tag:blogger.com,1999:blog-24116909223596037982024-03-27T00:11:05.851-07:00Thoughts on Internet Entrepreneurship & InvestingThoughts on startup scene in South East Asia. While effort is made to be accurate in terms of numbers, i may sometimes get the data wrong. My purpose is to share what i know and what i have learned over the past 23 years. Feel free to leave comments or to email me. And if you are keen to learn more about Angel Investing pls visit https://www.angelcentral.co/investors/membershipLim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.comBlogger103125tag:blogger.com,1999:blog-2411690922359603798.post-59011712589522611522024-03-25T19:57:00.000-07:002024-03-27T00:10:32.782-07:00Is a good IPO on the cards for Carro?<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBVklWnCAU00EqcXpZM2AyBJcT7MmNWtyW2ZQrocj5TX7nK1s4DRy2CboRlzItxDuodVAEmk2yaWP7m0NErU7JAoSFi1XsyMqQfIRWLQubMlS7ud6jZKNkLAtQzYy5N4trSLCa9N-aTSa0Toak_9lbMBezgWbdHkdcLG2pB301fONa24m3-muLiBIQbw0/s1796/IMG_1287.jpeg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1796" data-original-width="1169" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgBVklWnCAU00EqcXpZM2AyBJcT7MmNWtyW2ZQrocj5TX7nK1s4DRy2CboRlzItxDuodVAEmk2yaWP7m0NErU7JAoSFi1XsyMqQfIRWLQubMlS7ud6jZKNkLAtQzYy5N4trSLCa9N-aTSa0Toak_9lbMBezgWbdHkdcLG2pB301fONa24m3-muLiBIQbw0/s320/IMG_1287.jpeg" width="208" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj68y1fkTrtLYEUKZROfYfyIt2HajJfF38iawyt_dBmhwmjh3ct19iCKpatjiPOzWRMTA7zZ-tOPSMjp3fXD3tZuyOrJRCvUG3Bx8im9dMm6J05VLuifr1pP4rXUviVQcrU-UDfYZA40WVHILjnqruvV3LQ2q2GtN_FLMjeNlChWReFZNBVuKFLwkiBanY/s1834/IMG_1289.jpeg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1834" data-original-width="1147" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj68y1fkTrtLYEUKZROfYfyIt2HajJfF38iawyt_dBmhwmjh3ct19iCKpatjiPOzWRMTA7zZ-tOPSMjp3fXD3tZuyOrJRCvUG3Bx8im9dMm6J05VLuifr1pP4rXUviVQcrU-UDfYZA40WVHILjnqruvV3LQ2q2GtN_FLMjeNlChWReFZNBVuKFLwkiBanY/s320/IMG_1289.jpeg" width="200" /></a></div><br />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+. <div><br /></div><div>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. </div><div><p></p><p>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?</p><p>Mgmt is saying ebitda in fy2023 is 5m and probably will be 44m-50m 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.</p><p>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….</p><p>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 7-8 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.</p><p>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.</p><p>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. </p><p>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. </p></div>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-59165362989038293862024-03-15T20:12:00.000-07:002024-03-15T21:08:13.296-07:00Year of reckoning for later stage startups<p>( 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.</p><p><a href="http://limdershing.blogspot.com/2024/01/outlook-for-late-stage-asean-tech.html?m=1">http://limdershing.blogspot.com/2024/01/outlook-for-late-stage-asean-tech.html?m=1</a>) </p><p>What a week for our portfolio with both high and lowlights.</p><p>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.</p><p>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.</p><p>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.</p><p>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.</p><p>Key learnings?</p><p>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.</p><p>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.</p><p>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. </p><p>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.</p><p>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.</p><p>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. </p><p>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. </p><p>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.</p><p>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.</p><p>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. </p><p>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. </p><p>But there will be much learning, much pain and what ifs all around as we get thru the process.</p><p><br /></p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-37670072169288275402024-01-22T18:41:00.000-08:002024-01-22T23:01:40.823-08:00Positive win win deal for AsianParent/ParentINC<p>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.</p><p>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.</p><p>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.</p><p>On surface looks like good buy if not too expensive. Some comments.</p><p>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.</p><p>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.</p><p>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.</p><p>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. </p><p>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.</p><p>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.</p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-62454269207703221842024-01-07T18:54:00.000-08:002024-01-07T20:35:34.497-08:00Outlook for late stage asean tech startups in 2024<p>Having ongoing discussions with Shao-Ning Huang on investment allocation and plans for the year ahead. </p><p>For the startup and Vc side in this region, we also came to same conclusion as article below. Essentially :</p><p><a href="https://www.businesstimes.com.sg/startups-tech/startups/tech-ipos-could-see-another-mild-year-bar-good-listings-raised">https://www.businesstimes.com.sg/startups-tech/startups/tech-ipos-could-see-another-mild-year-bar-good-listings-raised</a></p><p>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.</p><p>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!</p><p>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. </p><p>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.</p><p>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.</p><p>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.</p><p>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.</p><p>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. </p><p>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.</p><p>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.</p><p>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. </p><p>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. </p><p>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.…..</p><p>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. </p><p>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 <a href="http://limdershing.blogspot.com/2024/01/startup-portfolio-review-for-2023.html?m=1">startup portfolio here.</a></p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-21673612149217998342024-01-02T06:29:00.000-08:002024-01-03T01:11:48.823-08:00Startup Portfolio Review for 2023 - Navigating the Funding Winter & Green Shoots<div>(Please read <a href="https://limdershing.blogspot.com/2022/01/startup-portfolio-report-for-2021.html" target="_blank">2021</a> and <a href="https://limdershing.blogspot.com/2023/01/startup-portfolio-review-for-2022-pain.html" target="_blank">2022 </a>reports for context. This post is my annual review of our startup portfolio, you can read my overall <a href="https://limdershing.blogspot.com/2023/12/a-purposeful-life-2023-in-review.html?m=1" target="_blank">life review for 2023 </a>here)</div><div><br /></div>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.<div><br /></div><div>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.</div><div><br /></div><div>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.</div><div><br /></div><div>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.</div><div><br /></div><div>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.</div><div><br /></div><div>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. </div><div><br /></div><div>And this is the biggest issue with our ecosystem - distribution for many startup portfolios is bad. The data from <a href="https://services.google.com/fh/files/misc/e_conomy_sea_2023_report.pdf" target="_blank">one research report</a> 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.</div><div><br /></div><div>On AngelCentral side, the picture mirrors the larger market and our personal portfolio. AngelCentral also ran a <a href="https://www.angelcentral.co/angel-behaviour-survey-report">behavioral survey </a>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.</div><div><br /></div><div>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.</div><div><br /></div><div>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</div><div>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. </div><div><br /></div><div>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.</div><div><br /></div><div>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!</div><div> </div><div><br /></div><div><br /></div><div><br /></div>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-75195332562252763682023-12-28T21:06:00.000-08:002024-01-02T07:13:54.700-08:00A Purposeful Life - 2023 in review <p><span style="font-family: arial;">2023 has been a much better year than <a href="http://limdershing.blogspot.com/2022/12/purposeful-life-2022-in-review.html?m=1" target="_blank">2022 for me</a>. 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.</span></p><p><span style="font-family: arial;">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!</span></p><p><span style="font-family: arial;">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</span></p><p><span style="font-family: arial;">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.</span></p><p style="caret-color: rgb(102, 102, 102); color: #666666; font-size: 15.84px;"><span style="font-family: arial;">To recap no change in life purposes, i have centered myself on the 3 purposes below.</span></p><div class="p2" style="background-color: white; color: #454545; font-size: 15.84px; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">Purpose 1 - Help and be there for family. Extend to friends if i can.</span></span></div><div class="p2" style="background-color: white; color: #454545; font-size: 15.84px; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">Purpose 2 - Be as healthy as I can</span></span></div><div class="p2" style="background-color: white; color: #454545; font-size: 15.84px; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">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.</span></span></div><p style="caret-color: rgb(102, 102, 102); color: #666666; font-family: "Trebuchet MS", Trebuchet, Verdana, sans-serif; font-size: 15.84px;">Purpose 1: Be there for family. Share and guide kids more. Maintain friendships.</p><p style="caret-color: rgb(102, 102, 102); color: #666666; font-family: "Trebuchet MS", Trebuchet, Verdana, sans-serif; font-size: 15.84px;">Overall rate this purpose a 7.5.</p><p style="caret-color: rgb(102, 102, 102); color: #666666; font-family: "Trebuchet MS", Trebuchet, Verdana, sans-serif; font-size: 15.84px;">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!</p><p style="caret-color: rgb(102, 102, 102); color: #666666; font-family: "Trebuchet MS", Trebuchet, Verdana, sans-serif; font-size: 15.84px;"><span style="font-size: 15.84px;">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. </span></p><p style="caret-color: rgb(102, 102, 102); color: #666666; font-family: "Trebuchet MS", Trebuchet, Verdana, sans-serif; font-size: 15.84px;">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.</p><p style="caret-color: rgb(102, 102, 102); color: #666666; font-family: "Trebuchet MS", Trebuchet, Verdana, sans-serif; font-size: 15.84px;">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.</p><p style="caret-color: rgb(102, 102, 102); color: #666666; font-family: "Trebuchet MS", Trebuchet, Verdana, sans-serif; font-size: 15.84px;">Purpose 2 : Be as healthy as I can mind and body</p><p style="caret-color: rgb(102, 102, 102); color: #666666; font-family: "Trebuchet MS", Trebuchet, Verdana, sans-serif; font-size: 15.84px;">Rate this 8.5</p><p style="caret-color: rgb(102, 102, 102); color: #666666; font-family: "Trebuchet MS", Trebuchet, Verdana, sans-serif; font-size: 15.84px;">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. </p><p style="caret-color: rgb(102, 102, 102); color: #666666; font-family: "Trebuchet MS", Trebuchet, Verdana, sans-serif; font-size: 15.84px;">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.</p><p style="caret-color: rgb(102, 102, 102); color: #666666; font-family: "Trebuchet MS", Trebuchet, Verdana, sans-serif; font-size: 15.84px;">Purpose 3 : <span style="background-color: white; font-size: 15.84px;">Preserve & Grow Wealth - 10% annualized net IRR on networth+ Quality startup angel work for 100 startups+ build AngelCentral + good volunteer </span></p><p style="font-size: 15.84px;"><span style="color: #454545; font-family: arial;"><span style="background-color: white; caret-color: rgb(69, 69, 69);">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</span></span><span style="background-color: white; caret-color: rgb(69, 69, 69); color: #454545; font-family: arial; font-size: 15.84px;">.</span></p><p style="font-size: 15.84px;"><span style="background-color: white; caret-color: rgb(69, 69, 69); color: #454545; font-family: arial; font-size: 15.84px;">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. </span></p><p style="font-size: 15.84px;"><span style="background-color: white; caret-color: rgb(69, 69, 69); color: #454545; font-family: arial; font-size: 15.84px;">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. </span></p><p style="font-size: 15.84px;"><span style="color: #454545; font-family: arial;"><span style="background-color: white; caret-color: rgb(69, 69, 69);">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.</span></span></p><p style="font-size: 15.84px;"><span style="color: #454545; font-family: arial;"><span style="background-color: white; caret-color: rgb(69, 69, 69);">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. </span></span></p><p style="font-size: 15.84px;"><span style="color: #454545; font-family: arial;"><span style="background-color: white; caret-color: rgb(69, 69, 69);">For startups, we </span></span><span style="background-color: white; caret-color: rgb(69, 69, 69); color: #454545; font-family: arial; font-size: 15.84px;">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. </span></p><p style="font-size: 15.84px;"><span style="background-color: white; caret-color: rgb(69, 69, 69); color: #454545; font-family: arial; font-size: 15.84px;">Anyway have made a in depth post on startup portfolio <a href="http://limdershing.blogspot.com/2024/01/startup-portfolio-review-for-2023.html?m=1" target="_blank">here</a>.