Analysis on techinasia fundraising (updated Nov 2017)

TIA has announced another round of 6.6M usd led by korean hanwah investments. I covered their last round led by Softbank back in 2015 when it was announced and it is below. Some observations:

1) Strategically, i got it wrong last time that Tia intends to move into deep analytics. Instead they moved in jobs for startup community. Makes sense and from what i can see in 2016, the 2 year effort into jobs space has yielded some revenue. Not fantastic but a few hundred thousand is credible for a 2 year effort. They did go overseas as expected which perhaps explains rather large losses.

Also, latest comment from press release seems to indicate that analytics and intelligence is still on the cards. Tellingly, events is still by far their biggest component.

2) Performance has been strong since i covered below. I was spot on in terms of revenue in 2015 at S$2-3M. It was actually 2.86M. But i expected them to run a lean outfit and almost break even as media play cannot operate like a Grab or Garena and use massive revenue growth in lieu of losses. That i got wrong, they expanded a lot post SB round and made a widening loss of 2.5M in 2015.

For 2016, revenue grew nicely by 42% to about 4.07M sgd. Losses grew slower to 2.9M.  A good sign but they actually went down to 1.1M in cash end 2016. Hence the need to raise capital this year.

3) Valuations. Latest round values TIA at 24.5M usd. This year probably will be 5-5.5M sgd revenues, so that values them at 6.5-7 times this year revenue. Quite fair number for current climate.

Last round done in 2015 was at 14.2M usd post money. So the current 17.75M usd premoney is actually not a big upround. And i feel it is reflecting the expanding losses and 1.1M cash position of end 2016.

4) Sole founder owns 16.4% of company which i guess is still slightly incentivised though if i have to be blunt, media play, i forsee mgmt will be demanding higher salaries from board as the payout from salaries is now significant compared to stake.  And we can see it from numbers. In 2016, TIA paid CEO/Director fees almost double what was paid in 2014.

Overall comments.

42% growth rate is good but not great. Growth rate will continue to slow down if events is still the biggest piece. Events is not super scalable and niche events even more so. I would pay great attention to cost moving forward. Reason is that while the VC money looks like it is here to stay, as mgmt, i have a duty to make sure my company survives even without much more funding esp since growth rates are slowing down to normal speeds. Of course the 6.6M usd will last quite a good 2-3 years even with slightly expanded costs. So there is much time.

Board will need to figure out how to incentivise mgmt properly as mgmt shareholding is somewhat low.  This is a very real issue i have experienced first hand. Can kill companies if not well managed. Unfortunately, no easy solution, its usually more pay and more stock options for mgmt.

Intelligence and analytics are nice buzzterms but hard to monetize and costly at first. I feel moving deeper into tech jobs and running even more events while watching costs can probably payoff bigger over the short/medium term.

As usual, all this is just my own analysis and thinking. Overall, i think TIA has done a good job expanding in a niche space. Only thing that concerns me from company POV is the cost control and ability to seek good high margin revenues.



Below is the original article written back in 2015 June
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Tia has announced a usd 4.6m round from investors lead by SoftBank on a premoney valuation of usd 9.56m. That's about 13m sgd premoney. Post money will be about 19.2m sgd. this is based on acra data submitted by company 22nd June 2015.

I first encountered Willis back in 2011 ish. Company was still called Penn Olsen. He was asking JobsCentral to sponsor something for their first event. I remember he was a driven , gusty founder. Somewhat green in his expectation of why clients would sponsor but clearly hungry. We did not sponsor as no clear value to us but he left with me a reader of the then blog. 

Over the years, I have seen Tia grow well and become far more professional and under jungle I attended one of their events. They are a great example of a niche media play with online and events revenue streams. In 2013 they did almost sgd1m in revenue, doubling from 2012. Losses were 180k. If we extrapolate that to 2015 and considering their many more events and execution, I would venture a guesstimate of 2-3m probably closer to 3m in 2015. So that mean a deal valuation of 4+ times sales. A fair deal definitely not overpriced. Of course if revenue in 2015 is lower, then the multiple will be higher but a range of 4-6 is probably correct.

To note: they raised $1.3m in 2014 and issued 14009 shares for it valuing the company at s$8+m. So it is a up round and existing vc like fenox continue to participate which is always good. 

