Analysis on Zopim acquistion by Zendesk

This deal is a great validation that it is possible to build a globally relevant business out of Singapore. I first encountered Zopim a few years ago and got JobsCentral to use their voice chat SAAS solution. They have a very simple and effective product and sold it on a freemium model which works great. I started hearing more about them and it is wonderful to know that they have negotiated a fair exit for themselves and shareholders. Here are some details and comments. For once, tech blogs have covered them pretty well :

http://www.techinasia.com/singapores-zopim-acquired-zendesk/

1) Revenue based on ACRA ending Mar 2013 is 1.8M in revenue as recognized properly. PBT is 362K. So it is quite safe to assume a continued 100+% growth rate and project revenue ending Mar 2014 is about min 3.5 to 4M with profit of at least 700K to 1M. My guess is closer to 1M since there is great economies of scale for SAAS.

Share table as shared by techinasia is accurate.

2) I particularly like this story because i know SAAS is the current highly valued wave. Zendesk is probably going to IPO at min 10 times sales of 73 or about 700-800M. They may even be able to do 1B IPO. So for players in the SAAS space, this is the best time to raise and to exit partially or fully. Zopim is also great because they are profitable.

3) Some have commented that exiting for 15.9M + 13.9M earnout is a little early since clearly Zopim is growing nicely and is profitable. So founders have time. I somewhat agree but i always feel outsiders do not know all the details and feelings which founders have. And anyway once the deal is done, founders should be happy with their decision. So ignore your detractors Royston and gang and enjoy the new found freedom.

Moveover, looking at the structure of the deal, Zopim is being valued 37M SGD. That is probably 10 times multiple to their revenue. Very fair as that is the IPO valuation likely for Zendesk. Of course, the devil is in the details of earnout.  This one only founders and zendesk will know. My guess is that is a proportionate tied to revenue/EBITDA mix and the 13.9M is the cap performance.

10 times sales is actually a very high valuation which currently only biotech and SAAS tech companies are given. But it is not the record for Singapore. That is held by the hungrygowhere guys who sold for about 12 times sales although a smaller total value.

4) The earnout structure of about 50+% first in cash and stock and later the rest over 2-3 years will allow mgmt team to ride the upside both in their business and also in the overall market valuation of SAAS companies. If the market values Zendesk highly in the next 2-3 years, mgmt may find that their 15-20M in stock could double or triple in value. So from this angle, i think mgmt did not sell early but rather is betting on being part of a bigger entity as a route to get better valuation for Zopim.

All in all a very nice deal. And i think as there are more exits that earn the founders 5,10,15M or more, there is room for an article next on how to handle a entrepreneurship linked windfall. The story and learning just started.... Stay tuned.

Towards Better Tech Reporting Standards?

(Added 11th April : This is an example of much better reporting :
http://techcrunch.com/2014/04/10/zendesk-buys-zopim-will-add-its-live-chat-platform-to-its-cloud-based-helpdesk-solution/

Details given on S1 filing by zendesk to ascertain what was missing in press release. And to techinasia credit, they managed to get hold of share table and P&L for year ending Mar 2013 for zopim to put more flesh into the deal.

http://www.techinasia.com/singapores-zopim-acquired-zendesk/)

My last post on Grabtaxi was triggered because i read a techblog that stated they raised 10M for a Series A round. This number just felt wrong, because by definition Series A does not go to 10M USD. When i did some digging, this number was repeated it seems, simply because another blog said so and there is an e27 and SPH article where the founder was quoted as saying it is "8 digits". Based on acra share allotment report , it is about US$5M and about US$3M in most recent round lodged early march 2014. More importantly and the part where readers can learn from is that the funding was done mainly via family funds which is a great way to do it for 2nd gen. Below are some of the articles by popular tech blogs I refer to:

http://www.techinasia.com/grabtaxi-nets-funding-10-million-transportation-apps-sweep-asia/

(Made reference to this link below from TNW that just blindly said 10M)

http://thenextweb.com/asia/2014/04/08/grabtaxi-is-growing-a-taxi-booking-service-in-southeast-asia-using-a-unique-model/

To be fair to techinasia, they  quoted and attributed to the TNW. And below is an article by e27.
http://e27.co/grabtaxi-announces-8-figure-sum-funding-singapores-vertex-venture-holdings/

Again they repeat the 8 digit funding comment and this time attribute the quote to the founder Anthony. They also claim they are sure they heard it right. Can this be right? Or was he misquoted? There is really no way for us to know. But the ACRA reports on GrabTaxi holdings say the funding is not 10M. Of course it could be in tranches which have yet to be realized or injections into other companies not mentioned.