</span></p><p style="font-size: 15.84px;"><span style="color: #454545; font-family: arial;"><span style="background-color: white; caret-color: rgb(69, 69, 69);">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.</span></span></p><p style="font-size: 15.84px;">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.</p><p style="font-size: 15.84px;"><span style="color: #454545; font-family: arial;"><span style="background-color: white; caret-color: rgb(69, 69, 69);">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…</span></span></p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-13285992336562665362023-11-14T19:12:00.000-08:002024-03-07T18:51:08.928-08:00Sea testing new low?<p>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. </p><p><br /></p><p>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.</p><p>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.</p><p>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.</p><p>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.</p><p>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.</p><p>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.</p><p>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? </p><p>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.</p><p><br /></p><p><br /></p><p> </p><p><br /></p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com2tag:blogger.com,1999:blog-2411690922359603798.post-77784473189765435992023-11-03T16:31:00.003-07:002023-11-17T20:34:09.524-08:00Tech in Asia exit - new norm lens<p>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!</p><p>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+%</p><p>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. </p><p>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. </p><p>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. </p><p>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.</p><p>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.</p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com1tag:blogger.com,1999:blog-2411690922359603798.post-74644796010749374272023-11-02T20:13:00.013-07:002023-11-08T08:19:50.235-08:00Valuation 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.<div><br /></div><div>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.</div><div><br /></div><div>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.</div><div><br /></div><div>Bottom line is valuation metrics and multiples have changed. Some recent datapoints to share: </div><div><br /></div><div>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.</div><div><br /></div><div>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.</div><div><br /></div><div>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. </div><div><br /></div><div>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.</div><div><br /></div><div>4) More specifically, here are some listed valuations which have many unlisted startup counterparts in asean.</div><div><br /></div><div>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.</div><div><br /></div><div>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.</div><div><br /></div><div>Closer to home, there is a rollup trying to spac and I suspect wework bankruptcy is going to give big problem.</div><div><br /></div><div>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 carsales.com.au 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.</div><div><br /></div><div>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. </div><div><br /></div><div>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.</div><div><br /></div><div>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.</div><div><br /></div><div>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. </div><div><br /></div><div>My advice to founders of larger startups who are nearer trade sale or ipo stage?</div><div><br /></div><div>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.</div><div><br /></div><div>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. </div><div><br /></div><div>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.</div><div><br /></div><div>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.</div><div><br /></div><div>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.</div><div><br /></div>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-12016241010057248272023-09-15T22:59:00.012-07:002023-09-16T09:10:14.092-07:00Doing much better now - Carousell<p><span style="-webkit-text-size-adjust: auto; font-family: UICTFontTextStyleBody; font-size: 21px;">Readers will know I did an analysis</span><span style="-webkit-text-size-adjust: auto; font-family: UICTFontTextStyleBody; font-size: 21px;"> </span> <span style="-webkit-text-size-adjust: auto; font-family: UICTFontTextStyleBody; font-size: 21px;">back in 2016 and updated it in 2018. In 2016, I was quite disturbed because they have not switched on revenue tap after 4-5 years.</span><span style="-webkit-text-size-adjust: auto; font-family: UICTFontTextStyleBody; font-size: 21px;"> </span><span style="-webkit-text-size-adjust: auto; font-family: UICTFontTextStyleBody; font-size: 21px;"> </span> <span style="-webkit-text-size-adjust: auto; font-family: UICTFontTextStyleBody; font-size: 21px;">My reason is that the organization cannot learn what works and build the right sized complement of capabilities internally if it does not start charging. Also I think very much from founder pov and I felt the amount of dilution the founders took was not optimal for their own life outcome.</span></p><p class="p1" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">Then in 2018, I commented again as they finally switched on the revenue and the initial revenue was very low at 1+m compared to expenses and valuation. </span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">Then things got better for them. They used their high valuation to acquire some solid revenues from SPH and OLX. I thought this was a very good move. Much like grab buying Jaya and now transcab. <span class="Apple-converted-space"> </span>These moves helped a lot. They also learned how to sell and are trying to earn a cut from all the activity happening.</span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">Now 5 years later, I think carousell is a changed animal for the better. Mgmt has matured, usage is still strong at 35m visits per mth. Still loss making but with 100+m revenues but it should be sustainable if they run lean to ensure low overheads and pick high gross margin verticals to enter. And very important, the direction seems clear as Siu rui articulated a clear positioning for the company as the dominant asean classifieds that focuses on sustainability. </span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">So moving forward, I see 2 key challenges. First, pick and grow the right verticals that are very large and the company can grow into. At same time these verticals cannot be cash intensive and/or too low margin. I would avoid jobs, property if I can. Incumbents way too strong and synergies not great. Used cars maybe as there are profitable models whether it is listings or transactional. And if growth is by acquisition, the internal capability to integrate is critical. Second, the environment has changed at later stage investor and listed side. Listed side investors now want to see both profit and growth esp if niche areas. So mgmt have to walk that balance to show both are happening. And all this time, they must make sure </span><span style="font-family: UICTFontTextStyleBody;">have enough cash. </span></p><p class="p1" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span style="font-family: UICTFontTextStyleBody;"><br /></span></p><p class="p1" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span style="font-family: UICTFontTextStyleBody;">These 2 challenges are not easy. Verticals usually have incumbents. And they can be very strong. See seek and propguru, sgcarmart/motorist etc. </span><span style="font-family: UICTFontTextStyleBody;">Other verticals may be weaker but their gross margins are poor and fraught with execution risk. See theRealReal and redbonz in the 2nd hand fashion space. </span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">So assuming mgmt navigate well, what will success look like in medium term? </span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">To me good execution will be to succeed in 1-2 verticals that are large and growing well. Eg fashion, watches, used cars etc. Financially, breakeven or very small loss on revenue of usd200m in 3 years. Then the valuation will likely go back >$1b. <span class="Apple-converted-space"> </span>I am assuming interest rates stay high which means growth stocks no longer have a crazy premium. </span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">Case in point, job classifieds can make $30m net profit on 100m sales. Company will be valued at 1B even if growing just 10-15%. So if carousell can blend out a gross profit of 35-40%, then its revenue needs to double to $200m to have a gross profit of $70m. And if lean like a job classified on overheads, it will be worth the 1b or so. </span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-feature-settings: normal; font-kerning: auto; font-optical-sizing: auto; font-size-adjust: none; font-size: 21px; font-stretch: normal; font-variant-alternates: normal; font-variant-east-asian: normal; font-variant-ligatures: normal; font-variant-numeric: normal; font-variant-position: normal; font-variation-settings: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">Or if we want to compare against currently listed entities, propguru does about 110m usd revenue, growing in low to mid teens and is valued at 5 times revenue less cash on hand. So that triangulates with the 200m revenue number. And this assumes the GP <span class="Apple-converted-space"> </span>both are same. I suspect propguru will always be higher margin but carousell may be growing faster if they pick big solid underserved verticals.</span></p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-9668995515943112822023-09-02T23:07:00.004-07:002023-11-14T18:52:28.370-08:00So what do with SEA- a losing core stock? <p>Quick thoughts on how to handle a losing stock like sea. It’s the biggest loser in our portfolio this year (almost everything else is up) and we have a good chunk of it as it’s one of the few stocks that we stock pick and own. </p><p>Latest quarter, growth rates just mid single digits at 5.2%. Grew profits to 330m but stock plunged. reason is: </p><p>- sea is facing competition by Lazada and possibly TikTok. No new big game on the horizon to replace the declining free fire.</p><p>- mgmt (rightly) wants to reinvest more into growth and so the 300+m quarterly profit may reduce or even go negative. So investors get jittery.</p><p>So how to view a stock that has lost 60% of value from our buy price? We obviously believe in the mgmt otherwise we would have cut loss at 20-30%. But we have not added much as the logic is down can go down more. Lucky for us. And we also kept to our overall limit per stock of 5% of portfolio.</p><p>Now of course sea is down to 1.5-2% of portfolio esp since rest of equities did very well beating SPY this year. </p><p>So the question is what to do now that it looks like sea has capitulated with the huge drop to 38.</p><p>Long story short, have used options to double down. Sell put buy long dated call to an effect of doubling holding. This will put my average price down to 60ish or so. </p><p>Main reason is conviction this mgmt knows what they are doing. Let’s see next 1-2 years if we are right. </p><p>Side note: psychology plays a big role. 3 points</p><p>- It’s much easier doing this double down this year than adding to FB or SPY, QQQ last year oct. Reason is last year everything and overall already down. So its very hard to add in a falling market. Had to force myself and in the end skipped one major chance though caught most of it.</p><p>- Overall, sea is our biggest stock gain ever. So it’s easier to have conviction when the 60% loss is 20% of the old gain. However, I am mindful this can end up being a blindspot to be too generous in our assessment of sea. Have to remember.</p><p>- note I used far out of money long dated call options to double down. So i am also limiting my losses to the call premiums while riding most of the upside esp if sea rebounds big. But for options side of things, I will take profit if it rallies big. Then switch into actual long holdings if we want to own more sea.</p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-21679138251564706712023-07-11T16:59:00.009-07:002023-07-17T18:18:42.815-07:00Learnings from key losses over last 12 years<p>About S$3.5M from the more memorable badly made investments. That's since Jul 2011 when we actively started to track and run our portfolio of bonds, equities, forex and private equity. I am sharing because there are too few articles that discuss about investment losses and learnings. And I believe there is as much to learn from losses as there are from winners. And a good investor needs to take into account both in order to succeed over time. </p><p>Losses have always been on my mind esp since 2014 when we completely exited our business and switched from an entrepreneur mindset to an investor one. Prior to that, losses mattered less as our invested capital was always a small portion of our total net worth since most of our monetary net worth was tied up in human capital in the form of future salaries and in the company we owned. But once our invested capital becomes the main cash generator, tracking and analyzing losses and wins in investments becomes critical. </p><p>Of course, as active investors, it’s not realistic to expect to make a gain in every investment. In fact, it is normal to have many bad calls/decisions and to lose money on some investments every year. What is desirable is to have strategies and policies that end up with more winners and maximize those winners while minimizing quantity and quantum of losses. And the big goal overall is to eke out a good return over the long term across entire portfolio value.</p><p>In the points that follow, I will attempt to group the key losses by asset type and reasons for the loss. Then I will share the learnings we gathered from that loss. Also, to set the context, our investing experience has been good but not great (own yardstick) over the last 12 years to end June 2023.</p><p>1) Equity returns better than ACWI ETF 8+% total annual returns.