angel investing creates compared to if we passively invested in real estate. Of course the activity must be worth our risk and show up in the return numbers.

In late Feb to March, COVID was a big shock to startup founders. And because of  GFC experience, many grey hair investors like Sequoia, some local VCs (and yes Ning & I had same experiences too) swung into crisis mode. We quickly advised founders to plan for doomsday type scenarios on the funding front and plan for various levels of revenue decline. The narrative being survival is key. Then watch for what your clients and sales is telling you. If you are not badly affected, then its a chance to grow through the recession and at expense of bigger, expense heavy competitors. Market sensing and willingness to take action is key. What world famous PE fund Silverlake did next is super instructive. They made big bold bets into Airbnb and others right at the peak of COVID confusion and despair. That takes some serious balls and also helped reinforce our decision to continue investing through the crisis. So in 2020, we actually added 6 startups to our portfolio.

Fast forward to end 2020, this ongoing COVID recession has been K shaped indeed. We did an assessment of the 25 older startups we have and here is what we found :

- 3 in bad trouble revenue <50%  with 1 in process of closing down.  

- 5 experienced flat to moderately negative performance 

Above 2 categories obviously are operating in industries directly affected like travel, hospitality, office services, advertising, construction. 

- 17 grew revenue from 2019. Of note, 5 are profitable and 10 net beneficiary of COVID. The categories are edtech, healthcare, digital media, saas and surprisingly recruitment.

On the VC front, it is a similar K shaped picture. They slowed down investing first 1H but resumed deal making in 2H. The data we see from the VCs we invested corroborate what we are seeing in our direct angel portfolio. 

Our own rough performance calculations for those of you curious. Startup returns since 2015 is at 2.6+ TVPI or >40+% IRR. VC returns since 2014 about 1.98 TVPI. No IRR as hard to blend them together but definitely below 40%.

Most gains unrealized of course so while far exceeding a 4-5% unlevered return on shophouse, we are mindful of the volatility and risk. 

Some learnings we have for fellow angels/investors.

- Diversification of portfolio really matters. Imagine if we invested in a pureplay travel VC or if we had heavy travel weightage in overall portfolio.

- We really don't know what will happen. So its best to have same bite sizes per startup. Winners can go to zero in a COVID event.

- A bad recession is a great time to see if you chose right founders. We are are incredibly proud of most of our startup founders. Most of them very quickly saw the first and second order of the crisis on their business and made changes quickly to adjust. Even right now, they are still making the adjustments and trying to capitalize on trends. Unfortunately, we also had 1-2 founders who chose to blame everyone and everything for their own lack of prudence and thoughtfulness. That's why diversification is key - we can't read founder minds.

- Rising tide really lifts all boats. Its key to get the macro thesis right. If we use VCs as a proxy for indexing the startup market, you can build a portfolio of VC funds and track it. Doubling your money in 6 years is not bad and IRR is much higher than 12% since drawdowns last 3 years. And the value is still adding as the J curve accelerates. 

- Growth and Seed stage startups are less affected by recessions. They are already very lean and efficient most of the time. So usually recessions are a great time to retain and hire talent and also take market share from heavier competitors. I think this explains why our recruitment and manpower type startups grew well during COVID even though overall recruitment market clearly slowed down. 

- Angel Investing is not easy and the reward must be more than just the returns.  Looking at our VC and Angel returns, our angel portfolio is better than all of VC we invested in but not by a large magnitude. And if we factor in all the fees, our work and time, its probably easier to just pick a bunch of good VCs (have to be top quartile!) for someone who only wants the returns. I don't advocate just 1 VC fund as then you have managing agent risk in the VC manager itself.

In summary, we are quite happy with how our startup investments have performed during COVID year. It is indeed true that each crisis is different and so our playbook needs to adjust and be flexible always. Yet the basic principles of diversification, bite sizing, continuously investing etc must hold true.

nb : if anyone is keen on how we do angel investing, we are running our first class for the year on 23rd Jan 9am-12noon.


  

 




Thursday, January 14, 2021

Purposeful Life - 2020 in Review

This year was a tough year due to many many adjustments for COVID. But in terms of purpose and the philosophical breakthrough i had in 2019,  i think the mantra of being useful, focused, grateful and having fun still works very well. So hopefully after 5 years of retirement, I have hit on a good formula to lead my life.

To recap, below is what i came up with in the period from 2014 (retirement) to 2020.

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 volunteer.