Even SPH has quoted Anthony saying 8 digit. Maybe he meant in RM.. Either that or future tranches... Anyway the key learning here for us is the use of family funding bargaining power not so much whether 8 digit or not.

One comment for tech writers and journalists, there is a reponsibilty to readers to get our facts right and to try to think deeper into the topic. And if we are speculating, we should say so. And we should always aim to uncover the details and if possible learning. BTW, tech blogs are definitely not the only ones guilty of this. There is still a SPH story about Beeconomics being sold for 24M back in 2009!

http://business.asiaone.com/news/brothers-remain-humble-after-groupon-buys-their-start

A simple ACRA search would have told the journalist that Groupon invested in beeconomic 2.6M if i remember correctly. Then Karl and brother had 2-3 years to really grow the business to desired metric and they got paid nicely each year in the form of an earnout for doing such a great job with Groupon SG. I am sure the Groupsmore people MY had the same deal.

There probably are many more such lapses. For example :

http://e27.sg/2012/06/07/breaking-propertyguru-secures-s60million-strategic-investment-from-immobilienscout24-for-further-regional-expansions

Its not 60M injected into company for sure. If there are tech writers reading this, I hope you will do more indepth forensic work and get hold of their ACRA report for allotment of shares and p&l etc

In summary, our community needs to start getting our numbers right! Not only is there a credibility issue, equally important, we owe it to our fellow entrepreneurs and wider business community to report the right numbers so that proper decisions and expectations can happen.

Comments on Grabtaxi funding so far

This story caught my attention for a few reasons. First, i have heard much about Uber and how it has taken USA by storm. When i was in USA late last year, read an article about how Uber is able to price discriminate and set prices that reflect real time demand. Economic theory put into action finally!

Second is that i read about Grabtaxi a while back. Founder is the son of Tan Chong Motor family fame.
Anthony Tan, studied in harvard and started app in 2012 in Malaysia with about 500K USD funded entirely by family. Makes a lot of sense as it leverages on both the resources and equally important the network that the family already has in malaysia. Without knowing Anthony personally, i think this is a great model for 2nd generation to follow if they are keen in technology. Leverage on family business knowhow and tech to disrupt a space. Funding is a less an issue and they can do what i advocate which is to fund out angel round themselves.

Now they just raised more money from vertex. Previous round was also funded by vertex. Now some will ask why not just fund it all themselves? I think bringing on board a VC is a smart move. It forces discipline onto the company and founder and will also lend more credibility for subsequent rounds or acquisitions. And in this case, it also helps give them a good valuation benchmark to work on for future deals.

From what i can see, the number raised is not 10M as some tech news blog has mentioned but rather, this round is a further 3M USD raised which is far more consistent to a Series A round. I really wish our reporters can get their facts right before publishing. It distorts the industry unnecessarily and the company and founder usually will not want to or cannot (due to NDA) comment and such matters.To set record straight, it seems that the company Grabtaxi Holdings pl has raised 5.281M USD to date where Anthony and Family have funded the seed round of 518K and a further 4.7M USD from investors which includes themselves. Of this 4.7M, 20% came from vertex. So to date, Vertex has invested about 1M in GrabTaxi. The rest is all family money.

Based on above, it also means GrabTaxi is being valued at US$12-13M (using latest round 15+ per share x 800K+ shares) USD based on this April round. Of course, some may argue since founders self funded 80% of this round, this valuation is not accurate. I dunno, but at least Vertex agreed to it...

My guess is that most likely, family just wants a VC for credibility and discipline and connections but is unwilling to give up too much at this early stage. This is a UHNWI family based in Malaysia so while investing US$4M sounds like a lot, it probably is something they can afford to take risk with and aim for a much later exit.

Of course, i think their revenues are probably neligible at this stage. So looks like the ball is squarely in Anthony;s court now. I am rooting for them so succeed as a local ASEAN company as opposed to Rocket or Uber!

NB: So where did that 10M investment figure come from? That is the topic of my next post. Straits times and e27 quoted Anthony as saying it is 10m. I guess if in RM it is correct. Or maybe there are more tranches coming.

