It’s hard to overstate the importance of luck in life. And as one of the few startups in Singapore that’s both backed by a great VC firm and also works for a lot of VC firms (as well as hedge funds, private equity firms and family offices), we can’t deny we’re incredibly lucky. In particular, by sheer chance, we’ve ended up with a front-row seat on the explosion in investment in early-stage private companies in Southeast Asia over the past few years. And it’s been both fascinating and an education. So, as the number of private investors in Southeast Asia continues to balloon (with a wave of new arrivals due from Hong Kong any time soon, no doubt) we decided to pull together a short list of “rules” that we hope helps newcomers to Southeast Asia understand what we see as the key traits that set apart great investors from the not-so-great.
Flexibility
In the region’s often competitive and variable markets, there’s no such thing as too much flexibility. Many VC firms agree to operate within very tight parameters. Too often, that’s the cost of raising money from large institutions. The problem is that this forces funds to pass on a lot of deals they know are great because the valuation is too high the industry vertical is wrong or the management team is too shallow, etc. While strict criteria serve the purpose of keeping fund managers on a short leash (and investors’ assets relatively safe), it can impact performance in a big way. Take one “crazy” deal that more than a dozen VCs passed on in Singapore in late 2017 and early 2018. With one notable exception, every VC that looked at the deal found it “too complicated”. Not one they mention after it returned 10x in 15 months!
Building and Strengthening Relationships
For all the growth in the startup scene in Southeast Asia, the reality is that there remains a severe shortage of experienced startup founders with a track record building real businesses or first-timers with the street smarts to figure things out on the fly. Without naming names, there’s a lengthy list of high-profile startups that were feted by the press and investors alike only to shine brightly for somewhere between a nano-second and three years before fizzling out just as quickly. A handful have exploded in a wave of litigation. But most have vanished as rapidly as they appeared, with both the founders and their VC backers eager to change the subject ASAP.
The lesson for investors: when you find an experienced, repeat founder or a savvy rookie grab hold and don’t let go. They might not want or need to raise money for another 2-3 years. But when they do, you can guarantee there’ll be a lengthy queue of investors ready with checkbook in hand. And the only way to avoid getting gazumped is to put time into seeking out the region’s top entrepreneurs and getting to know them well. Feed them. Water them. Love them. They’re as rare as hen’s teeth, and that’s no exaggeration.
Outsourcing Non-core Activities
Beyond a certain scale, funds have little choice but to build in-house legal, accounting, finance, HR and compliance teams. Regulators and investors will expect or demand it of you, and at that point you have no choice. Early on, though, it makes sense to push as much of your non-core workflows to platforms run by outsourced providers. That’s going to sound self-serving. After all, a range of funds in Singapore already outsource to Lanturn services including tax, accounting, payroll and compliance. But keep this in mind. The time and cost savings can be significant. But far more important is the freedom it gives you to double down on your core activity: investing. You don’t get points for running a stellar in-house finance team. Take one of Lanturn’s favorite clients. Their approach to some aspects of their non-core, back office activities is “laissez faire”. But they’ve built a business that lets them focus almost all of their time on fundraising and investment, and in four months they closed three high-profile deals.
Remember: you score points come for having the mental and institutional flexibility to spot great deals, for building relationships with the region’s next generation of unicorn-builders and for having the time and headspace to get deals closed.
Let us know if you’d like to know more about how outsourcing can help you become a top-decile investor. Contact us today.