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

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

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

COVID circuit breaker definitely helped with family bonding time. For 2020, we already planned to stay home a lot more as 3rd son had PSLE and 1st son has A levels. So not traveling our usual 80-90 days in 2020 allowed us to do that. 

We continued our regular dinner discussions with boys on learning topics. As they mature, Ning & I are thinking about how to pass key learnings we have in the area of daily quality living, business  and personal finance. Continued routine with Dad and made good time for dinners with friends. My own feel is that zoom sessions to maintain relationships are better than nothing but very inadequate. 

Purposes 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.

Kept with regular exercise routine of 5-6 times a week. Mostly jogging, yoga with some swimming and a bit of tennis lately. Critical to keeping healthy and warding off depression. I did not cope well with circuit breaker initially. Felt cramped and locked up. Ning said i kept going to supermarkets every other day. Took me almost 5-6 months to adjust well. What helped was opening up in July and adjusting my own mindset to find joy in the small things and be grateful for what i have.

Eg. watching sunset daily during circuit breaker. consuming a whole lot more wine, heading out to local beaches to satisfy my inner beach bum, did a 17km walk with old friend etc.

Purpose 3 :Portfolio mgmt & Work role in Society

Goals: min 6% (change to 10%) long term annual growth on investable net worth.  hit 100 startups for angel investment doing well as a portfolio. Quality volunteer in any such work I take up.

Portfolio Work

Big wins this year include SEA (first 10 bagger), Baidu, BABA, Tencent, FB basically tech companies. Biggest mistake is buying into SG stocks too early in Feb. Overall did a decent teens returns which far exceeds our 6% annual target.

After 9+ years of running own funds, I now know myself better and feel more confident in asset allocation, analyzing of companies and markets. Read a great book called Masterclass for Investors by Martin Sosnoff in Dec and it reminded me on the power of compounding.  Learned that in USA,  besides entrepreneurs, the other big group of UHNWI (>50M usd) are wall street asset managers who made a pot of gold in late 30s or 40s and then compounded it at 8-15% for 30-40 years. 

Our original decade goal of growing investable net worth 6% annualized has been revised upwards to 10% as we managed to beat the 6% significantly last 9+ years. 10% is a stretch goal and will require me to treat portfolio like my main work next 10 years. Hope it works out well!

So next few months, will be spending time with Ning re-planning asset allocation and modeling returns and cash flow.  

Startup/AngelCentral Work 

Angel portfolio side now at 35 startups in total. We invested in 6 more startups. 4 without even meeting the founders face to face! Did our first Vietnamese and Thai startups.

Interestingly and to my surprise, this downturn has not been a very big hit on our startup portfolio. The K shaped recovery is very clear. We have 4 startups badly hit (1 has closed down), 10 more hit but the majority all managed to grow in 2020 revenue compared to 2019. Deeper analysis here.

Ning & I are very proud of our startups and the AngelCentral team for navigating well through this downturn. Some founders took a month more back in April to watch first before acting, but most of them took our advice to act fast and make needed cost or product changes. And i think most of them are better off for it. 

As a portfolio, our private equity investments in 40+ startups, VCs and PE funds grew in value by almost 20% year on year thanks to it being very tech heavy. On the downside, one big drag was due to L Capital fund 2 which held lots of retail plays and which in my opinion was badly managed by previous owner.

On AngelCentral side, when COVID hit, Shao Ning reacted quickly and ran experience sharing sessions for AC/own startups. We also offered our experience about downturns with our startups and helped quite a few look over their revised business plans. We also had to switch completely to zoom based pitching and classes. 

While we see some weakening of appetite on angels part, more than half still continued investing like us and we still saw a good $4-5M being funded by AngelCentral angels in 2020. Valuations too are slightly more reasonable now with a good 10-20% drop in seed round valuations. 


Volunteer Work

Still volunteering with ITE, PEP and SWCDC. One project of note I did was to help ITE make use of crowdfunding platform giving.sg during COVID to raise funds to help with the expected increase in social assistance recipients. Ning & I donated 10K and the campaign raised over 200K (with dollar for dollar matching by govt) for this purpose. 

I am beginning to realize that sticking to what one is good at matters a lot. So while $200K may sound a lot, its value is low compared to what we do for the startup ecosystem. So i am mindful that if we want to add good value, it must in the areas where we have an edge, have the brand and the people network. 
 
Hope 2021 is a much better year for everyone and that we can finally put COVID behind us and travel again!