NB : to be rigorous, there is a myteksi sdn bhd which is a malaysian entity which Anthony and family funded 600K RM. Logically, this entity should be owned 100% by the SG holding company which Vertex invested in. However, i am unable to verify this since malaysian ACRA is slower and share updates are shown only 1 full year later.

Entrepreneurs beware of DIY Investing!

I have  people who ask me this question. They think that because i started a business, sold it and because i make private investments that there is something special or unique about how i invest my assets. Let me be the first to say that the traits required to be a good investor are very different from those that entrepreneurs have. And i think i am still learning from the market and about myself all the time.

By default, entrepreneurs are high risk takers who control the risk by knowing everything there is to know about their business and industry. We deep dive into every aspect of our work so that we are able to control risk and maximize our returns. Even when our business has grown a lot, we continue to invest more into it and take further risk by going overseas or into adjacent markets. Frequently, the company we own is most of our net worth.

Furthermore, Entrepreneurs are also highly passionate people and you will hear many successful ones who advocate a combination of gut and metrics to make major decisions.

Good investors on the other hand, diversify. They minimize risk by not concentrating in one area and by proper portfolio allocation. And it is also humanly impossible for them to know with any depth any particular industry which they are invested in. They frequently outsource and use professional managers to help manage their money. Decisions are made based on numerical allocations and frequently a fixed methodology for deciding when to buy or sell. Investors who employ their gut tend not to do well. 

My personal experience is that the above descriptions are totally true and one can lose a fair sum of money if one does not understand the very different traits required. I lost close S$100K or 100% of portfolio during the 2000 dot com crash because i had over-concentrated my positions in technology stocks. Then more recently in 2010, i experimented with options without clear knowledge of how volatile they can be and lost another S$100K on these simply because i could not cut my losses and applied the dogged perseverance entrepreneurship trait to options!

From the above lessons, i learned that it is best for me and perhaps for entrepreneurs like me to stick to passive portfolio decisions and outsource the active selection decisions to good fund managers. 

What this means is that we should make the decision on how much to keep in cash, how much to invest in stocks, fixed income and properties. But when it comes to the actual stock or fixed income picks, either buy ETFs which mirror the market or buy a few different mutual funds. Use dollar cost averaging strategies if we get more cash and rebalance the portfolio periodically every 3 to 6 months. 

If the urge to take risk or to make decisions is too strong and if we have an interest in trading, then set aside a small percentage of assets - say 5% to make speculative trades on equities, options or bonds. The above philosophy has worked well for me and i hope it will work readers too. 

How to think about Revenues and Costs in a startup

Over the years, i have been both running internet business and investing in internet businesses. In both cases, management will always have a profit and loss projection for the year. I have seen enough internet P&Ls and tracked enough such P&Ls that i have come to some conclusions for our region. Here are 2 major  :

1) Revenue projections are almost always optimistic.

I have must seen and helped or tracked more than 100 internet businesses by now based in SG and MY. Of these, only a handful have revenue projections that are largely achieved. And these are usually achieved due to market conditions being extremely favourable. A good example is Groupon SG and MY which rode the adoption of ecommerce in a big way. Or job portals and property portals which rode the economic growth and property market growth. Of course execution matters equally too. Usually companies that achieve their projections are those who executed very well on a day to day sales and operations basis and which are also aided by market trends which added wind to their sails.

What about the rest? Most of the other startups fall short of their projections. A common mistake is to assume a certain conversion rate for platform plays without taking into account that as one scales up, the conversion rates could change for the worse. For sales team plays, a common mistake is to assume scalability of sales staff without taking into account the fact that it takes time to train up a sales staff and that attrition for corporate sales startups is pretty high. Also sales management is not something easy to get right from the start.

Another common mistake is to assume revenue from new markets based on old market assumptions. I have seen many business plans where SG makes X revenue and the assumption is to grow MY and ID at the same pace as SG. This is quite dangerous. Many reasons. One is that core team that made it work is still in SG and not the new country. Another reason is that SG core assumptions are significantly different from new market. Another close parallel of this is assuming in your projection that you can sell a complementary  product as easily as your core. For example, an ecommerce company thinking that it can branch out and sell to the same clients advertising media.

2) Costs are usually at projections or worse above projections.