</p><p>2) Fixed Income returns better than JNK ETF 3.5% total annual returns. </p><p>3) PE investments (which are majority VC and startups) at <a href="http://limdershing.blogspot.com/2023/01/startup-portfolio-review-for-2022-pain.html" target="_blank">25-30% IRR which is strong</a> but a lot of unrealized gains. </p><p>So we feel we are doing fine because our returns more than pay for our annual expenses and are also above the financial planning targets we set 12 years ago. And the main internal controllable reason we achieved this is due to consistent asset allocation discipline. We are almost always fully allocated or even overallocated using leverage. So we never have cash dragging down returns. And almost always >>50% equity allocation. Second reason is a few decent single stock (eg. SEA, SHinvest, FB, GOOG etc) & ETF selections with consistent & appropriate bite sizing . Would love to add a third on being able to cut loss quickly but cutting loss is not yet our strength as readers can see below.</p><p>Bearing all that in mind, here are our bigger memorable losses (in SGD). I exclude direct startup losses because the considerations and learnings are quite different but include PE or VC fund losses because fund manager selection mistakes can be pattern recognized more easily.</p><p>1) 500k - Bad fund manager selection on famous FMCG PE and a brand name European hedge fund. The 2 funds above were bought thru a private bank and they promptly went on to grossly underperform compared to peers and benchmark. So they had grossly negative alpha. </p><p>The PE fund is still ongoing- sitting on 380K or about 50+% loss after 9 years of investing. The fund did so much that don't make sense. Supposed to pick more stories like Charles & Keith, more china plays... instead they picked 2nd tier brands in australia, europe, SG , Middle east. And they reported greatly improved TVPI and IRR just when raising next fund a few years later - only to write portfolio back down once fund 3 was raised. And then later mgmt exited to a new buyer. Lesson here is fund managers are aligned to AUM which pays 2% annually much more than aligned to our returns. And be very skeptical of mark to market if it is not realized. Esp don't trust the numbers when fund is using it to raise new fund. Their incentive is to window dress their old fund numbers. </p><p>Also one vintage does not prove anything. Go for fund managers that really have long track record. It implies a lot in terms of internal bench strength, professionalism etc.</p><p>The famous European hedge fund lost 20+% within 6 mths and closed down. Even the private bank that sold it had to say sorry. Lesson here? Beats me! for some reason the manager didn't even want to continue it. </p><p>2) 900K - From 5 single bond & 1 recent fund losses. Back in 2013-2017, we were happily borrowing USD at 0.7% and then buying IG bonds at 3.5-4+%. This was a winning strategy until we decided to go after a bit more yield and went in Brazilian USD denominated IG credit and regional BB junk bonds. Unfortunately operation car wash hit, there was the oil & gas crash worldwide and the regional single issuers had internal cash flow problems.</p><p>The first bond was the worst as we thought bonds can rebound and price action may behave like stocks. One huge learning is that bonds plunge at the slightest whiff of insolvency. And the risk reward is very poor for holding on or doubling down. At least for novice investors like us. We watched the bond go down from 90+ to 70+ to 50+ to 30 and no buyer. Could have sold along the way but did not. Big learning here.</p><p>Next few bond failures came over next 1-2 years. This time we learned to cut loss and got out at 70, 50 and one at 30+. </p><p>Bigger lesson is individual bond failures sting badly and its better to get lower yield but be in really safe names. And safe means names we really know well in terms of their finances and jurisdiction. So no EM bonds for us anymore even if IG grade. Bond professional investors are smart and they price risk reward carefully. So don't get too carried away by the absolute high yield of junk bonds.</p><p>Then after 5 years of careful bond investments that did well, we got greedy and listened to a CIO from a Swiss PB and got attracted to good YTM in Asian junk credit this year and bought early without conviction and multiple bites. We even levered for it as expected return over leverage was 7%. Just cut loss as it was never our intention to own more FI. Didn’t feel comfortable to deviate from plan esp once the fund fell by >5%.</p><p>3) 300K forex losses. Mainly due to long positions in the underlying asset which is overseas. For us it was mainly MYR, AUD, BRL. The first 2 were unavoidable as we owned a property in KL, have a malaysian startup stake in RM. We also invested in ASX stocks. For the MYR, we already tried to hedge it by borrowing 70% but for AUD we did not as borrowing cost felt high compared to USD. But these 2 not so bad as our capital gain on the underlying assets more than offset the currency losses. But for BRL, it was a disaster as we used it to invest in IG credit from 2 Brazilian issuers. So while the issuer did not have any problems, the Brazilian real fell 30% or so. Ouch. </p><p>Big lesson here is other than SGD and USD, we now don't want to own other currency as currency risk is totally unpredictable and foreign to us. Unlike equity risk. I would also add owning some JPY or EUR or GBP or AUD is a world apart from EM market currencies. The latter i will avoid at all costs. But the former, i am looking at JPY assets now as leverage is very cheap. Though I am reminding the tail must not wag the dog. Meaning leverage cheap is one plus but it is secondary to choosing the right asset, entry price and bite. </p><p>4) 400K Option losses. We sell puts on stocks we want to own. We also buy calls on esp bullish positions. The losses come mainly from selling puts without enough research and using Private Bank ELNs. ELNs need min 100-200K. So we can't implement our multiple bites and average down strategy. This is very damaging if the ELN gets triggered as if we average down, the position gets very large for us. And if we lack conviction/get thesis wrong, the losses can be big. The other option losses come from averaging down on call options. Its the gambler mindset to want to average down and see a huge win if one gets its right. However, we have learned that call options must be used very carefully. We now use the full value of the call as our position size and not just the option value. This prevents us from building too large positions in options that have time decay. </p><p>5) 1.2M Equity Losses. This segment is largest but it’s put last as these losses come from 12 trades. So it’s $100K loss per trade. Smaller compared to bond or fund errors. And the reasons for the loss almost all boil down to 1 reason - </p><p>Bought without enough research leading to a lack of conviction on the company. Insufficient research also means no strong opinion on fair value and momentum of company. This leads to us buying in too high and frequently too early and too many times. The above when combined with option losses is what accounts for most equity losses. And number 1 reason for lack of research is listening to experts or friends. Most of the ideas that come from our internal synthesis and analysis tend to be good. Eg, our own call on QQQ/SPY last year, call on SEA back in 2018, call on Shinvest, ifast, FB, lulu... etc etc. The ones where a smart professional does a smooth presentation and shares what they recommend tend to be disasters. The latest being the call on asian high yield early this year. </p><p>6) 100k - crypto hedge fund invested in late 2021. Felt rich, joined too late, follow friend and without conviction. After 2 years, it’s also clear the managers aren’t good at generating alpha… riding the Alt coins market down in 2022 and failing to ride even eth and btc up this year.</p><p>So that's the sharing we have. The learnings from them can be summarize into</p><p>- Don't listen to experts or friends. Never buy because someone else said so and without deep knowledge. Buy because we formed a strong thesis on our own. Interestingly this is different from startup investing where following professional investors tend to be ok..</p><p>- Then research and think more until have conviction of where asset is going in near and longer term. </p><p>- Have an entry and exit points for the asset</p><p>- Make sure ultimately correct bite sizing for that asset so we can stomach the ups and downs.</p><p>- Coldly execute and monitor. Don't ever panic sell or buy. Exception is single bonds, cut loss quick if have chance of insolvency. </p><p>- If using fund managers, esp PE/VC, go for tried and tested managers with long histories. Not just 1-2 vintage managers who may not have conviction and/or were just lucky to have big winner in one vintage. Also, don't blindly believe what they say esp on mark to market unrealized returns. Real distributions count not unrealized gains.</p><p>- Learn to cut loss faster. Applies to all assets except PE funds which cannot exit. This is one of our greatest weaknesses and we are trying hard to always clean house annually and keep to set rules on allocation. For single stocks, constantly review the stocks to reaffirm conviction to hold or add.</p><p>- Always stick to overall portfolio allocation which is planned and rebalanced every few mths. Don’t be tempted to move out of it if it’s working as expected.</p><p>- don’t borrow to go after smallish or mid size gains. Only leverage if returns are potentially huge to justify the fixed cost of leverage. Gains are not fixed, but interest payments are. </p><p>-for cutting losses, treat each loss in isolation. $50-100k is still a lot of money to lose even if you made 2+m in gains this year. Don’t fall into the bad habit of saying overall made money, feel rich so it’s ok to hold out for rebound on a losing investment. Cut loss quickly once no conviction to hold. This is key to cutting loss well and right now, we are mulling over our China holdings thru this lens….</p><p>I hope the above sharing is useful to readers in that it exposes how much can go wrong when one is investing across multiple asset classes. Of course, we have many more profitable investments than losses last 12 years too. And we also have many more learnings from these winning trades/assets. The key is to combine the lessons from the winners and losers to get a sustainable long term investing strategy. </p><p><br /></p><p><br /></p><p><br /></p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com6tag:blogger.com,1999:blog-2411690922359603798.post-31920338055812527792023-02-17T21:25:00.008-08:002023-02-20T22:35:23.482-08:00Budget 2023 and the real elephant in the room <p>Have been asked what’s my opinion on the budget. General sense is that it’s a more labour and average resident friendly budget than one to spur investment and enterprise. I spent some time reading the full statement and also the various appendixes. I selected some key screenshots of interest to share.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhfBa7te1lRpbtdJk60rINLvrS9HzSH0Grx2ZGVBPeFDHb1JDK1290d832yQ3vhc-dbbVrx0qPc4CysgMQC_Oats9XYjjyoXMR4ZePfAXThvyWp4RoBW50HydmUoRF1eF2R8JdRhdBW14FxSRWzudpIUilaYqi9BpfBdo4rT9698mljPL-SwGErXZU0/s2216/B1336A37-C6A3-4BFE-A99D-36974CEC4E28.jpeg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="2216" data-original-width="1559" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhfBa7te1lRpbtdJk60rINLvrS9HzSH0Grx2ZGVBPeFDHb1JDK1290d832yQ3vhc-dbbVrx0qPc4CysgMQC_Oats9XYjjyoXMR4ZePfAXThvyWp4RoBW50HydmUoRF1eF2R8JdRhdBW14FxSRWzudpIUilaYqi9BpfBdo4rT9698mljPL-SwGErXZU0/s320/B1336A37-C6A3-4BFE-A99D-36974CEC4E28.jpeg" width="225" /></a></div><div class="separator" style="clear: both; text-align: center;">Interesting to know govt is now spending an increasing sum on early childhood. Was asked before during a tea session if I think we need to nationalize this space and my instinctive answer was a YES. Level the field from early childhood so that all Singaporeans have a chance to succeed in life.</div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEielrDK5-wgrF0NHwaxdM2gmNggXhVwHmVky69coA1zMlIlz9ORUVMOKhW5kcpFytLlbWrLJTsH6lq3K2FSJM4TPd45aNpPwMd8dmkgWBKU4D5x3FaDHHAMmlV1jYa6vADFTnZrSbJUXFe2UFLX1K1j47MRkt3a5bSyBtcXV-pU0FmgU7LZGHPnckUT/s1668/945D6D3B-2370-4477-BE6B-8050A7A6EFF2.jpeg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1302" data-original-width="1668" height="250" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEielrDK5-wgrF0NHwaxdM2gmNggXhVwHmVky69coA1zMlIlz9ORUVMOKhW5kcpFytLlbWrLJTsH6lq3K2FSJM4TPd45aNpPwMd8dmkgWBKU4D5x3FaDHHAMmlV1jYa6vADFTnZrSbJUXFe2UFLX1K1j47MRkt3a5bSyBtcXV-pU0FmgU7LZGHPnckUT/s320/945D6D3B-2370-4477-BE6B-8050A7A6EFF2.jpeg" width="320" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;">The 51b loss is Covid spending mainly. So it’s great we did not need to get into debt and used reserves to pay for it. If it was debt; we would be servicing 1-2b in interest payment yearly. Thats half of the projected gst increase in revenues!</div><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEioQpH76xJfCPRb3DtB6MrGxPeZ-O4kH8lRCI2-5NOVxifdqq6TWWqjXCRyY76sbZnUBY8-shhLpP_-fPJyHT6OKlL6FZ9JzdSmfWAKbJB_I5CxAQHKajmEF4Mwk9KBWzRQ78Pz8hnCNgrHk8NoWHkhaT23mmdTnYYtyBZEOTHiEFwOu5LJ7QBjjs3j/s1668/66D38048-3857-4E9B-BA71-D03D8F3DFF58.jpeg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1271" data-original-width="1668" height="244" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEioQpH76xJfCPRb3DtB6MrGxPeZ-O4kH8lRCI2-5NOVxifdqq6TWWqjXCRyY76sbZnUBY8-shhLpP_-fPJyHT6OKlL6FZ9JzdSmfWAKbJB_I5CxAQHKajmEF4Mwk9KBWzRQ78Pz8hnCNgrHk8NoWHkhaT23mmdTnYYtyBZEOTHiEFwOu5LJ7QBjjs3j/s320/66D38048-3857-4E9B-BA71-D03D8F3DFF58.jpeg" width="320" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;">Good to know the actual manpower expenses are just about 10-11% of total govt spend.</div><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdYwmSUOIkIOUhKmMoGs6sVm_591Ds555R0Y2zPaORgJe08dkpDCFPK4tygKAcRYysFaBg_122VoLtu4W3VeF1eXHestM-_aqqPLCxxuCvPGAGT1c3Fs94R8ik49nK3wjdxLCnTN6-0JcYnOL1VbIordGzlKObamWQR6RMxITuE6Cu-MTLP2Fjb8ZH/s2211/3CC09787-1727-42B3-A83C-483543E0662B.jpeg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="2211" data-original-width="1541" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdYwmSUOIkIOUhKmMoGs6sVm_591Ds555R0Y2zPaORgJe08dkpDCFPK4tygKAcRYysFaBg_122VoLtu4W3VeF1eXHestM-_aqqPLCxxuCvPGAGT1c3Fs94R8ik49nK3wjdxLCnTN6-0JcYnOL1VbIordGzlKObamWQR6RMxITuE6Cu-MTLP2Fjb8ZH/s320/3CC09787-1727-42B3-A83C-483543E0662B.jpeg" width="223" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNZGpKY3EASPiEubRdAC_3_xnZnqE3EO2ZaC3jl5IdkwZGj_9TB9_6V5Bp_aVvyYA1e0ub45PcKu73IzNjMeDqCMNW5xHxN8s8lf4iWAiNbwuIjwiFA0Wp6zjaiL99tcm2anNSjyH39RumDLn9ZcysLV21gcHvyYJVP3D4cOVYpx6zvezbzAFf378c/s1668/0EFDBC65-092B-4E6D-9816-BF56B76DF1CB.jpeg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1261" data-original-width="1668" height="242" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNZGpKY3EASPiEubRdAC_3_xnZnqE3EO2ZaC3jl5IdkwZGj_9TB9_6V5Bp_aVvyYA1e0ub45PcKu73IzNjMeDqCMNW5xHxN8s8lf4iWAiNbwuIjwiFA0Wp6zjaiL99tcm2anNSjyH39RumDLn9ZcysLV21gcHvyYJVP3D4cOVYpx6zvezbzAFf378c/s320/0EFDBC65-092B-4E6D-9816-BF56B76DF1CB.jpeg" width="320" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;">Defence spending always high. Don’t question the need for it; but the point about making sure each dollar is well spent is key.