Despite funding cooling in the States, the start-up scene in Asia is very much alive and kicking. More start-ups than ever are vying for funding. How do entrepreneurs stand out in such a competitive landscape? Daren Tan, Managing Partner of Golden Equator Capital, provides some insight into how VCs think.
What are the main attributes that make a startup a promising one?
Our investment mandate sees us getting into post seed, series A and series B (co-investment) rounds. Across this spectrum, there is a large variance in maturity and key success indicators. But the key attributes that would exemplify business success, remain unchanged.
We look for the business momentum
This covers a combination of factors which sees us evaluating that ‘big great idea’ that start-ups often preach, exploring potential to scale quickly and efficiently across markets in Asia, or otherwise have the right ingredients to accurately address the smaller niche market. Business momentum essentially covers the validation of what makes or breaks the business; engaged users, current channel partners, future deals, market size, relevant market fit, frequency of engagement, ability to scale across markets, etc. The wealth of information exchange, myriad of websites and the prevalence of open source codes, has changed the speed of idea creation to implementation. There is less of an instance of “this is a great, innovative idea!” The hard reality is that for every business idea, chances are, 10 other similar offerings have already launched. So the key differentiator we look for is the strength of Go-To-Market strategies that companies propose.
What makes a good founder?
Founders, team and management is an important next key attribute of a good start-up. Reinforcing the point above – idea is cheap, execution is key. Over the course of meeting hundreds of companies in a span of a year, the key differentiating characteristics that we look out for in the founders or CEO are: conviction, ability to problem solve, and good relational skills.
He or she would need that deep conviction and belief in the initial proposition when the rest of the world tells them it’s time to wrap up. They need to hold true to their initial determination (with smart business reasons to support it!). All businesses run into difficulties and the leader needs to be able to problem solve, pivot out of the negative circumstance and get the momentum back on track. And having that relational interpersonal skill is necessary in creating win-win scenarios, being able to rally the ongoing support from customers, channel partners, regulatory bodies, and investors.
You are also currently a mentor at StartupBootcamp and SPH’s Plug & Play. In meeting so many exciting business ideas, how do you sieve out the interesting ones? What key questions would you explore?
I ask myself these litmus test questions:
- Will I or 10 of my friends use or be impacted by this new tech? Does it just facilitate / aggregate or does it truly solve a nagging problem in workflows?
- How frequently will the customers be engaged?
- Does it excite me enough to want to tell / sell the idea to 10 other friends?
In conversations with them, I would explore their conviction and passion by asking: “if you don’t get funding for your business idea, what next?” Those who truly believe in their business idea would be relentless in finding a way to carry on with the same plan, putting their own skin in the game or knock on doors till they get it. I look for entrepreneurs who have this fearless conviction, unwavering belief and fiery passion – They did sell it as that innovative BHAG (Big Hairy Audacious Goal), in the first place.
What happens in an investment process, and after you decide to invest with a company?
We cover the complete suite of investment management. Our investment team adopts a religious process of deal sourcing, due diligence, structuring an investment from both finance and legal perspectives, monitoring the portfolio companies and hand-holding companies to the next level and/or evaluating possible scenarios of exits.
The team takes a very hands-on participative approach with all companies that we invest in. The quarterly reports and board meetings are just the formal pillars in place, but realistically, we are deeply operational and interacting with the different portfolio companies on a weekly basis. With social media chat platforms in place, it’s become a very vibrant form of communication. Tech startups have to be really fast-paced. This means the confines of ‘workday office hours’ are all removed. The investment team is running the ground with the startups through group chats on whatsapp, skype, emails and phone calls – the smartphone buzzes regardless of time, day or holiday. We are fully committed to ensuring that every company that we invest in, would find success.