On the other side of the income statement, most startups manage to spend what they say they will spend. Unfortunately, when coupled with (1), this means many startups fail to hit their EBITDA goals. While not damning if they are growing fast enough, some startups do get caught and run out of cash.

Implications of the above 2 observations.

If the above 2 are usually correct, then it means that startups should always have a ultra conservative plan which requires them to project revenue at the worst case scenario and then spend at the worst case scenario. And be reactive enough so that if revenue comes in as expected, then ramp up the cost to match it. But never let cost ramp up in anticipation of revenue.

Now i know some people will say that is extremely conservative and startups that practise what i just suggested probably cant scale up super fast. Also, some people may also wonder how such a startup will get funded. I have 2 answers for this.

First, use your average to optimistic scenario for fund raising but use your conservative one once you get funding. This will solve your funding valuation issue and investors usually dont mind if the entrepreneur is more careful with their money.

Second, it really depends on market adoption or revenue growth. If market are growing like crazy (read over 100% per year), then yes, by all means ramp up the costs. But if market is still those that require you to educate clients (like job portals during the 2000-2003 days)... then perhaps it makes sense to pace costs to revenues.

Feel free to comment!

Last of the ASEAN job portals exit, A New Era Commences

AMENDMENT : Read more about the deal. Jobstreet bought all minority stakes in PH, VN and ID before selling the entire 100% entities to SEEK.  Valuation ranges from 3+ to 8 times sales. Depends on market dominance and EBITDA margins i guess. Anyway good deal for everyone but it means my numbers below for key founders need to drop by about 7-8%. 

Also Seek has a clause to keep Suresh as employee. Wonder how that discussion went. With about 20M USD, Suresh can easily go retire too. Wonder how he will feel running a company that he no longer has a stake in. Maybe he is viewing the overall Asia job and compete with Adrian who is running JobsDB from HK.... even then, at most they pay 1M a year......about same as what his portfolio can return.....


Disclaimer : I am currently still working as a Regional MD with CareerBuilder which acquired JobsCentral back in 2011.

In today’s world of social media, big data, ecommerce and mobile plays, job portals sometimes feel pretty old school as they have been around since 1997 in this region.  However, looking back at this industry’s history, I find it is a good case study of how a disruptive technology grows in a blue ocean and how widespread adoption of the a business model changes the growth and expansion dynamics of the business.

The news of the week is that the last of my competitors – JobStreet has been sold  for about US$520M to SEEK and at a valuation of about 21.6 times EBITDA for 2013 and 10 times sales.  This is a fair valuation as it is 15-20% better to what SEEK paid for JobsDB just 2 years ago. This is a function of market bullishness now rather than anything else. Business wise, the merger makes sense since the JobsDB and Jobstreet business do not overlap much except in Singapore. Someone did ask me why pay 10 times sales for a relatively matured business. I would say that it is not so much 10 times sales but rather paying 21.6 times EBITDA. Jobstreet has a very enviable 40+% EBITDA margin and shown over the last 5-6 years that they can maintain that kind of profitability level. The worse they did was about 30% back in the GFC.

I have much respect for Chairman/CEO and main shareholder Mr Mark Chang who has a 9.9% stake in the company and who now gets to pocket about S$66M for a good job done over 15 years.  I respect him for his ability to manage costs well, share his capital gains with fellow management and to patiently plug at building the business so that it reaches it's current scale. His fellow management team will get a good exit that will allow them to retire if they want. Albert- CTO owns about the same as Mark, Suresh – COO about 3.9% and Greg – CFO about 2.7%. They are all on average 48 years old and up.  His institutional investors too must be very happy with this exit as one year ago their listed valuation on Bursa was only half what SEEK is paying now.

If I have to speculate why they decided to sell when it seems they still have a good 10 to 15 years to work if they wanted, I would say it is a function of things.

First, SEEK has been a major shareholder owning about 20+% of Jobstreet. This would have been fine until SEEK acquired majority of JobsDB. One can imagine how awkward their board of director meetings must have been.

Second, winds of change are coming to this industry. Job Portals in the USA are being challenged by social media players like LinkedIn and HR is exploring owning their own career sites and taking more charge of their own recruitment and branding. As such,  job portals are increasingly challenged to develop more products and services that go beyond the core portal platform to better address and take advantage of these new trends.