</div><br /><p></p><p>A few key observations on big trends and issues :</p><p>1) govt spending has increased quite a fair bit between 2017 to 2023. In 2017, we spent 55.6b on EOM (manpower), OOE (other operating exp), grants/injections and transfers. In 2023 we expect it to be 83.6b. That’s a 50% increase! </p><p>GDP of our nation during same period I estimate will have increased from 343b usd to 425b usd. So that’s a expansion of 24%.</p><p>Broadly this means our govt has gotten bigger as a proportion of GDP. This in itself is not a bad thing as i can see visibly that our healthcare sector has expanded, our public education has broadened to include preschool and that there is much broad based support and resources spent to improve wages at low end via pwm and various credit schemes.</p><p>My big concern here is that with public service spending and investing more, all the more we must ensure governance, appropriate top level targets, productivity of each ministry and statboard workforce, benchmarking etc are done at top notch level. The total budget is 104b or about 18-19% of overall sg gdp - it’s critical the entire civil service continues to perform and improve at the highest global level. To me this means aiming to run as well as top global private firms with similar headcount at least in key areas of strategy planning, scenario planning and talent recruitment/retention. </p><p>2) We can also see govt projects a small deficit this year. The NIRC at 23.8b is a very significant component of our govt budget. This NIRC is from our nations wealth kept with Temasek, GIC and it’s there because of the collective efforts of past generations who ran TLCs, sold land and invested budget surpluses well. </p><p>My comment here is we again must not rest on our laurels and need to keep the reserves growing by ensuring Temasek and GIC run at the highest standards globally. This means going beyond governance and going into benchmarking against and beating or meeting top PE and balanced indexes globally.</p><p>My sense is Temasek has a much harder job as it has a portfolio of local TLCs which have a lot of history and which unfortunately is a mixed bag when it comes to their success going overseas and growing beyond their local (often case) monopoly. They don’t handle disruption well but we own a big chunk of them. One way out is superior hands-on boards and management that are incentivized to truly build and grow. And be quick to fire bad performers. It’s not wise to always think ex scholars make great tlc leaders. Or at least complement them with commercial chairmen that govt trust to really push them on delivering results.</p><p>3) My biggest comment which is not spoken about in budget speech is really about population/manpower. It has been 12 years since 2011 elections. A lot has changed and infrastructure and conditions have improved much to me.</p><p>I would ask for leadership and clarity from govt to convince fellow Singaporeans it’s time to come to a consensus on how our society can continue to grow in the years ahead. </p><p>Our working resident population is 2.35m. Our working population is 3.7m or so. We already run an economy that is beyond our local capacity. And we need to spend more in the years ahead to look after all citizens well. </p><p>With our TFR at 1.1, we are doomed as a nation unless we deliberately and consciously add to our ranks. And the best way to do this is to have a proper manpower strategy that adds the talent we want with a view to convert a nice pool of them each year to be PR and citizens. </p><p>5.6m population is not a lot compared to other small nations in the developed world. A 7-8m population Singapore where about 5.5m are resident will really help us thrive as a nation. Better job opportunities, more vibrant local economy , more social variety and better tax situation for individuals too. Each resident pays less tax if our economy is larger.</p><p>So what I am asking is for a conversation to start. And we try to have a consensus on common points and see if with those common points, a clearer path can charted on our population strategy. </p><p>As a father of 4 sons, I think it would be remiss if we keep letting electoral vagaries determine how we communicate, educate, lead and agree on this existential issue.</p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-27456380816621153842023-01-03T01:40:00.012-08:002024-01-02T06:29:52.456-08:00Startup Portfolio Review for 2022 - The pain of costly capital<p>I just reread <a href="http://limdershing.blogspot.com/2022/01/startup-portfolio-report-for-2021.html" target="_blank">my 2021 report</a> and unfortunately a lot of the points/predictions we made one year ago came true. The growth stock rerating lasted the entire year with no reprieve in sight as the Fed raised interest rates to 4+% in an effort to combat persistent inflation. SPACs and IPO attempts mostly all failed as the markets refused to tolerate expensive listed company valuations. Carousell, Kredivo, Carsome/Carro all have to say IPO or SPAC deferred for another 1-2 years as investor appetite dried up on loss making companies. And those few ASEAN startups that did manage to exit in 2020/21 like Goto, Grab, Buka, Prenetics, Propguru all crashed anything from 50-80%. Even the largest ASEAN tech company SEA crashed 76% from 220 to 52 per share.</p><p>In spite of the tough investing environment, Ning & I stuck to our investing philosophy and continued investing into 4 new startups and did 5 follow on rounds for existing portfolio. Amount invested 20% lower than 2021 which was a record year for us with 9 follow ons. As shared in 2021, covid and Ukraine war has caused great pain to 3 of our startups and we have chosen to write them down to zero in 2022. On a positive note, 2022 saw a decent exit from our <a href="http://limdershing.blogspot.com/2022/06/" target="_blank">2012 investment in an animation startup</a>. Also, in spite of the bad market, we had 5 series A up rounds happening for our first Vietnamese and Thai startups and 3 SG startups. So in total, for the 41 startups we invested since 2015, the IRR is now ~28% (down from 38% last year) with a TVPI of 2.66 (down from 2.98 last year).</p><p>On the VC front, our 8 funds are at 2.6 TVPI mirroring our angel side and actually up from 2021 2.47 TVPI. IRR should be low 20%s as they took capital much faster. </p><p>Putting both angel and VC together, we actually still eked out a small gain of 2ish% year on year for 2022. Hard to believe but there is big caveat. See point 5 below.</p><p>Some comments and thoughts :</p><p>1) The drop in early stage valuations has happened. The valuations for follow on A rounds have been significantly worse than what founders thought. However, it is nowhere near the levels of how the growth stocks have fallen. ARKK fell almost 70% in 2022, it is only logical that series Seed, A, B, C, D, E valuations fall drastically too. Right now, startups are deferring fund raising if they have cash or raising from existing investors whose interest is to maintain last round valuations. Something has to give and i believe if interest rates stay above 4,5% this entire year, we will see some capitulation and failures from later stage startups which will cascade further to the earlier stages.</p><p>2) At Seed level, valuations have fallen 20-30% but its still expensive with no revenue startups valuing themselves at 4-6M SGD. If the later stage fallout happens as described in point 1, then maybe we will see valuations for seed back to the old S$2-3M range which would reflect the risk reward for angels and seed investors. </p><p>3) One silver lining is many ASEAN VCs just raised capital for new fund and have cash to deploy. So it is entirely possible that they can maintain their winners valuations and ride out the storm until 2024/25 where they expect inflation rates to moderate back to the 2-3% range and hence interest rates to weaken and valuations to rebound somewhat. For these VCs with cash, they are in a relatively good place to slowly pick and choose for new stories and only invest in valuations are good. For VCs who want to raise a new fund, i hear 2022 2H was very tough and i believe it will be very hard to close any meaningful sum for a few months more. Global investors need more clarity on inflation and IR and economy before deciding next steps. </p><p>4) VCs (as of 3Q end) are still declaring good numbers. Two ways to see this. First explanation is the nice way. Winners can still grow and command up-rounds in bad climate. Some of our VC funds invested in Ninjavan, Carsome, Grab, Buka, Kredivo etc. So its possible to swim against the tide for sure. Second reason is that VCs have leeway in how they determine valuation. Usual rule of thumb is to keep at last round valuation. But they can also chose to up a valuation if company has no new round but business has a grown a lot. Also, they can continue to fund internal rounds at last round or even up from last round. All these moves allow them maintain valuation stickiness. The game is only up if the startup fails to perform, or lists and stock price drops or if climate stays permanently depressed and new round is down. Then write down becomes inevitable. </p><p>While we can understand the logic of VC behavior, it does contrast with later PE funds. We also invest in some later stage PE funds and because they have many listed investments, they have had to write down 20+% mirroring at least a good chunk of tech stocks revaluation. So it’s important to take the VC numbers with a big grain of salt. </p><p>5) On a personal front, while 30% IRR sounds good, it is mostly unrealized gains on unlisted companies. The weakness in the ASEAN ecosystem is the lack of distributions. In current climate, I would much rather have a TVPI of 2 and 15% IRR but with 1x DPI already. </p><p>6) This combination of high interest rate + high inflation + geopolitical issues = great uncertainty in global and ASEAN/SG economy. And when we add on our personal asset allocation shift into property, we feel a need to recalculate how much more to invest in startups. Bottom line, we want to see cash returns from earlier investments before committing much more capital into the space. So a lot depends on what happens next 2-3 years. Hitting 50 startups will probably happen but hitting 100 will require more exits. </p><p>Bottom line, capital is now costly. Why would an investor take high risk to earn 15% returns if they can get 8% investing in a relatively safer bond portfolio? And why invest in a loss making unlisted startup if they can invest in google or baba at 12-18 PE ratio? Ning & I remember a time when startups were valued at 15 times profit and that was considered good valuation. And if you are not profitable, your business is not worth much until you show you can be soon!</p><p>7) We have actively communicated this investing climate change to many of our portfolio companies reminding them that profits matter a lot more now. I do believe many founders understand that turning profitable is the surest way to navigate 2023 successfully. Quite a few of our startups are either profitable in 2022 or have a clear path to become profitable in 2023. Those who can't are cost cutting to at least show narrowing losses and also making sure they line up equity funding to stay alive. </p><p>It’s not a good time to run a startup now. Costs are rising due to inflation esp wages, but funding is hard to get. Debt is expensive and we expect startups that need lots of debt to suffer in the months ahead. See what's happening to Affirm and Klarna and Carvana. What will drag things down further is if USA economy goes into bad recession with its consequent impact on ASEAN. Then customers too will be hard to find as overall demand shrinks. </p><p>8) Timelines to exit are now all extended at least 1-2 years as many startups will just stay alive and tread water in 2022 and 2023. So fellow investors, please do your own modeling and analysis and base it on a 10-15 year horizon for each startup and VC fund you invest in. With 10 years being a good scenario! </p><p>9) One great thing that happened in 2022 is how the AngelCentral community has continued to grow. Our first investments into Vietnam and Thailand paid off well this year with significant uprounds happening as Series A rounds happened with good VCs. We also had earlier syndicated investments raising Series A in 2022 at improved valuations. So if you are keen to join us, do <a href="https://www.angelcentral.co/investors/membership" target="_blank">check out our services</a> to help angels.</p><p>Moving forward this year, we intend to continue investing but with even more caution and discipline. This climate is not a bad thing as it removes all the crazy excesses of the 0 interest rate environment. It never did make sense that NFTs/alt coins were worth trillons or that startups are worth 10-30 times their sales even with lousy gross profits. Its a much needed reset for asset prices and forces everyone to get back to basics of profits and cash flow management. </p><p>On a founder or investor individual level, we of course hope for the global economy to not tip into bad recession in this adjustment process and that inflation is curbed with minimal collateral pain. However, an old adage comes to mind - we can hope for the best but we should plan for the worst. Sounds like a good philosophy for 2023!</p><p>Footnote : This review focuses only on our startup and angel investments mostly in ASEAN space. if you want to know about overall philosophy in life, pls read <a href="http://limdershing.blogspot.com/2022/12/" target="_blank">annual review on life</a>.</p><p><br /></p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-22101006221762424172022-12-25T06:20:00.010-08:002023-01-03T02:21:19.798-08:00Purposeful Life - 2022 in review <p><a href="http://limdershing.blogspot.com/2022/01/purposeful-life-2021-in-review.html" target="_blank">(read earlier 2021 review</a> and <a href="http://limdershing.blogspot.com/2021/01/purposeful-life-2020-in-review.html" target="_blank">2020 review</a> to get context.)</p><p>If I have to summarize the year 2022, it is a year of anticipation and waiting on many key items. This year was tough to live thru as many impt segments of our lives required patience and time to wait it out.</p><p>First, the year started with us waiting for Covid restrictions to end and to actually catch covid. I finally caught it in Feb and took 2-3 weeks to fully recover with no longer term symptoms. Second was the wait for the painful legal completion of our home (long story) and its subsequent renovation works. Background is we finally managed to buy a new home that is suitable for a family our size + for Dad if he wants to live with us.