CEO Series

M'sian Startups, Take Note: Here's What Investors Said Will Impress Them In 2017

With the growth of startup culture in Malaysia, more and even more Malaysians are jumping on the bandwagon to print their own stamp on the ecosystem. But are they truly ready to face the raging sea of the startup ocean?

It is often said that 9 times out of 10, startups end up failing. But it seems that many are still undeterred by these numbers and press on. After all, companies like KFit, iflix and Fashion Valet certainly have presented these aspiring entrepreneurs with a utopian dream.

Many startups dream of receiving the big funding they need to carry out their ideas, but more often than not, they don’t even know where to start, or even what will attract investors to them.

So for those who want to be the 1 out of 10 of startups that actually succeed, we asked investors what they will be looking for in startups come 2017.

The Metrics To Pay Attention To

Metrics instead of Matrix, though both involve dodging a lot of obstacles.

Before delving into the trends, here are what investors feel are the most important criteria to consider before even thinking of approaching investors.

Sam Shafie of pitchIN who also runs the WTF Accelerator programme laid out the metrics they judge startups by:

a) The team—the founders, domain knowledge and ability to execute.

b) The market opportunity where the startup is. It could be already big or an emerging one. Demonstrate it and share why the startup will be at the forefront of that market.

c) Momentum of the startup.

d) Valuation.

e) If what the startup is doing is in the same wavelength with our own investment strategy.

Vernon Tee of Vetece Group also highighted those same metrics, “The entrepreneur and team. I believe: team+commitment+money+business model=marketshare+profit.

If the entrepreneur does not have any team yet, I would definitely want to know about his experience and industry knowledge. Is he resourceful and able to build a strong team based on his network, or can he use his existing team who has successfully built a profitable business for this startup?

I also want to know the stress level this guy can handle, how he solves his problems and how he can potentially use his existing network to make this startup work.”

A Clear Financial Plan

The co-founder of Alphacap, Jermaine, had this to say, “We’ve seen startups almost every day for the past 12 months. As investors, we notice that 99% of the startups do not have a clear financial road map planned out before they invite investors to invest in them.

This has significantly slowed down the process of fundraising and definitely affects business expansion. Investors also appreciate startup founders who understand the responsibility of fundraising and take corporate governance seriously.”

Leo Shimada, CEO of Crowdo echoed her statement, “Going into 2017, flexibility in investment terms, real regional expansion, and stringent cash management seem to be the three themes being reinforced by our investor community.

This comes at a backdrop of an increasingly challenging economic climate as well as some recent high profile hard landings of startups within the region. As regional liquidity is tight, startups should be creative on how they raise funds and have a relentless focus on building a real solid business (as opposed to a vanity metric driven paper tiger).”

Knowledge On How To Tap The Market

Image Credit: Grand Cardone TV

This one seems to be reiterated by multiple investors when asked about what they wanted to see. Of course, the core of any business is the market.

Without buyers or people to engage in the startup, what would even be the point of having a startup? Why would investors spend their money on something that will not give an impact?

Nazrin Hassan, CEO of Cradlefund said, “The core of what makes a startup investable always remains the same: it’s tackling a real, unaddressed market-based pain point, it has a scalable market, it’s better, faster or cheaper, it has a strong management team that understands the demands of the particular market they’re trying to address and they execute well and they’re good communicators, to either sell their products or to convince future investors.

They must show a willingness to learn from others and to adapt or pivot quickly according to market response.”

The popular buzzword of “disruption” even came up again, this time said by Razif Aziz, the Executive Director of the Malaysian Business Angel Network (MBAN).

“In an increasingly crowded market of ‘me too’ startups, I would not blame investors for feeling a bit jaded if not slightly cynical towards the startups that are emerging from the local ecosystem. Something truly innovative or disruptive and not just a rehash of an existing model will certainly catch their attention.

This is especially if it is something that solves big issues that we as a society are facing today in the healthcare, transport, education or even housing space (each of which coincidentally lend themselves well to a regional if not global play).”

It’s All Down To The People

Image Credit: NBC

There is a reason why the startup scene often looks up to very specific faces in the industry when they think about goals and that is because it takes someone truly special to bring a startup past the 1-year threshold.

A startup idea could be particularly brilliant, but all of that is moot if the people running the startup do not know how to actually sell that idea to real people.

“Most of all, integrity is key. If that part is not there, all the rest of the qualities do not matter,” said Nazrin Hassan of CradleFund.

Dzuleira Abu Bakar, CEO of Cradle Seed Ventures (CSV) said, “Personally, I place bets on people rather than opportunities. Bets on entrepreneurs who build products that VCs truly find unique and are hungry to demonstrate real progress and growth. If you can demonstrate resilience, persistence, ability to execute and show momentum, that’s impressive.”

Alan Lim, Chief Investor for NEXEANGELS also agreed, “I have always based my investment decision on three key elements in evaluating the startup: the jockey (the team), the horse (the product), and the racetrack (the market).

Basically, my understanding is that you can’t race unless you have a jockey saddled to a horse and running on a track. I normally placed between 50% to 75% weightage on the jockey.

Why we place more weightage on the jockey, is because we are evaluating a startup. A startup need to be flexible, versatile and ever changing in validating the product and market in the early stages of their endeavour. This then requires the founder to have that entrepreneurship flair to make it.”

Future Trends To Look Out For

Besides telling us what they want to see, some investors were also keen on giving their insight into the expected shifts in the ecosystem.

Razif Aziz of MBAN said, “I believe the coming year will see various corporates start to move into the ‘innovation space’ driving what I would like to call ‘demand led innovation’. This is where industry, either through open or proprietary programmes e.g. corporate accelerators, guide, nurture or even catalyse innovative startups that help address specific industry vertical problems.

The very best of these startups will be courted by the aforementioned corporates, likely attracting the investing community along with it, excited by the prospect of validation by a key customer that may also aid in market access and in some cases possible regional expansion.”

Sam Shafie of WTF Accelerator added his own two cents, “In 2017, we look to still run the Accelerator and at the same time, find opportunities to co-invest with like-minded investors on areas related to AI, machine learning and chatbots.

Info and network security is also a sector that we’re interested in but unfortunately, we don’t have many in Malaysia.  Other than that, FinTech, EdTech, MedTech and startups who are focused in SaaS models are also of interest to us.

Perhaps something that flies in the face of conventional wisdom or contrarian view—a startup with a clear path to (early) profitability. Trading off the need to scale against the need to remain realistic in an increasingly challenging market both from a funding perspective and that of the economics of the day. That combined with the usual repertoire of USPs that investors come to expect e.g. large market size, strong team, good IP etc. may just pique interest.”

Feature Image Credit: Entrepreneur.com

 

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