Third, globally job portals are consolidating with now about 6 players worldwide who are worth over 1B USD. Jobstreet as a middle sized player in the region will find it increasingly challenging to keep up technologically with the global players.

So what next? Job Portals are a formidable business. In the region, they are worth over S$200M in annual sales and make EBITDA of about 25-35%. This makes job portals probably the most profitable of internet companies in the past 5 years. And they are really an ASEAN industry with multimillion dollar market sizes in SG, MY, VN, TH, PH and ID. 

They have tons of valuable data on employment and candidates, have large reach into HR community and have the technological and marketing resources to bring them all together. It will be interesting to see how these global players morph themselves in the years ahead.  But one thing i know for sure, don't write them off! 

When to raise outside capital & what kind of dilution is ok.

Have been talking to quite a few entrepreneurs lately and i realize that many have very mixed views (rightly so) about raising capital from (semi)/ professional investors. Some also never seem to have thought about dilution and seem to have an almost ambivalent attitude about ownership.

So i thought i will pen down my thoughts on these issues both as an entrepreneur who tried to raise money before and as an investor in startups. DISCLAIMER : REGIONAL CONTEXT ONLY.

There is actually only 1 good reason why a tech startup raises money.

Company needs the cash to grow in SG or to expand into overseas markets which current organic cash flow projections cannot meet. Growing can be by organic or acquisition route. Usually your 5 or 3 or 2 year P&L projection shows great revenue growth but you need to spend money to get there and you are negative cashflow for a good period. Then you need funding to tide all that negative cashflow and then some. The extra is buffer.

So if you find that you are in the lucky situation where you are already profitable and cashflow positive. And you actually do not have a burning vision that you cannot execute due to lack of money, then perhaps you should not be fund raising. Even though usually, this is when VCs and investors and brokers will bug you the most to raise. They will tell you stuff like money in the bank is king, having a buffer is always good, you never know, how much network and strategic help they can give etc etc.

They are not wrong. But you need to weigh that against the distraction of fund raising, the distraction of dealing with investors, the value of network and also whether you actually need the money. I have known of at least 2 big internet companies who raised 800K and 1+M each and they actually almost did not touch the money at all until exit!

To be fair, I am not including the strategic help which a good investor can offer and that is valuable. This cannot be underestimated and i think if you find an investor who really helps and cares, then the story is different.  For these cases, i have seen people do convertible notes so that valuation is higher later or just raise less money. You still get the help and network but dilute less.

How about dilution? How much is too much or too little for our tech space today?

It really depends on each entrepreneurs goal. But by and large, most entrepreneurs are highly competitive people who benchmark a lot. I think they also want to win and there are many measures of winning. It can be to control the biggest company by revenue or profit or user traffic etc. It can also be a combination of those factors.

1) My first non-contentious observation in SG is that it will be best to bootstrap and skip the angel round. Lets say we have a 2-3 founder team. They run through  100K to build their prototype and a further 50K to market the prototype and raise money. At this stage they still own 100% of the company.

So they raise the Seed round to hire a few pax, market more, build out software more. Lets say they raise 500K at 1.5M premoney. So now, the founders own 75% of the company. With this 500K, they build out SG and after another 1 year want to expand overseas and drive to SG profitability. Now in SG, it is usually a 1.5 to 2.5M raise. So lets say 2M raised at premoney 8M, now founders are down to 60%.

Wait, there is now employee option pool which varies from 5-10% usually paid jointly or out of founder pool. So lets say founders down to 55%.

This is where we depart from USA since our ASEAN market is a lot smaller. With this 2M raised, the tech company needs to grow into exit event.   An exit event can be an IPO or a trade sale. There are some fewer cases of raising Series B to expand even further but most of the SG stories exit already - Hungrygowhere, Tencube, Brandtology, Groupon, Dealguru, sgcarmart, Travelmob, Asian food channel all exited after raising 1-2+M. The only ones i know who raise Series B or equivalent is Propguru and Reebonz. Maybe readers can add.

So back to the optimal stake. At 55% left for founders and average sale value of lets say 20M, that is 11M only for say 3 founders. Or about 3.66M each. Now imagine if this company raised a initial bootstrap round that took out 15%, they are left with 2.7M each for about 6 years work if divided evenly.