Two things stand out to me. Why raise so much for a media company? 6m sgd is quite a fair bit of money. My guess at sgd 3m revenues they are near breakeven or slightly profitable already. So it must be to scale up core/geographically and execute the techlist side of the business which is a saas and analytics platform. 

Second thing that stands out, Willis is a single founder and used to pay himself just 30k in directors fees. He now owns 22.5% of the company post money. If this is true, he has been more than fair to shareholders and dedicated to building the business.

From a fellow entrepreneur perspective, I hope he has/will negotiate a much better package for himself and team in the years ahead as I believe a company which is profitable should be fully loaded with market rate costs and still be profitable. That is a sustainable business esp since the firm is now more owned by investors than management team.

Would be interesting in the years ahead to see how Tia executes esp on the saas/analytics side. It is actually quite hard to transit from a media company to saas (JC and cb are doing it still...) but that is another long topic. Feel free to comment or correct my data. 

How do VC actually work in terms of revenues?

UFor a vc, funding a company is just the first step. It is like hiring a potentially great employee or finding a good business partner. All potential no real revenue. Even subsequent rounds raised at higher valuations are just unrealized gains which can evaporate esp at early rounds. Eg. Vc invest in company at 2m post money. Company raises 1 year later at 8m. Vc will change the net asset value of the company on their books by 4x. But later if firm fails and is written off, all the unrealized gain disappears.

So what is real revenue worth celebrating from a VC point of view? Finding more investors or lp. Each 1m in investments is worth 20-30k in annual mgmt fees for 5-7 years. That's real revenue and the hard vc work happens at pre-start of fund. Then vc work even harder, "hire employees" and then after 3rd year onwards of fund life hope to start exiting companies in trade sale or ipo. This is real cause for celebration as it is the carry revenues that count the most to the partner. Roughly for every 1m in excess of lp capital, vc partners in aggregate earn 200000. 

So a 50m fund in ASEAN, say 2 major partners will earn :

1) 1m per year revenue from Mgmt fee for 7 years. Usually not much profit here after all costs like legal, transport, salaries, compliance, marketing etc

2) 12-15% of the 20% carry at end of fund. So if fund in the end exits 150m. The classic 3x, the 20% carry is 20m. Their 15% is worth 15m. So each take home 7.5m before any tax (10% if concession or 17% normal corp) if equal carry.

Reward is sort of like running a startup for 7-10 years and exiting for 20m. But the risk is lower since there are 20 bets made rather than just 1 concentrated bet.

VC friends, pls feel free to chime in!

My main learning point from Mr Lee Kuan Yew

I feel much sadder than I thought I would at the demise of Singapore's founding father Mr Lee Kuan Yew. I must have shed tears at least 5-6 times in the last few days as I read his speeches and see his life pictures. Not the type of tears one sheds for a loved family member, but tears shed because his was a life worth living and I feel a great sadness that such a well lived meaningful life has to end just like any other life. And as I reflect on what Mr Lee Kuan Yew represents to me, I realize what I learn most from him is that it is possible to dedicate an entire life to a single greater purpose and have no regrets at the end of it.

Mr Lee Kuan Yew was clearly extremely intelligent and eloquent. He also was a natural leader, knowing when to play nice and when to be tough. But there are many other people in the world who are extremely intelligent and who are strong leaders. It is a genetic lottery and there is not much to respect or learn from that. Mr Lee himself believes that over 70% of a person's ability is determined at birth. I totally agree.

What sets aside Mr Lee is his amazing strength of will and alignment of his entire life to the idea of a strong Singapore. The closest approximation to this I have experienced is the way a good entrepreneur sacrifices and obsesses over their business. But we entrepreneurs do this because we own the company and so we tap into our base human nature to love what we possess to drive our obsession.  But Mr Lee is too smart to not know that he does not truly own Singapore but still he consistently chose to subordinate his life towards what he felt was best for Singapore.

And reading all his books and looking at his home and pictures, I can honestly say I don't believe he did it for any monetary reward or creature comfort. His sense of purpose and benchmark for personal achievement is the Singapore story. That explains his now famous quote about giving up his life for Singapore. He had so many chances to take it easy but he never did it. It could be because he has aligned himself so much, he cannot let go even if he wanted to!