</p><p>Third, portfolio & work also just treading water. Startups side going thru bad valuation downturn and possible recession so have to wait for sentiment to change and for them to grow more. Listed investments also same but we were lucky to liquidate a large chunk into cash to get approval for home loan back early in 2022. So by pure luck, we caught only a part of the market weakness and got out of almost all our USA and SE growth stock positions. </p><p>Family wise, 2 older kids also in holding mode as they are in first and second year of NS respectively. They’re now in NS limbo waiting for it to be over so that they can resume studies. </p><p>Of course, i understand that these things are part of life and we try to be positive and remember that each second is precious and to make the most of each day but it’s not easy with so many things in limbo. </p><p>One positive major highlight is the resumption of travel. Once some of family got Covid, Ning & I resumed travel and in 2022 clocked about 63 days of travel to Sydney, Phuket (twice), Bali, HCMC, KL, bintan, Cempadek island and northern Italy. Lots of sea and beach time. </p><p>In terms of philosophy on living, don’t think much has changed. To recap, i have centered myself on the 3 purposes below.</p><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">Purpose 1 - Help and be there for family. Extend to friends if i can.</span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">Purpose 2 - Be as healthy as I can</span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">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.</span></span></div><p>Purpose 1: House hunting and being there for family. Share and guide kids more. Maintain friendships.</p><p>We finally decided to get a bigger place that can fit our 4 sons without room sharing and also have a room for Dad in case he needs to stay with us. Quite a testing saga to do this purchase as property market was running hard in 2021 and 2022. So many unethical sellers… Anyway, long story short is we managed to find a lovely new place, took 5 mths to renovate and moved in mid dec. So one source of limbo is gone for 2023 onwards.</p><p>Best part for the entire year, we stayed with Dad at his home for the year as we had to sell our old home and new place was tenanted. Staying with dad turned out to be good fun and I missed him when we moved out. Now he has decided to stay with us a few days a week so let’s see how that works out.</p><p>Needless to say Ning went thru a similarly tough year but as usual she has a just suck it up and do it attitude. And she is much clearer and decisive on some things which helps us decide quickly and accurately on them. </p><p>NS boys we try to be as present for them as much as possible. All independent already and big one partying quite a bit. Next year will be a big change for all as he enters university. Number 2 surprised us all by entering the finals of a radio singing contest. Very exciting for us all to vote and attend and cheer. Number 3 also developed a lot as a student and as a sportsperson and we had fun attending his swim meets. No 4 still a small boy at 8 years old and is lots of fun to have around.</p><p>It’s tough guiding kids. Don’t want to be too prescriptive yet want to help them as much as is reasonable. We find gestalt style sharing works for older kids but sometimes also still need to be definitive esp on key items Ning and I agree on.</p><p>For friends, still same maintenance mode. Couple of dinners, double dates and a fun canoe trip with an old friend in ubin.</p><p>All in, I would say managed to keep present for loved ones in 2022. Being able to travel with them and wife helps for sure too.</p><p>I would rate an 8 out of 10 for the year.</p><p>Purpose 2 : Health in mind and body. Weight below 70kg.</p><p>Health stayed good as we built up routines to fetch son to camp and just do an early morning jog near camp. So we have been discovering lovely jogs near changi point and also along upper Thomson. Mind wise, mid and year end we faced significant stress. Partly caused by house moving and partly because investment climate has changed a lot and our asset allocation has also changed. I do think some time will help us get used to new returns expectations and consequent cash flow dynamics. More on that below.</p><p>I would rate a 7 out of 10 for the year. Weight was about 65-67kg throughout. </p><p>Purpose 3: Preserve & Grow Wealth - 10% annualized net on investments + Quality startup angel work for 100 startups + good volunteer </p><p>Hard to grow wealth in 2022 with stock, bond and crypto markets plunging. While we managed to largely avoid the downturn in growth tech and crypto that crashed 50-80%, we did get hit with our QQQ and China tech positions. For the year, that puts our equity/bond portfolio side down about 12%, painful but it’s not damning. Really proves the importance of diversification and investing for the long term. Having some SG banks and REITS help balance out the USA and China losses.</p><p>Interestingly, we are up slightly on private equity and up significantly on property this year. The latter is expected since URA PPI is up 8-10% this year alone. The former was aided by an exit and some distribution from VC funds which are offset by sizable write downs on paper gains on PE funds side. Remember I put Vc and startup at book unless realized. Will analyze the startup/VC side in another post early next year but we are already feeling there is a need to cut back until we see concrete startup returns next few years. So 50 startups will hit for sure, but 100 we probably want to see returns first so that can recycle capital.</p><p>All in, last 12 years has been dragged down to 8+% annualized if we mark to market. No complaints but I am mindful a big chunk is still unrealized gains from PE/startups. All in, this is the first year overall portfolio go into the red since the start of tracking in 2011.</p><p>Finally on the volunteering front, continued with PEP, IPOS, ITE, SWCDC, NRF and added on a new role on the board of SCHS. It’s the land owning entity of HwaChong and also owns the international school. I help out with strategy, investments and on the school mgmt committee for the intl school. It is currently the most involved of volunteering work as the school is not as well resourced and established with process and strategies like govt entities. </p><p>I would rate this purpose a 6.5/10 for the year. It would have been 5 due to invested cuz down is down. The mitigating factor is volunteer work, property and PE exits/write ups.</p><p>Overall 2022 has been an okay year for me. Many more challenges and stresses work wise than 2020, 2021 but as always a lot to be grateful and happy for too. I hope 2023 is a year where things are clearer on more fronts and less in limbo. Continue attention on family and health. Asset allocation done so hope to be largely correct and see the portfolio recover back into the black. And see more of our startups turn profitable and grow well with or without VC funding. Also, may have to drop one volunteer work as its getting to the point where I feel too stretched.</p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com2tag:blogger.com,1999:blog-2411690922359603798.post-44996568118406666682022-11-06T01:49:00.009-07:002022-11-06T20:27:28.794-08:00Back to the 2000s for startup valuations?Have been watching and analyzing the public tech markets and broader markets for the year. Like everyone else, I have been taken by surprise by how rapidly valuations for loss making growth companies have fallen. Some examples ranging from those with really bad financials to those with slightly better ones:<div><br /></div><div>1) Carvana has fallen 90+% in value. It’s now trading at just 1.65b usd or about 0.15 times of its revenue. So what does that say about what carsome or carro is worth and the IRR and TVPIs of their VCs?</div><div><br /></div><div>2) SEA has fallen 88% from peak and is now worth just 20b or barely 1.5 times revenue. And they have a profitable gaming unit some more.</div><div><br /></div><div>3) Grab, Goto, crowdstrike, twillo, teladoc all crashed 50-90+%. </div><div><br /></div><div>4) QQQ which is profitable big tech mainly has fallen 34%. But at least the valuations are supported by profit. That’s an important point- profits and not revenue now support valuations more.</div><div><br /></div><div>5) And to add to all this pain even China tech and consumer companies- which frequently are profitable too have not been spared. They too are down >>50%. Their issue is a combination of worldwide revaluation + slowing economy + lack of trust in Chinese markets. </div><div><br /></div><div>For us in Asia, I am hearing most investors are hit bigger by the China & SE drop than by the DM fall in the form of QQQ or SPY as we started the year feeling that China stocks were cheap.</div><div><br /></div><div>What does all this have to do with earlier stage startup founders in Asean? I hope I am wrong but current multiples remind me of post 2000s tech crash when it was normal for tech companies to be worth something serious only if profitable or approaching profits. A company with 10m revenue and 3m profit back in 2005/6 was worth more than a 100m revenue company with 10m losses because it is the PE ratio that matters more.</div><div><br /></div><div>And the PE ratios for fast growing companies were usually ranging from 15 to 40. So the profitable tech company with 3m net profit off high gross margin of 70-80% was still just worth $45m give or take depending on growth rate. But the loss making one is probably worthless to public market investors or just worth its NAV esp if it cannot show path to profits and has widening losses.</div><div><br /></div><div>So if I am a founder today running a loss making startup, I would plan for a “profit and cashflow hungry” capital market. Revenue growth matters much less than narrowing losses and profits. It’s also far more sustainable.</div><div><br /></div><div>And if I were a fund, I would aim to make the current portfolio profitable and focus on getting distributions for LPs. Forget about raising a new fund for a while until the dust settles. Any LP will want to see this situation clear up and stabilize first. We also want to see distributions being done before just believing in current fund IRR and TVPI as it includes unrealized gains which have not reflected public market reality. Very soon LPs will see that 6x tvpi and 40% IRR means little if distribution is only 0.1x for a 6-7 year old fund. I would much rather have a 1x distribution and tvpi of 3x.</div><div><br /></div><div>Unfortunately, there seems to be a state of tension going on between optimism/kicking the can down the road and being honest and realistic. Eg. bridge financing is needed but are still being done on last round valuation even though clearly the listed comparables have crashed to a 1/3. This deliberate mispricing by VC and PE funds is self serving behavior and will result in unhappy LPs if the write down ultimately happens 1-2 years later. </div><div><br /></div><div>Let’s see how this plays out. I would not be surprised if this downturn worsens on revenue front as businesses and consumers cut back. if that happens, there will be big loss making startup failures or down rounds in 2023 or 2024 as there is no way to justify 10x or more revenues when growth disappears and profit is absent.</div><div><br /></div><div>As investors, we have been hiding out in profitable companies for listed market (only one nostalgic position in loss making SE) and some quality bonds since start of year. Even so, still down for the year but better than Acwi benchmark. For startups, we intend to continue investing but we will only do so at reasonable market valuations led by new lead investors to the round. No internal round at last round valuation for us if business has not improved dramatically.</div><div><br /></div><div>As for our existing portfolio companies, we continue to ask them to prioritize ebitda and cashflow over revenue growth. Don’t count on always having investors to fund you and instead get customers to do it. Focus more time/energy on product, on customers and on employees. That always pays off.</div><div><br /></div><div>Happy to see that many of our founders seem to get this and have moved to lower spend and drive revenue growth. In the 2000s, it was normal and desirable to turn a net profit if you have a few million gross profit. It was also normal to grow costs only if revenue grows in tandem or better still grows proportionately more. It’s time to bring that mindset back in vogue and stop being proud of losing money and using investor money to stay afloat! </div><div><br /></div>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-73163545316280965002022-06-23T21:19:00.006-07:002022-06-24T23:24:38.698-07:00Recent angel investment exit during market crash<p>We recently exited one of our earliest angel investments in an animation company. Return was about 11-12% IRR over a period of 10 years. On a scale of things not a fantastic angel return but we feel its decent considering what we know of the industry now and current funding climate. </p><p>We met the team back in 2012 and were impressed by their experience in animation and also back then, there was a desire to build the animation industry in Singapore. The idea was to use state of the art in house software to improve animation studio productivity while at same time also develop a franchise of quality animation characters. As its one of our earliest investments, we were still quite green and invested a sizable bite (a few times our current first cheque) and also did not care whether the company had a lead external investor or whether shareholding was well aligned. I also did some initial research and actually could not find any recent listed comparables with the exception of Zinkia which owned Pocoyo. Anyway back in 2012, we just sold JobsCentral and so felt quite cash rich.</p><p>The company quickly managed to attract more funding at better valuation. However, as they executed, we quickly realized how hit driven the industry is and also how much cash it needs. And even if one creates a franchise with decent traction & feedback, its still a tough journey to sell to more broadcasters and even tougher to create sizable merchandising revenues. The company had to make ends meet by doing some production studio work for big brands. But just like software integrators, every resource spent on outsource work is a resource missing to build a good internal brand and product. </p><p>What changed things in my opinion is the rise of youtube and other free to stream platforms. By placing content on these platforms worldwide, the company managed to earn decent, high margin revenues from ads and also place their characters in front of millions of kids worldwide. The covid crisis helped further as more kids spent more time in front of screens. All this was not contemplated at all in the original business plan. So kudos to the team for not giving up and always looking for new ways to grow the business. With this new stable and growing revenue stream, the company managed to turn profitable. </p><p>Some takeaways & learnings.