2) The 2nd observation i have is a lot more contentious. I have seen many teams where the 2-3 founders share the stake equally. While this feels right at the startup phase, it actually does not make sense. A company will require a CEO and driver. That person performs a role that is more stressful and more impactful than other founder roles. And in startup, pay cannot be used to compensate. So i would argue and indeed prefer configurations where the key leader has a much higher stake and plays a stronger role. So in the case of the 3 founders, maybe 50%, 30%, 20% or even 60/20/20. Of course, the founders should put in capital commensurate to their shareholding and i am all for equal or near equal pay among the 3 to show the solidarity.

On the flip side, i would not advocate any key founder having less than 10% equity from the start. Too little to feel any pain and to be aligned well. And after all the dilution, the person will be left with 5%. Too little for talent for our region. They will end up looking around and asking for near market rate salaries to compensate.

As an investor, one thing good about CEO owning the bulk is that we know even if the shit hits the fan, there is one clear person with the most to lose. And that is good alignment.

iBuy and DealGuru

Edit : I made a mistake in Groupon multiple. Groupon trades at 2.5 times revenue not total sales transacted. Using sales transaction, Groupon trades at 1.4 times at current $12 shareprice of 8B market cap. So Dealguru sale at 50/38 = 1.3 times or so is quite fairly valued. It also means there is no obvious valuation upside for Dealguru holding on the ibuy shares.

This post follows from my post about Patrick Grove's Empire. Earlier this week, got news that iBuy ( a new vehicle which will list on ASX) has entered to buy DealGuru and 2 other deal sites in the region. The deal will form an instant A$70M revenue business and the CEO of the entity will be Patrick Linden from Dealguru.

This is again a good move from Patrick Grove of Catcha Group. He buys these companies via 1/3 cash and 2/3 share swap at 1 times past 12 months revenue and he will unlock value in their respective markets and then the ASX market will accord them a better multiple which will then result in win win for not just Patrick but for the guys who sold the business to him. Take note that Groupon is now valued at 2.5 times revenue past 12 months. So there is an easy 2.5 times capital gain here.

Whats more, because he intends to raise about 33M from IPO investors and probably some bond investors, this means he is using OPM for the combined entity. That is a cool Series B/C done via IPO route again! Really love the guy.

How about the guys who sold and what does it mean for the deal industry or ecommerce industry?

Well, i have only met Patrick Linden a long time ago before he started Dealguru. Came across as intelligent, nice and sharp person. Insead grad i think....

Anyway, he and his partner each own about 18% of the company, so they get S$2.25M cash first and end up owning about 4% of combined entity. I think it is a smart arrangement all ways. That way , they are committed to growing the business and if it grows 2.5 times, then Patrick and partner are looking at real money. For example, at present value, their stake is each worth about $7M give or that. But if share price increases 2.5 fold... then it is a deal worth about S$14M.

But they should take note that they need to replicate what iProperty did and they are up against much stronger players like Groupon, Taobao, Q100 etc. Basically there are so many big and small ecommerce players and deal sites are not focused yet.

So happy for Patrick and partner. And patrick linden has a new challenge to run as CEO with Patrick Grove as chairman. Rebate I guess will be happy since they own 62% and have a successful exit.

As for other deal site clones and other ecommerce players, this deal may not be that great. It offers a new competitor that is listed and regional. And it also values them at 1 time revenue which is quite a lot lower than the Series A rounds where i am hearing valuations of 1.5 to 2.5 or even higher valuations.

Feel free to comment and share!

Patrick Grove's Empire.

Kudos to Patrick Grove again. He is truly a strong deal maker. For readers who do not know Patrick's background. I will cover the iBuy and Dealguru thoughts in another post. But first...

Patrick was from the first dot com boom and started this general portal called Catcha which was meant to be like Yahoo for SEA. They raised money and were all geared up for IPO. But market crashed in April 2000 and they missed the window. What happened next is quite a tough period as Patrick and partners bought out their investors and pivoted the business into an English magazine publisher based in KL. They grew that until some in 2007 or 2008 when he went back into the dot com area with his purchase of iProperty in malaysia and at the same time pushing the malaysian Catcha Media into becoming a reseller for MSN and other digital media properties.

What happened next is what i admire him for.

He somehow managed to string together a bunch of in principle aquisitions and concurrently IPO on ASX the iproperty group. Between 2008 to 2013, the company used Other Peoples Money from IPO, European investors and rights issues to expand regionally with mixed results. iProperty is super successful in Malaysia but has lost out to Propertyguru in SG. Current market valuation is A$355M or about S$400M. iProperty sales is at A$15M last 12 mths with a loss of 1.5M or so. Mostly winning in MY market.