So it all boils down to this. That this super intelligent, thoughtful, eloquent, happily married individual can at the end of his life, reflect and say that his life of conviction and service to Singapore is a life worth living and which he has no regrets. This is very unique viewpoint as most people at the end of their lives don't reflect on business or politics but instead wish they travelled more or spent more time with family.

Mr Lee Kuan Yew has shown another path for those who seek purpose in life. It tells me that it is possible for a highly talented man to devote his entire life and talents to a greater non monetary good and be engaged throughout with it as it grows and evolves. And at the end of that life, have no or little regrets.

How much should startup founders be paid?

This is a very sensitive topic which many startup founders grapple with whether they raise capital or not. I am sharing based on personal experience both as a startup founder and also as an investor. I am not saying it works perfectly or is the best. In fact, I found that I had to bargain a lot over the years and the key is to be transparent and open. So will be happy to hear how other readers do it.

1) Bootstrap Stage (Usually first year, up to $150K expenses)

At this stage, I feel founders should be paid a roughly similar basic wage. Meaning plus minus $500 of each other. In Singapore, that can range from $1000 per month to $3000 per month.  This is enough for food and transport. Anyway, this money comes from the founders themselves. My cofounder and I were paid $500 a month and later $2000 a month back in early days.

The reason for similar pay is because the roles are all mixed up in the beginning and if everyone works equally hard and full time, each key role of sales, marketing, tech and leadership all make and break the company.

One point of view I sometimes hear from founders is that they used to earn $5K, or $10K outside. So that is their opportunity cost. That is fine to say but should not affect the actual pay. Once you decided to come out and do a startup, your last drawn pay matters little, though it would be good if your co-founders appreciate your sacrifice. Also shareholding should not affect pay. If I put in $80K and you put in $20K, we should still agree to a roughly similar pay at this stage. Though if shareholding is very different, the basic may be closer to $3K whereas if the shareholding is similar, then it can be $1K.

The only time where it makes sense to me when a bootstrapped stage founder is paid >$4/5K or more is when there is a passive investor who joins the bootstrap round. Even then, I feel the various founder pay should be roughly similar.


2) Seed Stage (Year 2-3+, S$500K expenses)

Seed stage founders should be paid about $3000 to $5000. During our seed stage equivalent, we drew about $4-5K salary all in each. The thinking is somewhat similar to bootstrap round in terms of how founder pay should be similar to each other. Again, my logic is that the outfit is still small. Everyone has multiple hats and roles. So paying a similar value reflects that all founders are contributing on multiple aspects.


3) Series A Stage (Year 3-5+, $>1-3M expenses)

At Series A, it becomes necessary to have different pay for founders as roles get more defined and some roles start to be outsized in impact. For me, 3 principles are followed.

a) Pay does not exceed  and is usually below market rate for same role in similar sized company esp of outside money came in.

b) Founders are ok with the differential among themselves. Usually vesting is used to make things fairer. Founders are usually ok with differential once they agree what is the market rate for each role. Then from each role, take a fixed discount off it and build it up through a combination of base, incentives and vesting options. The biggest shareholder founder may need to be behave more generously at this stage.

c) Clear KPIs are written up for each founder role with bonuses tied to those KPI and overall company KPI.


4) Beyond Series A (Year >6, revenue 3-10+M and usually profitable)

At this stage, it really depends if the company is profitable and whether it took VC money. If the company is profitable and has not taken VC money, founders usually pay themselves up to market rate. Once market rate is hit, dividends are paid to founders based on shareholding basis. The logic is that we can always hire a market level replacement for a founder so there is never a need to pay more than market.

If the company took VC money, then there  are some controls on management pay but it is reasonable for  founder management to negotiate KPI based incentives and advocate to move towards market pay as the business grows according to plan. A good mgmt. team will ensure they feel aligned and balanced by discussing mgmt. targets and pay annually with their board.

To my knowledge, a fair market rate for a single country MD of about 50-100 staff in a dot com should be paid $200-$350K all incentives including options factored in. Base would be about 60% thereabouts of total. The CTO pay would be lower  at about $150-250K but with much higher base component. 

