We’ve all heard about how difficult it is for startups to get investments. They expend a lot of effort into preparing their pitch and go from investor to investor to make their case, until they find “The One”.
But if that was all, then this article wouldn’t have come to be.
During an event that we attended, word on the street was that there are actually a lot of investors that are on the hunt for startups, but they don’t often come across startups that they feel are actually worth investing in.
Hearing rumours is one thing, but we wondered if there was actually any merit to this. So we reached out to three investors with a question—is this true?
And thus the investors giveth.
Andrew Tan of TinkBig Venture, & CrowdPlus.Asia
About the rumour, Andrew Tan informed us that, “VC is not about a good idea, it’s about the pain that you’re trying to solve. Most businesses are not far enough along the validation process; real validation covers customer acquisition, revenue, strong gross margin, clear path of cashflow to break even, and a verifiable path to a positive operating margin.”
So what type of startups would he invest in?
“To me personally, I’m looking for a sustainable business model that solves a real life problem in a more convenient and cost-effective way than your competitor. I’m not keen on disruptive technology as I don’t think Malaysia is the right place to ‘research and develop’, as R&D comes with a very high burn rate.”
“I would rather advocate ‘research and copy’. Innovate the solution to suit the culture and consumer behaviour in the country that you are scaling your business. Ideas are just a dime of a dozen but what really matters is putting them in operation, and to do this you need to be practical.”
Andrew also tells us how he values the founders as a make or break factor in investing, and this is an oft-repeated interest point for investors.
“I’m focusing more on the founder. Every founder is special and has unique insight but I would love to drill in: what is the inspiration behind the idea? Getting through the roller coaster, the founder really needs something more than passion to drive it through.
The founder needs to have a crystal clear understanding of the problem, working on big market opportunity and line of sight. How to have competitive dynamics? How will the money be used to accelerate the results?”
There you have it. More than a great idea, if you’re targeting a powerful pain point, then Tinkbig might consider investing in your startup.
Jermaine Lim of Alphacap
When asked about the validity of the high demand from investors versus availability of good startups, Jermaine quipped that “Everyone loves a little rumour to spice up their life.”
“However, when we walk on the ground and dive deep, Malaysian entrepreneurs and founders are very tough and innovative. Innovation is like air to our lungs, we are always thinking how can we improve in our lives and work, business model and with the investment into technology.”
“The pain point of this massive innovation effect is taking a toll on our talent pool. There are too few technology talents to be engaged by the companies. The startup scene is heavily recruiting in a lot of segments—software and mobile tech developers, designers, marketeers, finance and the list goes on. I am very positive about the Malaysian startups. Investment spurs innovation—more funds for investment will be allocated in this region.”
The exact startup ideas that Jermaine in particular is looking for are:
“Business enterprise solutions to address industry efficiency needs. For example, education and manufacturing industry, edtech and B2B tech.”
Ben Lim of Nexea Angels
Ben however, when asked about the rumour, was more inclined towards agreeing.
“Yup. Partly because good deal flow is really hard to find, and partly because so many entrepreneurs tend to think of the same things. For example, we come across too many travel websites and fashion related e-commerce sites.”
“While their ideas are good, most of these ideas do not run too far off from the existing players and the markets for these ideas are already quite competitive.”
“To illustrate, we find that many e-commerce players are not making enough margins to cover their operational costs. At the same time, many travel sites that want to compete with major players also reduce their margins to a level that puts them in a financially awkward situation.”
“Most of them do not seem to have an innovative business model that disrupts the current major players. Of course, this is not their fault because there aren’t any new technology breakthroughs that can enable a new disruptive business model yet.”
“Another reason why this rumour has propagated so much is that many budding entrepreneurs are young, which is natural because they are at that stage of life where risk can be taken easily.”
“At the same time, they do not have much industry experience to find a huge problem that can be solved through technology, for example. Naturally, this would cause them to think of ideas that they can execute without much experience—thus leading to e-commerce sites and travel sites.”
What about specific ideas that he likes?
“We love businesses that happen to be based on a subscription business model. Hopefully with a team that has some sort of industry experience (but not always required), and is at least scalable across the region.”
“These could be SaaS businesses or even businesses that disrupt existing traditional business models with technology. There happens to be a lot more software automation that can be done in the Malaysian economy itself.”
“There are still huge opportunities in industries like social media, the sharing economy, and even business software in general.”
“As for ideas themselves, if we look at business software for example, many actually need to be customised locally. In fact, local customisation seems to be a great barrier for overseas SaaS companies to break into our market as the US market focuses on little-customised software in order to sell it cheaper.”
“For example, we could localise customer support platforms like Intercom, data capture & analytics platforms like Segment, and even B2B marketing tools like Radius. If we want to look at solutions that disrupt traditional businesses, we can always look to ag-tech for example.”
“Granular does analytics for large farms, or Arable, which focuses on farm data collection. If we look at industrial startups, Eigen does manufacturing analytics, EquipmentShare is an equipment marketplace, and Fibo does work tracking for construction teams.”
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Well, there you have it. While it’s not as dramatic as we initially thought, there is some truth to the rumours. Each investor has a different goal in mind when they are on the prowl for startups, and all of them had differing ideas of what startups they’d actually like to see sitting opposite of them in a pitching room.
The key here seems to be first, realise whether your startup is actually worth investing in at all by an angel, to avoid wasting time and effort into your scaling strategies.
As Andrew Tan said, “The reality is that most ideas are worthy of some kind of investment, but not necessarily worthy of a venture investment. Simply put, different businesses have different potential and because of that the amount of capital that makes sense to invest in them varies.”
But other than that, we feel like the general theme of the answers seems to be, what is the startup’s value in the current industry landscape?
Yet another e-commerce platform that doesn’t offer anything new will not entice the investors today as it probably would have 10 years ago. But a startup that actually addresses the current trends in the market might just be the ticket, even if it’s not necessarily disruptive.
Sometimes, it’s not what your startup does, but when your startup does it.