</p><p>1) Industry matters. Space like movies and animation very hit driven and distribution matters alot. Production talent alone is insufficient. And the fact that i could not find any strong independent studio back in 2012 probably was a big warning. I would not invest in movie or animation production now. Also its very unstable. Zinkia is not doing well at all now. Only franchises owned by giants like Disney or Sanrio have staying power.</p><p>2) Company ended up consuming quite a lot of capital. So that diluted returns. So initial valuation and bite size matters a lot. All this is no brainer in hindsight but it does mean having a founder who does not give up and good at financing deals is important.</p><p>3) Industry sometimes has huge shifts. In this case it is the free to stream segment. Catching it early to create ones channel and mindshare on youtube and like platforms matter a lot.</p><p>4) Profitable, own strong IP and growing is a great combination. Not only have much less funding pressure, such companies will be attractive to buyers in all markets. This deal was concluded in May 2022 at the depths of a 6mth down market on growth stocks. </p><p>5) It really does take 10 years to grow a business. I hear angels who speak of exiting in 5 years and seed VC funds whose fund life is 7 years. I dont think they factor in sufficient time for their portfolio companies and for VCs, that can cause problems for themselves at end of fund life.</p><p>6) Paying attention to Secondaries also matter. Company had a shareholder who had to exit for personal reasons. So the price per share was very good and we picked up a little more as part of pro rata and right of first refusal. That extra bit helped juice up returns a fair bit upon exit.</p><p>Overall, this sale together with some new up rounds this 1H2022 helped improve our overall angel portfolio since 2012 to 28+% IRR and 2.78 TVPI. And for the more active period from 2015 to 1h2022, it’s 39+% and 3.03 TVPI. </p><p>Hope this sharing is useful for fellow angels. </p><p>NB :Full bite size investment up front worked for us in this case. But i think more of luck and it does not change our current bite strategy.</p><p><br /></p><p><br /></p><p><br /></p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-41907419003890288222022-04-27T20:13:00.010-07:002022-04-28T17:10:54.613-07:00How will the current stock market rerating affect our startup scene?<p><span style="-webkit-text-size-adjust: auto; font-family: UICTFontTextStyleBody; font-size: 21px;">A fellow angel asked us the above question. Ning and i discuss this a fair bit as we have both public and startup equity. I actually summarized some initial thoughts back in <a href="http://limdershing.blogspot.com/2022/01/thoughts-on-sea-and-implication-on-tech.html?m=1" target="_blank">Jan article on Sea’s stock crash</a>. Unfortunately the trend has not just continued but has deepened. </span></p><p><span style="-webkit-text-size-adjust: auto; font-family: UICTFontTextStyleBody; font-size: 21px;">It should be pretty obvious for investors and founders who watch public markets that there has been a rerating of valuations in the tech space. Both stable profitable tech as expressed in QQQ (Nasdaq100) and loss making growth tech as best expressed by ARKK (Ark Innovation) have dropped 21% and 49% ytd respectively.</span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">I think with interest rates scheduled to rise more to control inflation, it does look like this trend is good for a while until inflation shows clear signs of abating. That may take 6mths- 1 year.</span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span></p><span style="font-family: UICTFontTextStyleBody; font-size: 21px;"><b>So how does this affect our local and regional startups? </b></span><span style="font-family: UICTFontTextStyleBody; font-size: 21px;"><br /></span><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">The most obvious hit will be for the late stage ones who are near IPO. SPACs are dead no thanks to dismal stock performance by Grab post SPAC. And don’t get me wrong, for grab mgmt and founders it’s a great timing move to raise the 5-6b at peak of bubble and dilute little. But for all investors who invested above 10b valuation, it’s losses all around. Same thing can be said for Buka and Goto. Interestingly, Goto raised only 1+b as investors can see what’s happening on grab front.</span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">So what the above means is that no more easy Spac near term and IPO will be also be hard to bookbuild.</span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">So if I am a late stage Vc or PE investors, I will be looking at the current public market valuations to value upcoming rounds. Cuz that’s the exit I get at best in near term. So at least 30-50% haircuts all round?</span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">Eg carvana is now trading at 0.8 times revenue. How does that affect carro and carsome valuation who raised at 2-3 times gmv?</span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">Or even profitable tech like tencent, baba, Google and fb are at 10-25 forward profit. So even if our local tech startups turn profitable, are they worth 50-100 times profit if growing at 30% per annum? Probably 30 times is fairer? </span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">A barometer to watch will be if carousell and carsome can do their IPO or SPAC. If they delay or pull, it means public investors have drawn a conclusive recent lesson from Grab and like.</span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><b style="font-family: UICTFontTextStyleBody; font-size: 21px;">How about earlier stage startups? Those B round and earlier ones? </b><br /><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">We don’t see any big impact on seed valuations yet. Though logically it should cascade to this area but maybe need to see the prolonged pain another 6 mths first. If I am a seed founder, I will quickly raise if I can and be more flexible on valuations. If i am an investor, I will continue investing this period as it’s good timing for the upcycle in a few years time. Companies formed during recessions and tough times tend to do well when the upswing comes. </span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">But I will be more discerning and take my time. As a reminder, seed valuations before the rapid rise of last 5 years, used to be 2.5-4m sgd. A rounds used to be 8-12m sgd.</span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><span style="font-family: UICTFontTextStyleBody; font-size: 21px;"><b>What if I am a startup founder </b></span><br /><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">Of course fund raising is still a sales game, if as a late stage founders, you can sell a great story and convince investors to still pay more vis a vis public markets, kudos to you.</span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">But if can’t convince, then the solution is to turn profitable or at least narrow losses and work with the cash on hand. And if cash not enough, then a down round dilution may be in the cards. </span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">There is also another less obvious fallout. And that’s on the value of stock options across loss making tech industry. I am sure sea and grab employees who did not cash out will be feeling the pain of worthless options. So you may find esop less valuable as a retention tool.</span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">Looking at our portfolio startups, many are focusing on profitable growth instead of revenue at all costs fueled by super cheap investor money. I strongly believe those that do it well, will reap great rewards when this cycle turns. </span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><b style="font-family: UICTFontTextStyleBody; font-size: 21px;">What does this all mean?</b><br /><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">Actually I think this reversion to the mean is normal for markets and good for our ecosystem. It will flush out the excesses of the last few years and expose startups who are swimming naked and have no real sustainable business model. Investors who blindly chase the next hot story will also learn their lesson and be more discerning for the next deal. </span></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"><br /></span></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">And let’s not draw the wrong conclusions. Crashing valuations and stock prices is a reflection of the risk reward investors want. For profitable companies, valuation matters a lot less except in the area of esop and pressure by shareholders. Truth is, they have time on their side and perhaps opportunity too. </span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p1" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px;"><span class="s1" style="font-family: UICTFontTextStyleBody;">From what I can see, all the easy money whether in public or private markets has been made last 4-5 years. I won’t bet on a quick recovery any time soon unless inflation magically disappears.</span></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p><p class="p2" style="-webkit-text-size-adjust: auto; font-size: 21px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 26px;"><span class="s1" style="font-family: UICTFontTextStyleBody;"></span><br /></p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-26342011100385235092022-01-26T20:59:00.007-08:002022-01-28T18:11:18.549-08:00Thoughts about SEA limited (& other plunging listed tech stocks) and implication on tech startups <p>Was discussing SE today with Shao-Ning Huang. We were lucky to spot it in 2017/8, and bought our usual bite. The position quickly grew to be our top holding by far. We sold on the way up and closed out position at 344 last year not due to any timing brilliance but because needed the funds.</p><p>When we spotted it, SE was trading at $10-20 or just 4-5 times sales, mostly profitable gaming and growing revenue 100+% per annum. we felt was a no brainer to buy! moreover, the gaming and e-commerce space are both huge. Sweetener is lots of Chinese high alumni working in SE.</p><p>So what do I think of SE now at 138? At 138, it’s trading at 7-8 times forward sales and the growth is slowing esp at gaming side. Gaming revenue also more fickle and hits can lose favor. Also now composition of revenue is a lot of loss making ecommerce. Add on the rising ir environment which bashes down all growth valuations and the picture is not rosy for stock price.</p><p>So we will correspondingly adjust our bite sizing and expectation. Recently sold some puts from 100-145. Aiming to build a normal sized position at anything below $120 blended. Won’t go crazy to buy beyond normal bite unless it plunges irrationally below $80. And If plunge for good reason also won’t add. </p><p>Bottom line: easy money made on SE for foreseeable future. Likewise for many loss making growth stocks. Be very careful everyone.</p><p>Side note: results coming out in Feb will say a lot on direction. Likewise for grab coming results must see before doing any big move on it. Also it’s not all rosy for us in this downdraft too. Caught by surprise by the depth of Chinese tech sell down. Easily lost 0.5m there since Jan 2021 to now. Lucky kept to bite sizing discipline and did not add. Falling knife can keep falling.</p><p><br /></p><p>HOW ABOUT TECH STARTUPS?</p><p>So how about unlisted tech startups valuations. If listed side falls to 5-10 times forward sales, how much you think a much smaller and also loss making startup should be worth? Quite concerned here as we have big positions in tech startup space. Looks like we have to be even more disciplined to make sure don’t overpay for new and follow on funding. </p><p>A sure test ahead will be the various spac attempts and loss making unicorns trying to fund raise and/or create exits. Will they have large down rounds coming up or will they be able to still list or sell out at decent valuations? </p><p>And for founders, better build something profitable which gives you infinite runway or at least make sure you plan for poor funding climate where there may still be VC money or trade sales or IPOs but investors want much lower valuations. </p><p><br /></p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-7499035657166736452022-01-08T02:20:00.011-08:002022-02-12T00:28:17.364-08:00Startup Portfolio Report for 2021 - Liquidity trumps covid<p>2021 has turned out to be a banner year in spite of Covid. As I mentioned in my <a href="http://limdershing.blogspot.com/2022/01/purposeful-life-2021-in-review.html?m=1">life review of 2021</a>, Covid has resulted in greater inequality and unfairness in the distribution of world resources. The reason is because govts have to inject lots of money into their economy and keep interest rates low in order to save jobs, certain industries and not cause a downward spiral. And while much of this money helped do just that, a lot of it also flowed to inflate financial assets and that means listed stocks, unlisted stocks and even crypto assets, properties and commodities.</p><p>We invested in 6 new startups in 2021 and did follow on rounds with 9 more. This is a new record for us in terms of amount invested. Add on our Vc investing, we have invested over S$7m into the ASEAN startup space. As of end 2021, 41 startups and 8 VC funds. </p><p>Generally 2021 has been a good year for the startup ecosystem and hence our diversified portfolio. Only the travel and events related startups continue to hurt badly and we do expect to maybe see 1-2 failures this year if they are unable to raise capital. However, almost all the rest grew significantly business wise with healthcare players like Homage and Alodokter growing a lot and raising large rounds at much higher valuations. We also had Patsnap that became an official unicorn.</p><p>We did have a execution specific problem with a centaur startup that resulted in a <a href="http://limdershing.blogspot.com/2021/04/a-million-dollar-writedown-highlights.html?m=1">1+m write down</a>. It’s clear it’s execution specific because another startup we have from similar space just turned around to good numbers. As a result of this write down, our direct startup investments did not improve on IRR though it’s still a great performance. From 2015 till end 2021, IRR is sitting at 38.83% (drop from 40+% last year) and the portfolio has a 2.98 TVPI. </p><p>VC did very well as they did not suffer from any major winning startup write down. The 8 funds we invested are at 2.47 tvpi (from 1.98 last year) with IRR harder to calculate since all slightly different vintage and drawdowns. But we started investing in 2014-2015, so I would estimate IRR in mid to high 20s.