 

So how is early retirement at 38?

This is a rather personal post and I need to qualify that all I am writing is from the perspective of someone who has just stopped working for 7 months after 14 years of entrepreneurship. I may feel very differently if it is after 2 years.

And the reason i am sharing is that many people i meet seem to have a glorified ideal of semi/retirement. Also, i realize many entrepreneurs and working professionals seek financial freedom as a key goal in working life. So i want to share how it has been so far and hopefully it will help fellow entrepreneurs get another perspective of life after exit. This will help them in decision making and planning.

Some background is that I have 4 kids, aged 12, 11, 6 and 0.5. I have about 3 key takeaways so far :

1) It is possible to stay reasonably busy but feel less fulfilled.

My days are quite busy. About 50-60% of time on kids and family stuff, 20% on various work items (portfolio mgmt., meeting potential companies for angel investment, volunteer work with SWCDC and ACE etc), 10% on exercise and remainder on leisure activities ( I managed to catch up Walking Dead and 100!). On average, i have 2-3 meetings weekly with potential investee companies or with currently invested companies or for volunteer related work.

After these last 7 months, I feel all this is less fulfilling when combined compared to running a full time business on top of them. Two key differences. First is that I am far less busy and everything is more touch and go rather than digging in and being intimately involved. There is no bone for my mind to chew on daily. Portfolio management has sort of replaced this since i can obsessively track gains and losses and there is an endless amount of analysis to read and learn. But it is not as fun. Second, there is a lack of buzz or excitement that comes from working with a regular team and aiming for a common goal. I used to work in an office with 100 people and interact with at least 10-20 daily. Now it is much lesser and we are frequently not on the same team.

What I do enjoy is working with startups whether as an investor, director or just sharing experiences over coffee with driven coachable entrepreneurs. Currently, I spend most time and effort on DrWealth which has just raised a S$800K seed round and things are getting exciting there. I have also formed regular forums under ACE to help tech startups learn from each other.

2) More time = healthier physically and mentally.

This is a big one for me and is one of two reason why I am not rushing back into business. While running the business, I was perpetually stressed out both mentally and physically. I had a permanent stress cough, bad sinus problems and had difficulty switching off at night. So much so, I would think of financials even while in the toilet! All that changed in the last 7 months. I sleep much better, have spent enough time in the gym, have fallen sick only 2-3 times (used to be almost monthly or bimonthly) and find myself more patient with people. In fact, my cholesterol level has dropped by almost 40 points into normal range despite little change in diet.

3) More time = Present for Loved Ones & People

The second reason I am not rushing back is that having time for my kids and loved ones is fantastic. Throughout my last 14 years of work, I have always tried to spend time weekly with my parents, have daily dinners with kids and generally be there as they grow up. But truth be told, I was obsessed with the business and competing much of the time even while I was with them. Now I find that I am far more present for them. I know and feel alongside their first day of school, their first taste of porridge, and even first PSLE! And this being present extends to friends and people I meet. I find myself far more patient and willing to listen and see things from their point of view. This is great because it helps me control my competitive nature and I believe makes me a nicer person.

So there you have it. Three key changes that happened to me. Will I plunge back into the fray with another startup? Maybe. As usual, it is a matter of right team, right idea and right timing. And it may not be an internet business. Will it be this year? I am letting things happen and will go along with it as events develop. My second kid has PSLE this year, my youngest is very cute (to me) at just 6 months and I have not even done much traveling due to recent family events and the new baby.

6 Personal Sharing on Angel Investing

(Updated 16 December 2016)
This article shares the mindset I have as an investor. It does not represent what other investors think and all opinions are just one sample. So read it in the right light.

Since 2009, my wife & I have been angel investing in the area of internet businesses where we have some experience. The idea is both to give back what we learned and also to hopefully profit from it.

To date, we have invested in 14 startups SG/regionally and we will probably invest in another 5-10 startups over the next 3-4 years or about 2-3 a year max. In addition, we have invested/committed in 5 incubator/Series A funds as part of our diversification/lead gen strategy.

Here are some learning points we have :

1) Invest in things we know and enjoy.

