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.
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