He is a significant shareholder via Catcha Group which owns about 23% of iProperty. He is majority shareholder of Catcha group. So what he did is to structure the initial deal, build up a team of good executives from REA group (top Australian portal) and then get the business to work in this region. 1.5M loss is not a big deal if iProperty can continue to grow and scale. And their losses are reducing. So to outside investors, he has proven his ability to deliver to shareholders so far.

Also to note, this market valuation i am sure has helped Propertyguru get the price they wanted for their deal.  So it is not always a bad thing that your competitors get good deals!

The next thing he did was to list the malaysia Catcha Media at a RM100M valuation. Much lower valuation since the market is KL and also magazine publishing is less sexy. In testament to his deal power, he has recently merged it with Says.com and has gotten the Says guys to try to grow this business well in MY. But i think the lesson is that KL investors value  dot coms a lot less than in Australia. I believe investors right now are still valuing Catcha Media below IPO price.

The next deal he did was last year when he entered the car market but IPO yet another low revenue and profitless firm on ASX leveraging on his success with iProperty. iCarAsia is currently doing what iproperty did 5-6 years ago and trying to build up car portals in SEA. Market cap of A$71M on barely annualized 1.5M revenue!!!! 

Whether iCarAsia can become another iProperty really depends on execution next few years. Will be interesting to watch.

So what he has effectively done is to seed fund privately and do his series A, B,C via the stock market. The ability to IPO at Series A/B round is where his magic is.

Most recently, he created a new company to enter ecommerce space via acquiring key deal sites in 3 countries. Will talk about iBuy in another post.

When to give up

I had a rather disturbing tea session with a passionate startup entrepreneur 1+ months ago. We chatted for about 2 hours and it was revealed that he has basically thrown in everything he has but the kitchen sink in terms of his personal resources and energy. The business has pivoted 2 times and he is hoping that 3rd time lucky this dec. Basically has enough cash for 1+ months of expenses left. Core team has changed a once over last 2+ years. And there is still no traction. He was almost in tears when he shared his experience and that is when i knew he was probably being very honest and perhaps it was a form of release to talk it out too.

Now I usually try my best not to tell people what to do because i believe there are many routes to success and sometimes there is no one size fit all answer for startup decision making. What i like to do is to share what happened to me and situations i know well and let the listening decide if i am relevant in what i am saying.

But in this case, i found myself quite sure he should give up.  Here is my reasoning for when an entrepreneur should give up on a startup, take some time off, get a corporate job, regroup before deciding to startup again maybe 1or more years later.

If one or more of the below fit your circumstance, perhaps you should consider giving up.

1)  KPIs for traction not happening despite 1 or 2 or more pivots. Usually a startup will set usage metrics for each month and key ones for every 3,6, 12 months. If you are not even remotely hitting these metrics (read 50% or more) in spite of spending on marketing and tech to iterate and improve, then perhaps the market is  just not there as you envisage it.

2) Core team leaving in droves or all gone. Worse still, key founding partners change. This is a clear sign that the faith in the vision is gone. It can be due to (1), it can be due to your personal leadership style. Either way, it means you will have more problem getting the business growing. You will be spending time on people hiring, mgmt, on boarding and generally HR firefighting issues.

3) Pivoted more than twice with no results. And duration is more than 2 years. Personally, i would give anything up to 1.5 years for a startup to show some results. Results can be funding, revenue, traffic metrics etc. But i put it as 2 years as some people may be more patient than me.

It is also telling that in our digital space, 2 years is a very long time. eCommerce exploded in the last 2 years, so assumptions made in 2011 and probably being revised and pivoted now in 2013.

I know this can be contentious as there are companies that succeeded only after 2 years. But i think it depends on where you are at in (1), (2). If you are just getting by, some revenue, good team, then you have runway to hang on and try more times.

4) Mental and physical health facing major issues. If you are falling sick all the time, unable to concentrate, cannot sleep well, basically body going to hell and losing your mind, i think it is time to throw in the towel. Entrepreneurship is a great experience but not at the expense of your life. It is very selfish to expect your loved ones to suffer so greatly with you.

Feel free to comment and add on.