All the companies we have invested in are B2C companies with the exception of one which is a digital animation firm. Reason? Our experience building up a job portal allows us to share meaningfully with the portfolio companies. In fact, two of the portfolio companies are job portals outside of SG.

Recently, we have decided that Fintech B2C is an area which is ripe and which I have a personal interest. So we started researching the startups in the space and have met with quite a few. In the end, we decided to invest in two - iMoney and DrWealth. One has done pretty well.

Investing in B2C businesses allow us to gauge whether the management team is doing a good job or not and allows to learn even more about B2C mechanics which makes us even more valuable mentors. Being able to value add to the entrepreneur is a big positive feeling for me.

2) Invest with early stage VC for diversification. Double your bet alongside for stories you like.

One way that we are still trying out is to invest in incubators and early stage funds. Then for the stories we like and which are book building, we can invest alongside them. That is also why we invested in 500startups/durians.

3)  Always invest in the person and the rough model. Motivation matters a lot!

We want to invest in people who don't give up easily. Business models are rarely correct at startup stage. Management will need to tweak and pivot and go through a lot of pain before they hit on the right model (if ever). As investors, the last thing you want is a founder that gives up within 1+ years of funding esp if money still not run out. For me, I would be ok if the business fails if the founder has pivoted at least 2 times and has spent at least 2 years trying to make things work and has been willing to put more of personal money in to keep things going,

From what I have observed, the best key founders are those that just want to get things done. They have a just do it attitude and will never blame others for their failure. Frequently, they are not afraid to roll up their sleeves and do sales or marketing work. Their ego is subordinated to the business goal which they are crystal clear about. 

4) Coachable founders are critical and I don't need to be the coach

Related to point 4. Some people learn fast (whether from others, actual experiences or even from books), some don't. A team that does not learn or which is slow to change when change is clearly needed will rarely succeed. I now always look out for founders who are willing to listen and absorb new practises and who are willing to agree when numbers tell that they are wrong. They don't need to listen to me, but they need to listen to someone!

5) Invest money that is not needed and with discipline.

I cannot stress this enough.  We plan ahead 4-5 years and use a portfolio allocation strategy that limits how much we can allocate (not more than 15%)  into startups and VC/incubator funds.  We understand that in worst case, we will lose all of it though I would not except the VC funds to lose it all!

6) Invest as a way to give back to ecosystem

This one is for all those who managed to exit your business or who have down wel in corporate job. We all know Singapore does not have many of us. So putting aside 5,10,20% to invest back in the area you know well is a good win win. Life can't be just about making more money, more fun for ourselves and helping only our loved ones. Doing some mentoring and coaching for companies you are vested in and which you are knowledgeable about is a great way to give back and still be aligned.

All about Angel Investing (Part 1)

This article has 2 parts. Below are general questions many people ask about Angel Investing. The next article will be specific experiences and learning which I absorbed over the past 5 years of actually doing it.

NB: While I have experience mainly in tech startups, I believe the principles mostly apply to non tech angel investments too.

1) What in Angel Investing ? How is this different from other Private Investments?

Angel investing is more specific. It is investing in startups in hope that they succeed and you earn back your money via an exit (trade sale, IPO, sale to next investor).  In non tech world, you can also earn back your money via dividends once the company turns profitable. Private Investing covers angel investing but also include later stage investments into companies that are already larger, profitable etc. Private investing also covers investments into VC or PE funds. Basically investment into any non listed company.

2) Can I afford to be an angel investor? How much to invest?

We invest money that we can afford to lose completely. If you look at most strategic portfolio allocations (this is the various asset classes that experts advice people to allocate their investible money in), most will have an alternative allocation that includes private investments, art, wine, hedge funds and commodities. This percentage varies from 0% to 20%.

So lets say it is 20% of investible assets (excludes own home and current business which you run if applicable). 20% is currently what some banks recommend for alternatives and also what some UHNWI (people with more than 30M USD investible) individuals in the USA are doing.  Of course, not all 20% is for angel investing. Probably 5% of that? The other 15% is for hedge funds, PE funds, later stage VC funds, commodities etc.

Now flipping to the other side, we need to spread our bets since we do not control the companies we invest in. We will make mistakes and invest in bad models or bad people. So lets say at a minimum of 25K per investment and at 10 investments over 5 years, this means 250K is 5% or we need an investible net worth of about 5M min.

