- Khailee Ng of 500 Startups presented a short talk during the Wild Digital SEA 2018 conference last week, where he shared some observations about venture capitalism and funding in the SEA region.
- These observations were regarding the subtle changes that could potentially affect all players involved in the startup funding game.
At last week’s Wild Digital SEA 2018 conference, Khailee Ng of 500 Startups came on stage to share some of the insights his firm have gained about the overall nature of venture capitalism around the world.
Talking about the ways investment trends were changing in the modern landscape, Khailee explained that beyond the obvious shifts in VC behaviour (more attention paid to tech startups, higher amounts of investments, etc.), there are now also more subtle changes that aren’t immediately obvious to observers.
Attempting to explain these changes, Khailee broke them down according to the three main player parties that make up the overall VC game—limited partners (LPs), venture capital firms, and startup founders.
1. More Money To Give
Khailee started off by first explaining how there is currently an “avalanche” of new money sources from limited partners, echoing sentiments of big investments being made available for startups in the immediate future.
He said compared to the limited number of interested startup investors during the early days of 500 Durians, we now witness a glut of interested parties hailing from all levels—from large corporations all the way to semi-corporate angel investors—and from different geographic regions—from traditional investor-heavy nations such as Japan to newer players such as those from Korea.
He also then mentioned that compared to years past, limited partners are also now more likely to play more proactive roles in investments rather than just leave their money with VC firms for safe-handling.
“This is a world of difference compared to the past thirty, forty years where you managed to have so much money only for someone else to take care of it,” he said. “You’d see the venture report and that was it.”
“Today a lot of people are getting more active with a direct interest in investing.”
As a result, he said that there is also currently an increase in competition between new VC firms with more seed-level VCs starting to have more funds to play with.
“These firms have larger funds and are cutting larger cheques.”
He said that in addition to there being more money in the region, these newer VC firms are also more likely to cut larger cheques due to the fact that it was preferable to make fewer large payouts rather many small ones.
“This is the reason why most of the new VC funds launched in the past 12 months have been Series-A or more.”
2. Cashing Out Happening Much Earlier
The next trend he noted was how it is now becoming more common for VC firms to cash out on their investments even before their investee startups reach IPO status.
This, he said, is due to there being more limited partners and VCs that were keen to fast-tracking their investments by simply buying into high-performing startups before they even go public.
“If you as a VC have invested into a hot company and that company grows consistently, there will be a lot of instances where you’ll have the option to cash out ahead of time,” he said, giving an example of when his company 500 Startups invested early in Grab.
“We would consistently get cold emails in our inbox asking if we’d sell our shares in Grab.”
3. Startup Founders Maturing In Knowledge And Attitude
Moving on to the founders, Khailee explained that startup founders of today are more experienced compared to the stereotypical fresh-grad/college dropout archetypes from times before.
“Today we have a lot of talent from industry insiders—folks who have been in the industry for five, ten, twenty years who see the gap in all the networks and who are going into the startup game as professional startup entrepreneurs.”
Khailee explained that this change is also being complemented by the increased entrepreneurial interest in the Southeast Asia region, where there were now more foreign startup founders turning the region into their base of operations.
“We now have talent from the Silicon Valley, China, Europe, and other parts of the world coming to Southeast Asia to chase opportunity.”
Taking all these changes into account, Khailee said that there was now a shift in attitude surrounding startups and investments compared to two or three years ago.
“Two to three years ago, there was a frenzy among startups for valuations much like the frenzy surrounding ICOs today,” he said. “A lot of capital money was chucked into these startups, and they were told to grow at all costs.”
“This dominant attitude created immense pressure for startup founders to do things they weren’t ready for—to raise more money than they needed to.”
He then explained that this also led startups at that point in time to fail to find stability and the fit in terms of product, management, and capability for sustained growth—all because they felt pressured to make lots of money and make it quickly.
Today however, Khailee explained that VCs were moving away from the focus on short-term hype and concentrating more on long-term numbers, which in turn were causing startup founders to look at their products and question if they could scale for the long run.
“This new attitude is rising up—it’s a necessity, and I think that a lot of founders will embody this, going against the grain of the hype and really doing a business that is unique and strong for the long term.”
4. Power Shifts Among The Key Players
Khailee then summed up these trends by giving the audience a clearer picture about how the funding game was now being played; because of the increase of money from LPs, because of more high-performing companies, and because of shifts in attitudes from founders, more power was now shifting from people with money towards the recipients of that money.
“Startup founders who’ve proven that they understand their unique value have created a dynamic where they get to pick the VCs they want,” he said.
“These companies are the ones that will make a difference to their VC’s portfolio—and you only need a handful to do that.”
These observations by Khailee provide an interesting take on the current investment landscape, and with more and more money being made available to startups, it will be interesting to see just how these new trends will affect the relationships between investors and those looking for funding.
- We’ve also covered other topics during Wild Digital SEA 2018, click here to check them out.