</p><p>Here are some learnings and thoughts we have:</p><p>1) Investing in the same sector may not be such a bad idea provided we are clear not to share info across competitors. At least we still get to participate in the sectorial growth and have 2 shots at the goal instead of just one. But it’s important to make sure both founders know and to not reveal any sensitive info.</p><p>2) Diversification and bite sizing matters. Having 41 startups allow for portfolio to handle black swans like Covid. Similar bites also allow the winners to do the hard work of lifting up entire portfolio. Last thing we want is to have a 30 bagger on an undersized position. Furthermore by investing in 8 VC funds, we have another 100+ to 200 startups in the region. This adds to diversification and also adds on an indexing effect.</p><p>3) VCs are a good asset class if riding the cycle up. We started in 2014 on the thesis rising tech/startup tide will lift all boats. True enough, VC funds rode the upswing. If you study almost any of the Vc funds started back then, they all have 1,2,3 great winner that return so much that it should have returned entire fund. Vertex, Jungle, Monkshill, wavemaker, Goldengate, 500 all have their own unicorns and centaurs. </p><p>But it’s important to note fees really affect things. The current difference between our own startup portfolio and VC is almost entirely the fees and carry.</p><p>4) Startups will require a lot of follow on decision making. Our policy is to generally follow all bona fide next rounds up to a limit of about $200k. But we are beginning to wonder if it is worthwhile following less strong bridge rounds. On one hand we want to support founders but so far the data shows many bridges tend not to work out that well.</p><p>Looking ahead this year, we expect to continue investing in 5-6 startups and for sure there will be some follow on. The funding climate should continue to be strong as we know VC dry powder is still aplenty. </p><p>One big danger is the current rerating of high growth loss making listed stocks. Grab, Sea, Buka have all crashed anything from 40-50%. Likewise other nasdaq listed counterparts like crwd, OKTA, palantir etc. If this continues or worsens, there will be a rerating at PE level and hence startups will also be affected. An upcoming barometer will be if carousell/traveloka/carro etc SPACs can happen and if they happen, how they trades. Crashing like Grab for a prolonged period will make future SPACs fail. It’s telling why these startups are not IPOing normally like sea or razer did. I believe it’s because SPAC has biased price discovery and so they get better valuation and less oversight in a bubbly environment. Hope those we are vested in manage to squeeze in their SPAC in time! </p><p>Anyway, rerating of valuations and the subsequent liquidity squeeze need not be a bad thing as it will show who is swimming naked when valuations drop and profit margins come to fore. </p><p>So to fellow investors, do be thankful for your gains and remember to give back to the society that enabled it. For fellow founders, the easy valuations and fund raising could get harder, focus on building both a profitable and scaled up business. That way even if really funding gets tough to obtain, at least you just grow slower by reinvesting profits and not end up with a distressed situation. </p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-61010878040361253512022-01-06T21:13:00.005-08:002022-01-09T16:46:03.201-08:00Purposeful Life - 2021 in review<p><span style="font-family: arial;">I had hoped that 2021 would be a year where life got back more to normal. But instead it just felt like a <a href="http://limdershing.blogspot.com/2021/01/purposeful-life-2020-in-review.html">re-run of 2020</a>. Quite tough year actually as I felt very stuck. In fact this year made it very clear that doing well at work or portfolio has a weakened link to happiness for me. The link was super strong when I was in early 30s for sure. </span></p><p><span style="font-family: arial;">Being an internal scorecard person who enjoys experiencing old and new things, being restricted in movement, socialization and travel hit hard this year.</span></p><div><span style="background-color: white; color: #454545; font-family: arial;">Turned 46 this year and when I reread last years review post, glad to know the 3 purposes i wrote down and the values associated did not change. Though I must say purpose 3 doing very well numerically but not resulting in more fulfillment is worth paying attention to.</span></div><div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">Purpose 1 - Help and be there for family. Extend to friends if i can.</span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">Purpose 2 - Be as healthy as I can</span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">Purpose 3 - Be a good custodian of wealth and knowledge. help grow startup ecosystem via angel investing & AngelCentral. <span class="Apple-converted-space"> </span>Contribute to broader society as volunteer.</span></span></div><div class="p3" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal; min-height: 25.1px;"><span style="font-family: arial;"><span class="s2"></span><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">Quite a lot happened on all 3 fronts.<b><br /></b></span><h2><b><u><span style="font-family: arial; font-size: medium;">Purpose 1 : Good relations with Family & Friend & contribute to their lives</span></u></b></h2><div><b><u><span style="font-family: arial;">Goals: High level of family/wife/friend time. Share more learnings with kids.</span></u></b></div><div><b><u><span style="font-family: arial;"><br /></span></u></b></div></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">Oldest son enlisted in April. 2nd son had A levels, 3rd son entered Sec 1 and 4th son entered P1. All major life events for kids. So this year, wife & I had hands full ensuring all 4 get the right attention and help when they needed it. Its very hard to do it all well. We tried to have family bonding time by singing Karaoke at home, having staycations during March and Dec holidays and family dinners daily where we discuss topics or share our day. But as the kids get older, they become adults and we just have to hope we did enough right for them to be happy, fulfilled and useful people. </span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">Dad turned 80 in Dec and the great news is that i am now staying with him for a couple of months this year while waiting for new place. Got a new place as we need a larger space for 4 fast growing kids and we ourselves need more space. Definitely consequence of Covid. It has been fun watching Dad go about his daily life these few weeks. A good role model on aging actively. </span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">As for Ning, we are closer than ever with so much more time to spend together. We celebrated our 20 year anniversary so busy with moving house that all our plans of a photoshoot or travel or even staycation took a back seat. Hopefully can make it up in 2022. I must say finding a life partner that grows alongside you is super critical to happiness and achievement. I am very happy to have found one and I hope she feels the same way about me too.</span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span style="color: #454545;">As for friends, time with them really fell this year with all the restrictions happening. A lot of meetings for forum/peer groups happened on zoom, old school friends met opportunistically whenever we could meet in groups of 5 or 8. Even managed to attend a wedding for a relative. But these in person social events were far and few between. </span></span></div><div class="p2" style="background-color: white; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span style="color: #454545;"><br /></span></span></div><div class="p2" style="background-color: white; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span style="color: #454545;">So while i can say i managed to continue on family bonding, friendships took a big backseat this year. Hope to remedy that this year with more socializing when allowed.</span></span></div><div class="p3" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal; min-height: 25.1px;"><h2><b><u><span style="font-family: arial; font-size: medium;">Purposes 2 : Be Healthy Mind and Body</span></u></b></h2><div><b><u><span style="font-family: arial;">GOALS: Keep lean, weight below 70kg. Control mood better through exercise and mindfulness.</span></u></b></div><div><span style="font-family: arial;"><br /></span></div></div><div class="p3" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal; min-height: 25.1px;"><span style="font-family: arial;">Managed to keep to a regular exercise routine of 4-5 times a week. Weight hover 68-70kg. Mostly jogging, yoga with more swimming compared to 2020. In fact, i found myself heading out to the beach almost weekly at one stage. And i would spend a good 3-4 hrs there just chilling and swimming. Singapore has one or two nice beaches still with decently clear waters on some days. Interestingly, the beaches are mostly empty though Dempsey is always full during this WFH period. Don’t make sense to me but I am not complaining.</span></div><div class="p3" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal; min-height: 25.1px;"><br /></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><h2><b><u><span style="font-family: arial; font-size: medium;">Purpose 3 :Portfolio mgmt & Work role in Society</span></u></b></h2><div><b><u><span style="font-family: arial;">Goals: min 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.</span></u></b></div><span style="font-family: arial;"><br /><b><u>Portfolio Work</u></b><br /><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">Its very strange that COVID has resulted in one of the best years portfolio wise. Portfolio overall went up by a record high teens return with PE fueling most of the gains followed by the public equity markets. The market is fueled by huge liquidity and low interest rates. I am not sure how long this party can last but my gut says its reaching the end soon. There is already a clear rotation in the public markets where loss making growth is being sold down in favour of financials and value stocks. China tech is our sole detractor this year losing a good chunk due to the crackdown on BABA and like. We are holding but not adding. We are also mindful that PE gains esp startup gains can be ephemeral and may disappear overnight. So we always keep them at book value.</span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span style="color: #454545;">I am still very much focused on compounding over the years at a good rate. One good practice is that Ning & I sit down monthly to discuss portfolio like a business and we make decisions jointly that are split up for execution. This formalization of activity reduces stupid decisions when investing and also fosters accountability. We are also mindful that the more systematic we get, the easier it will be to involve more family members down the road. </span></span></div><div class="p2" style="background-color: white; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span style="color: #454545;"><br /></span></span></div><div class="p2" style="background-color: white; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span style="color: #454545;">The other confirmation/takeaway i have is that the capitalistic system is really very unfair and it reminds me that those who benefit really must try to do more to be generous and fair minded to everyone. This global pandemic has greatly enriched people who invest in stocks and private equity. Since 2018 to now, an investor in S&P500 would have almost doubled their money! So while some workers have to rely on govt help to tide through the pandemic, many others have made much more money just by owning shares. From this angle, China's push for common prosperity as a resource allocation philosophy is not wrong at all. </span></span></div><div class="p2" style="background-color: white; font-stretch: normal; line-height: normal;"><br /></div><div class="p2" style="background-color: white; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span style="color: #454545;"><br /></span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span class="s2"><b><u>Startup/AngelCentral Work</u></b> </span><br /><span class="s2"><br /></span><span class="s2">Angel portfolio side now at 41 startups in total. We invested in 6 more startups this year and a few of our startups had large uprounds. Likewise, the very tech heavy VC and PE funds we invested in also had large writeups. Combined, our PE side was up 20+% on mark to market basis. The only exception remains the L Capital Fund which has continued to write down. Really the saying that a dog will stay a dog holds true in this case. We also had a startup in the travel space that continues to be badly hit by COVID. <a href="http://limdershing.blogspot.com/2022/01/startup-portfolio-report-for-2021.html?m=1">See analysis of startup portfolio for 2021</a>.</span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span class="s2"><br /></span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span><span class="s2">On AngelCentral side, under Ning leadership, we continued to grow and carried on with our mission of building effective angels in ASEAN. As an angel club, we funded another 5-6M into various startups and successfully helped them form 6 new syndicates. What is heartening is that we also see other syndicates and angel groups being formed. While on one level it is competition, on another level it bodes well for our ecosystem to have more activity and validates that what we do is useful. </span></span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span class="s2"><b><u>Volunteer Work</u></b></span><br /><span class="s2"><br /></span><span class="s2">Continued volunteering with ITE, PEP and SWCDC. I don't believe in constantly seeking new titles and roles to do. I believe real value get created when one sticks to a commitment and role. Having said that, I may find a new commitment this year to do more for. Also need to catch up on charity giving since we want to give away 2% of profits/income made over time. </span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span class="s2"><br /></span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"> </span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">In Summary, my goal for 2022 is much more of the good stuff of 2021, but with an added dimension of going back to traveling. Aim is to have a short trip in 1Q. hope it works out! Not promising no thanks to omicron rise…</span></div></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-70111760669766947912021-04-13T21:11:00.008-07:002021-04-14T06:21:59.577-07:00Lessons from a $1+M write down of a startup investment<p>Frequent readers, friends who know us or fellow members of AngelCentral will know that Shao Ning & I are careful risk takers. We are deliberate and methodical when Angel investing and we also have parameters and systems set up for all our investments so that we achieve the right risk reward for us. </p><p>Recently, we had to write down an angel investment that was on paper a multi-bagger and which was worth >$1M if we sold it. Please don't ask us which startup as its not professional to reveal. The entire area which this startup operates obviously was badly hit by covid.