3) Is 25K the usual quantum for Angel Investments and what does that buy?

From what I can see, most angels in this region invest anything from 25K to 200K. One mistake I made early on was to invest way above that. Doing so made it hard for us to diversify properly and spread our bets. If your average bite is supposed to be 25K and you are doing 12 companies, then you can allocate 50K for 2-3 exceptional stories that you feel strongly about.

In the current tech space, angel/Seed round valuations range from 1M to 2.5M and amount raised is usually 500K. So 25K buys you anything from 1-2%.

4) What kind of returns can I expect as an Angel investor and in what time frame?

We all read about the lucky guy who invested in the next FB or Google. But lets face it, most Angel Investors in this region will take anything from 2 years to 10 years or more to exit their investments. We have invested in 7 startups in SG and regionally so far. None have exited yet. Luckily none have failed yet too.

So the usual timeframe to expect will be similar to a early stage VC fund. Anything from 3 years to 10 years for exit and blended returns of above 25% annualized would be good.

5) How do I get deals?

This is critical for success. There are a 2 ways that have worked for me.

a) Spread the word that you do coinvesting alongside incubators for SEED and Series A rounds. This way, you follow the lead investor for deals. This method has an advantage in that the lead investor helps settle the terms. It helps if you actually invest in some of these VC/incubators too.

b) Value add when you meet founders. Don't just view founder meetings as potential investments. Rather try to help them with your experience and connect them to relevant people. After a while, people will see you as a good person to talk to regardless of whether you invest.

6) What is my role as an Angel Investor?

With a stake of 1%-2%, you are not expected to play an active role in the business. Experience sharing if you have it and can get along with mgmt would be good periodically. Connecting to relevant people too would be useful if you have such contacts.

Of course, if you invested a lot or very early and own >5%, then it is entirely possible that the management wants you to perform some structured role. All these should be decided before investment.

7) I don't have access to good deals or any good value add, I just want to invest. What else can I do?

Of course, another way is to outright invest directly into early stage/Series A funds. You will be called in LP (limited partner) if you do so. Usual quantum ranges from $100K (for small funds) to $5M for large funds. The expected returns for these funds range from 15-25%. Some names in this area include Jungle Ventures, Golden Gate, Walden, Monkshill, 500Durians/Startups and many more. They are all raising capital now.

You can then treat these investments just like a mutual fund but classify it under alternatives.

In my next article, I will share specific experiences and learnings we have from our own foray into angel investing.

Open Letter to all colleagues and alumni of JobsCentral

Today is my last day at work. I want to thank everybody for helping to build JobsCentral to where it is today. Over 14 years, we have grown from a 2 man startup into one of the largest regional job portals with over 150 staff in SG, MY and ID. We grew revenue and profit each year for 14 years running. Not many companies can achieve that.

Each of you have played a part in making this happen and I want to thank each of you for that effort and heart put in. It's always a team effort to make things happen.

I hope everyone continues to find alignment between what you want to do and achieve in life and what JC or your current employer is able to offer. Continue to stay true to our company values of honesty, teamwork, easy to do business and meritocracy. These are good values to have in any workplace. Keep striving to improve yourself as a person and professional. Have pride and set good standards for yourself. I hope to see everyone do spectacularly well in life. Don't settle for less.

Execution - Perception gap between investor and founders?

This article is triggered by recent exchanges i had where i realize that there is a gap in perception between founders and the investors who fund them. On one hand, i have the hardworking founder telling me that they dont think they executed badly and in fact executed well given the situation but from my point of view , they did not execute well. So who is right? After some reflection i realize both are right!

Founder point of view :

I have so much shit happening all the time. Traction takes longer to achieve. Staff are hard to hire and quit on me. Sales takes so much longer to happen and when it happens, clients buy less than projected.

And worst of all, market keeps evolving and changing!. So of course i cannot hit my projections. They are just projections. Surely the investors can see i am working crazy hours and obssessing about it all and trying my best!

Investor point of view :

You only execute well if you have achieved the metrics which you pitched and plan annually in terms of revenue, EDITDA, product development plan, marketing plan and HR hire plan. Anything less means execution could have been better.

