What Venture Capitalists Want From M’sian Founders During COVID-19
On the second day of the MaGIC online e-Nation, we sat down on Trendspotting: Investment.
Moderated by MaGIC CEO Dzuleira Abu Bakar, she virtually moderated a panel with 3 venture capitalists (VCs):
They discussed their experiences as venture capitalists watching over the struggles and triumphs of companies in their portfolio as they navigate the pandemic.
Throughout the hour-long roundtable, they explained some of the things they were looking for in financing and helping entrepreneurs in these tough times.
“Donors want to examine the founders. Founders who can weather the storm, who can handle whatever comes your way. Because even the best business model breaks in this current situation, ”Dzuleira said in her introduction.
1. Founders who can go digital
Mainly for those in the AI, circular economy, e-commerce, logistics, health, education and agriculture sectors.
Consumer behavior has changed endlessly, and after going through Gobi Partners’ investments made over the past 6-10 years, Jamal expects to focus on new startups that offer new solutions.
It prioritizes technology industries that develop AI and a circular economy.
“You didn’t have these things 5 to 10 years ago. We want to work on this new area which is very exciting and we believe it is the next step, the next level of development for the technology industry, ”he said.
Andreas takes a hands-on, pragmatic approach to focus on real sustainable issues for his investments and believes the e-commerce industry will accelerate dramatically.
Meanwhile, Jeffrey said founders who digitize healthcare, agriculture, education and B2B services during the pandemic will see money knocking on their doors.
“That doesn’t mean they’ll be successful, but that’s how it is. In a horizon of 10 to 12 years, what will be their size? “
“Are they too early or late in the game? Can they handle the size of the market they are in? These are typical things VCs watch, ”he explained.
2. Founders able to collaborate, consolidate and converge
VCs want their businesses to grow, leave their homes and expand into different regions and countries.
But with limited movement as the world waits for a viable vaccine, the expansion needs to be approached differently.
Consumers are now more open than ever to trying new digital products, according to Andreas. They no longer need to see a product physically.
“So use the online space, advertise digitally, test your viability in several different cities as well,” he said.
Jamal suggested collaborating, especially with other companies in the same industry in other countries.
“Let’s say you’re in agriculture for example, you can work with a big plantation company like Sime Darby,” he said.
He then urged the founders to leverage the other company’s strength, network and market.
“Collab to the point where you can do mergers and acquisitions (M&A), we’ve done it before, which really opens up a business to market access with ease to the rest of the world,” he said.
3. Founders able to react quickly to situations
When the movement control order started in March, one of the first things Jamal did was look at all the companies in his portfolio and analyze each of their leads.
To his relief, he found that 80% of his businesses had a lead of at least 12 months, where 100% of his founders knew how to manage resources well by cutting costs and cutting costs.
For Andreas’ portfolio, 50% of his startups had downsized, which took the resilience of their founders to overtake.
Some of the startups under Jeffrey’s wing opened up new sources of income just to replenish what had been lost.
“This is the time when you want to see if your founders can really play or not; it’s a really revealing moment, ”said Jamal.
“You want to see if the founders can come out and save the business, raise money and at the same time cut costs. We are looking at all of these things.
It is no longer a question of a startup’s business model, but of the desire to react quickly to the situation.
4. Founders who can make painful decisions
For businesses that have no hope of being saved, the VCs said there is no room to compassionately balance decisions.
VCs look at their performance, the potential for growth and development of their businesses.
“Unfortunately, if it’s bad then it’s bad, maybe it’s time to move on. Now is the time for a startup to really show that what it does is valuable, ”said Andreas.
Most of the time, VCs base their decisions on who to double or triple their investments, based on an expected return.
Jeffrey cautions that no one is really talking about the misalignment that funders and founders face in these expectations.
“For a founder, if you come out at RM30million you’re fine, but for us you’re a failure. So when we decide between yes or no, sometimes the founders don’t get it.
Initiating more communication was the solution he gave, so that the founders could understand how VCs do their business.
Jamal added that when bad things happen, founders can look to VCs to play the bad guys, as some decisions can be very difficult to manage.
He further illustrated: “Make the tough decisions, cut staff, cut budgets, shut down departments. This is where VC comes in. We’re ready to play the bad guy for our founders.
5. Founders who know when to go back to basics
Hard times don’t last, tough people do.
The pandemic has pushed us all to a corner, now we are forced to find new ways to beat the storm.
Andreas sees this as a moment to slow down, however. For startups, it’s time to go back to basics to define who your customers are. Really think about the real problems the business is trying to solve.
Investors have also changed their approach. They are looking beyond the mere creation of new solutions.
Andreas wants to see quantitative measurement measures to prove that a product is viable.
“It’s an exciting time, just be flexible with whatever is happening,” he said.
Preparation is essential for Jamal. He believes that despite the darkness in which we navigate, things will get better, and he has persuaded entrepreneurs to start preparing for that as well.
Plus, Jeffery encouraged that it’s okay to believe your stupid idea is the best in the world.
Even if you have been turned down by an investor, there will still be one for you with different kinds of expected returns.
“You have to be aware of yourself, you have to know what you are and know what you will look like in the next 10 to 12 years,” he says.
He added that founders need to know how much money they need to get to where they need to go.
Whether it’s profitability, a potential exit, or an IPO, it determines the kind of money that comes in, the dilution of a startup, and the funding it should have.
- If you haven’t participated in E-Nation this year, you can still access this session and others after signing up here.
- You can read more about what we wrote about MaGIC here.
Featured Image Credit: Jamaluddin Bujang, Managing Director of Gobi Partners; Jeffrey Paine, Managing Partner of Golden Gate Ventures; and Andreas Surya, director of Kejora Capital
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