East Ventures is a prolific venture capital firm in Southeast Asia, particularly in Indonesia, Singapore and Japan. Currently on their fifth fund, East Ventures invests under $500,000 with early stage startups. Co-founder Willson Cuaca, who is an entrepreneur himself, dishes the dirt on the kind of founders and startups he looks out for.
Your area of focus is Indonesia and Singapore. Tell us about that.
Indonesia makes up 40% of the Southeast Asia population. So for us, if we win in Indonesia, we win in Southeast Asia. It’s as simple as that. It’s true that Indonesia is lagging behind in terms of broadband penetration or credit card usage and income levels are very low but low penetration is good. That means there’s plenty of room for growth and growth will happen. We just have to come in and ride the growth.
Indonesia and Singapore are two very different markets. Singapore is a sophisticated, high income country – where most markets have already reached saturation point. Most business ideas serve the high income population, which is a small market. If your startup comes in at Singapore, you’re also often competing with an incumbent, which makes things very difficult for you. With Indonesia, founders come up with ideas that serve the majority which is what we prefer.
East Ventures focus on early stage startups. How do you find these startups?
We don’t do outbound outreach. Most of our deals are inbound. The team sees about 4-6 startups a day. Last year we saw 1000 startups. After looking at so many, I can easily tell who to cut out just from the email stage when they share their pitch deck.
Since you invest in very early stage startups – sometimes nothing but a guy and his idea – how do you filter through to find the gems?
Since I invest in very early stage startups, I don’t have much background to work on. There is no company history, sometimes it’s a new market so there’s nothing to compare with. So I judge on two things; the business fundamentals and the founder.
A good business solves a real problem using technology. It shouldn’t just sell a fancy new tech but have no real purpose or market need.
From the business perspective, we look for companies that solve a local problem – not a global problem. The startups don’t need to go global because global businesses have different problems and will be competing with global players. We prefer companies that can be local market leaders. Local companies solve local problems so foreign players can’t just come in and compete with them either.
I also judge the startup on the founder since a lot of times, these founders don’t even have a prototype. So I see if the founder is truly dedicated to his startup – he must be committed to pursuing it full time. He must be truly passionate about what he wants to do and wants to make something out of it.
We invest long-term in our companies – we don’t have a short term exit plan. So founders must be equally serious about their business.
I don’t think much of pitch decks. To me, if you need your pitch deck to navigate your discussion, you don’t know your business very well. You should be able to convey the key points of your startup to me on your own. You don’t need to be very polished.
For instance, when I invested in TechInAsia’s founder, Willis Wee, way back in 2011, it was just us two guys having a discussion at McDonalds. Willis was just a student in university at that time, whose sole credential is a blog he writes which was the genesis of TechInAsia.
What’s the biggest mistake a founder can make when pitching to you?
The biggest mistakes founders make when they pitch to me is oversimplifying things. For example, when they pitch, they say things like: “The Indonesian market is 250 million strong. We only target 1% of that which comes up to 2.5 million. If I make a dollar from each person, that’s 2.5 million dollars already! So it’s easy, I only need to get that 1%.” To these kind of entrepreneurs, I sent them on their way.
True entrepreneurs will do in-depth market research and break down their market according to various sub categories. If they are targeting the credit card segment for example, they will know not just how many percent of the market has a credit card but they can also break it down by rural and urban, geography or other factors.
So how has it been going for your investments?
Our portfolio company failure rate is 20%. Most of our companies get follow-up funding and become local market leaders. Our investors are happy so funding is not a problem. Next we will focus on fintechs. We are one of the top 10 fintech VCs in Southeast Asia.
Founders, the VC has spoken! If you’re serious about your startup idea, do your research and head over to East Ventures.