Sounds harsh? Actually not really. After all the investment as made based on the premise founders will deliver. And don't forget i also need to make sure the investments realize a profit at the end.

Yes, i know startup is difficult. Marketing is hard. Hiring and retaining is hard so is growing revenues. So most investors discount what you pitch somewhat. But it does not mean we agree execution is good when founders fall short.

For me, i will only feel execution has been good if we meet all annual projected metrics and also feel the founder has the right attitude and mindset. Execution is great if we beat of course!

My comment?

Both sides are right. I do both right now and in the past. A little empathy and regular communication will go a long way. So the investor needs to express the worry they have that business not going to deliver on promised returns, founders need to agree they are not executing well and appreciate the other party's stress. And both sides meet. But who should do more in the communication department? I think the founder. Simply because you probably have more to lose and you own more of the company.

No simple solution right?

Startup Mistakes I made and Lessons Learned

This post is all about failures. I realize that some people prefer and maybe learn from other people's failures better than successes. I tend to prefer the latter as there are many ways to fail but fewer ways to succeed. So intuitively, it makes more sense to emulate and adopt successful behaviours and thoughts/mental models than to learn to avoid failed models and mindsets. But it is always instructive to see things from both sides i guess. Below are failures i have made in the past 14 years.

1) Failure to be transparent about cofounder committment & expectations

Problem : Did not initially spell out intentions and feeling about key topics like how to handle working shareholder departures. So when working shareholder decided to not to work full time, there was much difficulty in resolving feelings.

Result : Much stress and difficult conversations when trying to buy out minority shareholder. It took me some 1-2 months and much distraction to settle this issue. Also had to pay out a good 6 figure sum.

Takeaway - Always spell out various scenerios when contemplating a venture with  multiple shareholders. Make sure there is agreement. Don't fall into the temptation of taking the easy way to out and just glossing over difficult items like exit cases, valuation, roles etc. Then encapsulate it all in a written and signed shareholder agreement. If you cannot agree on tough points, it could mean your team has problems.

2) Failure to spearhead new venture & blind faith

Problem : Thought that it made perfect sense to venture out into a recruitment agency work back in the early days. Hired 1 manager & 3 pax and burnt through 40-50K of revenue in 3 months with little to show for it. Believed the manager that they can just start a new wing.

Result : Wasted mgmt focus on sideline and wasted  money pursuing it.

Takeaway - New ventures, even adjacent ones take longer than expected. Also in startups, new areas need to be spearheaded by top management. Seldom will an outside middle level hire be able to do it even if they seem to firmly believe it. Most middle (and some top) mgmt are used to having established brand and structure to help them, so they may actually believe they can start up something if only given the chance. Dont believe them and if you must believe them, still watch them like a hawk.

3) Failure to focus on sales & that Sales manager
Problem : A parallel of point (2) is believing that  hiring an experienced sales director/manager will help you settle sales while you focus on product. This is 99% pure bullshit. Founders must spearhear their own sales almost all of the time initially. I never fell prey to this but a portfolio company of mine has. They raised money, spent it on hiring sales team and sales mgmt then hands off!

Result : Total waste of money as the founder discovered that a hired sales mgmt will never be as dedicated to chasing down each lead, helping to get feedback and care as much as a founder. End result was 1 year wasted and damage so bad it may kill the company. Pain to me is also a possibly wasted 6 figure investment.

Takeaway - Always spearhead your own sales effort via a founder in the first few years. Not only will sell better but will also iterate product better since closer to client. You also squeeze the most out of your other sales hires since you are leading them. Did i mention investors also like sales driven founders?

4) Failure to plan for worst case.

Problem : When things are doing well, that is the best time to raise more money than you need. Another company i invested in had an opportunity to raise money that is equivalent to 2 years cash burn. Business was doing well and so there was also an option to not raise too but it required no mistakes and continued flawness execution. The founder chose not to raise.

Result : As usual, bad things happened and metrics did not grow as expected. Cash crunch started looming. Had to scramble to reverse the metrics. Work in progress.

Takeaway - Always do a worst case scenario and if in that scenerio, you dont need funding, then dont do it. Be paranoid!

Hope the above helps! Feel free to comment and add on.