</p><p>Anyway, the point of this post is not to gripe about the painful paper loss, rather it is to share that this setback actually validates what we have been teaching and practicing for angel investing. </p><p>So here is what this experience has validated for us:</p><p>1) Bite sizing matters. </p><p>We have a cap of about $200K per startup and have increasingly standardized first and follow on bite sizes. By not being greedy and following round after round on winners, we prevent any overly painful loss when there is a need to write down. Of course the bite must still hurt if lost but it should never kill you. The only time you invest all in for something is when its your startup.</p><p>2) Diversification matters. </p><p>We set a goal of 4-6 startups a year with a target of 25 every 5-6 years. Each set of 25 can be viewed like a VC portfolio and we hope for 1-2 big winners that pay for everything and account for the 3X return after 10 years. During the holding period, some will grow and die. But our thesis is to never sell until the founder sells. This last point does merit further debate since technically portfolio returns can be even better if we sold out and realized the 1+M profit. But then what if this is the startup that goes on to grow 5X or 10X from here?</p><p>On a broader portfolio level, diversification also means don't overinvest in any one asset class. Startup investing whether as an Angel or via VCs should not exceed 10% of what you have. If you are super on, then not more than 25%. And if you have a lot sitting in startups, please invest in blue chips, property, bonds and other much safer instruments for the rest of your portfolio. </p><p>3) Put it at book value always. </p><p>This is something quite different from others that we practice. So while we have to mark to market so that we can compare with VCs and also use for workshops, we actually always put the value of the startup in our overall portfolio spreadsheets at the value we invested in. We even write down if we know realistically not doing well and may die. We only write up if realized. This practice really showed its value this time as we did not have to really write down our portfolio value by 1+M, rather we just wrote down the value invested which is quite small. So psychology wise, this book value recording for startup investments helps keep us grounded and also ensures our leverage use is always based off conservative asset numbers.</p><p>And for completeness sake, we updated our angel portfolio to reflect this writedown and now our IRR since 2015 for the 31 startups we directly invested in is now 35% with a 2.4 TVPI. Still good for us as it matches top quartile VC and within our projected return goals.</p><p>Hope this is a useful read for fellow angel investors.</p><p><br /></p><p><br /></p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-75678049115118851532021-02-09T20:54:00.003-08:002021-02-09T20:54:57.273-08:00Temasek under new CEO.<p> Temasek is getting a new leader to help grow our SG champions and invest strategically worldwide on the PE side. Let’s hope the new Mgmt shakes things up on the governance focused boards and also replace ceo who fail to deliver much faster and actually deliver on the next gen of SG Champions.</p><p><br /></p><p>Temasek under mdm had a mixed performance in my opinion. Total shareholder return of 6% last 20 years. I think this compares badly against top quartile PE Fund blended with S&P or ACWI 60/40.</p><p><br /></p><p>First half of tenure from 2004 to 2010/11 great performance riding the Sg/asia/oil&gas boom. Credit must be given. But 2nd half from 2012 to now, bad. </p><p><br /></p><p>Mainly caused by TLC portfolio not growing well. Just look at Singtel, our TLC industrials, Mediacorp/SPH, SIA etc only capitaland, dbs are fine. As major shareholder, much should have been done to take board and Mgmt to task.</p><p><br /></p><p>The other major contributor to relatively poor last 9-10 years is missing investing in strategic champions where we invest at PE stage (0.5b-2b) and which realize big gains when listed and they really scale. Obvious example will be SEA and to lesser extent Razer. </p><p><br /></p><p>Moving forward I hope to see :</p><p><br /></p><p>- Boards role include more of add business value</p><p>- Mgmt and board that are removed faster if not performing</p><p>- benchmarking to top PE funds with talent to run like top PE fund managers for the non TLC side of portfolio. This means picking new winners better and also helping them more. </p><p>-invest bigger chunks and drop the small size cheques. Or set up new entity with talent to do the smallish ones. And then make sure they get the bigger cheques based on the initial stake so that we own 10-30% of these giants ultimately and can really build the next gen of Sg champions with govt/people ownership.</p><p><br /></p><p>This last point i think miss out right now. There are unicorns being created now with small Temasek indirect stakes via VCs and heliconia. But we somehow have not been able to follow on the later big rounds. Eg patsnap, ninjavan...</p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-13909449338509002662021-01-19T21:04:00.008-08:002021-01-21T00:01:58.622-08:00Startup Portfolio Report for 2020 - Impact of COVID<p>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). </p><p>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.</p><p>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.</p><p>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 :</p><p>- 3 in bad trouble revenue <50% with 1 in process of closing down. </p><p>- 5 experienced flat to moderately negative performance </p><p>Above 2 categories obviously are operating in industries directly affected like travel, hospitality, office services, advertising, construction. </p><p>- 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.</p><p>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. </p><p>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%.</p><p>Most gains unrealized of course so while far exceeding a 4-5% unlevered return on shophouse, we are mindful of the volatility and risk. </p><p>Some learnings we have for fellow angels/investors.</p><p>- Diversification of portfolio really matters. Imagine if we invested in a pureplay travel VC or if we had heavy travel weightage in overall portfolio.</p><p>- 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.</p><p>- 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.</p><p>- 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. </p><p>- 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. </p><p>- 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.</p><p>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.</p><p>nb : if anyone is keen on <a href="https://www.angelcentral.co/events/workshops">how we do angel investing</a>, we are running our first class for the year on 23rd Jan 9am-12noon.</p><p><br /></p><p> </p><p> </p><p><br /></p><p><br /></p><p><br /></p>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0tag:blogger.com,1999:blog-2411690922359603798.post-51518151264092993942021-01-14T23:56:00.011-08:002021-01-21T06:31:14.068-08:00Purposeful Life - 2020 in Review<span style="font-family: arial;">This year was a tough year due to many many adjustments for COVID. But in terms of<a href="http://limdershing.blogspot.com/2019/12/on-purpose-2019-in-review.html"> purpose and the philosophical breakthrough i had in 2019</a>, 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.</span><div><span style="font-family: arial;"><br /></span></div><div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">To recap, below is what i came up with in the period from 2014 (retirement) to 2020.</span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">Purpose 1 - help and be there for family. Extend to friends if i can.</span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">Purpose 2 - be as healthy as I can</span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">Purpose 3 - Be a good custodian of wealth and knowledge. help grow startup ecosystem via angel investing & AngelCentral. <span class="Apple-converted-space"> </span>Contribute to broader society as volunteer.</span></span></div><div class="p3" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal; min-height: 25.1px;"><span style="font-family: arial;"><span class="s2"></span><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span class="s2">From the above, I generate goals and results as posted before. Below is an update.</span><br /><b><br /></b></span><h2 style="text-align: left;"><b><u><span style="font-family: arial; font-size: medium;">Purposes 1 : Good relations with Family & Friend & contribute to their lives</span></u></b></h2><div><b><u><span style="font-family: arial;">Goals: High level of family/wife/friend time. Share more learnings with kids.</span></u></b></div><div><b><u><span style="font-family: arial;"><br /></span></u></b></div></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">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. </span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">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. </span></div><div class="p3" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal; min-height: 25.1px;"><span style="font-family: arial;"><br /></span><h2 style="text-align: left;"><b><u><span style="font-family: arial; font-size: medium;">Purposes 2 : Be Healthy Mind and Body</span></u></b></h2><div><b><u><span style="font-family: arial;">GOALS: Keep lean, weight below 70kg. Pick up more outdoor sport. Control mood even better through exercise and mindfulness.</span></u></b></div><div><span style="font-family: arial;"><br /></span></div></div><div class="p3" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal; min-height: 25.1px;"><span style="font-family: arial;">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.</span></div><div class="p3" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal; min-height: 25.1px;"><span style="font-family: arial;"><br /></span></div><div class="p3" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal; min-height: 25.1px;"><span style="font-family: arial;">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.</span></div><div class="p3" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal; min-height: 25.1px;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><h2 style="text-align: left;"><b><u><span style="font-family: arial; font-size: medium;">Purpose 3 :Portfolio mgmt & Work role in Society</span></u></b></h2><div><b><u><span style="font-family: arial;">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.</span></u></b></div><span style="font-family: arial;"><br /><b><u>Portfolio Work</u></b><br /><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">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.</span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;"><br /></span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">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. </span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;"><br /></span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span class="s2"><span style="font-family: arial;">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!</span></span></div><div class="p3" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal; min-height: 25.1px;"><span style="font-family: arial;"><span class="s2"></span><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">So next few months, will be spending time with Ning re-planning asset allocation and modeling returns and cash flow. </span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span class="s2"><b><u>Startup/AngelCentral Work</u></b> </span><br /><span class="s2"><br /></span><span class="s2">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.</span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">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. <a href="http://limdershing.blogspot.com/2021/01/startup-portfolio-report-for-2020.html?m=1">Deeper analysis here</a>.</span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">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. </span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">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.</span></div><div><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span><span class="s2">On AngelCentral side, w</span></span><span>hen COVID hit, Shao Ning reacted quickly and ran experience sharing sessions for AC/own startups. We also <a href="http://limdershing.blogspot.com/2020/04/step-to-take-now-to-prepare-for.html">offered our experience </a>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. </span></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">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. </span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><span class="s2"><b><u>Volunteer Work</u></b></span><br /><span class="s2"><br /></span><span class="s2">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</span>. Ning & I donated 10K and the campaign raised over 200K (with dollar for dollar matching by govt) for this purpose. </span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">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. </span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"> </span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;">Hope 2021 is a much better year for everyone and that we can finally put COVID behind us and travel again!</span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><span style="font-family: arial;"><br /></span></div></div><div class="p2" style="background-color: white; color: #454545; font-stretch: normal; line-height: normal;"><br /></div>Lim Der Shinghttp://www.blogger.com/profile/09700776787052519194noreply@blogger.com0