On Day 2 of MaGIC’s online E-Nation, we sat in on Trendspotting: Investment.
Moderated by MaGIC’s CEO, Dzuleira Abu Bakar, she virtually moderated a panel with 3 venture capitalists (VCs):
- Jamaluddin (Jamal) Bujang, Managing Director, Gobi Partners
- Jeffrey Paine, Managing Partner, Golden Gate Ventures
- Andreas Surya, Principal, Kejora Capital
They discussed their experiences as VCs watching over struggles and triumphs from the companies under their portfolio navigating the pandemic.
Throughout the 1-hour panel discussion, they explained some things they’re looking for when it comes to funding and helping out entrepreneurs during these trying times.
“Funders want to look at the founders. Founders who can weather the storm, who can deal with whatever comes your way. Because even the best business model breaks in this current situation,” Dzuleira said in her introduction.
1. Founders Who Can Go Digital
Mainly for those in the sectors of AI, the circular economy, e-commerce, logistics, healthcare, education, and agriculture.
Consumer behaviour has changed endlessly, and upon going through Gobi Partners’ investments made in the past 6 to 10 years, Jamal is expecting to focus on new startups coming up with new solutions altogether.
He’s prioritising tech industries who are developing AI and a circular economy.
“You didn’t get these things 5 to 10 years ago. We want to work on this new area that’s very exciting and we think that this is the next stage, the next level of development for the tech industry,” he said.
Andreas is taking a practical and pragmatic approach to focus on real lasting problems for his investments and believes that the e-commerce sector will accelerate tremendously.
Meanwhile, Jeffrey said that founders who are digitising in the sectors of healthcare, agriculture, education, and B2B services during the pandemic will have money come knocking on their doors.
“It doesn’t mean they’ll do well but it’s just the way it is. Within a 10 to 12 years horizon, how big will they be?”
“Are they too early or late into the game? Can they handle the market size they’re in? These are typical things VCs look at,” he shared.
2. Founders Who Can Collaborate, Consolidate & Converge
VCs want their companies to grow, to go out from homebound and expand to different regions and countries alike.
But with restricted movement as the world waits for a viable vaccine, expansion has to be tackled differently.
Consumers are now more open than ever to try new digital products, according to Andreas. No longer do they need to see a product physically anymore.
“So utilise the online space, advertise digitally, test your viability in several different cities too” he said.
Jamal suggested to collaborate, particularly with other companies within the same industry in other countries.
“Let’s say you’re in agriculture for example, you can collaborate with a big company in the plantation sector like Sime Darby,” he said.
He then urged founders to leverage on the other company’s strength, network, and market that they have.
“Collab to a point where you can do mergers and acquisitions (M&A), we have done that before, which really opens up a company to market access with ease to the rest of the world,” he shared.
3. Founders Who Can React Fast To Situations
When the movement control order started in March, one of the first things Jamal did was look at all the companies in his portfolio and analysed each of their runways.
To his relief, he found that 80% of his companies had a runway of at least 12 months, where 100% of its founders knew how to manage resources well by cutting costs and scaling down.
For Andreas’ portfolio, 50% of his startups had cut their workforce, which took resilience from their founders to move past.
Some of the startups under Jeffrey’s wing opened up new revenue streams just to replenish what was lost.
“This is the time where you want to see if your founders can really perform or not; it’s a really revealing time,” Jamal said.
“You want see if the founders can go out and save the company, raise money, and at the same time cut costs. We’re looking at all these things.”
It’s no longer about a startup’s business model, but the mindset to react fast to the situation.
4. Founders Who Can Make Painful Decisions
For companies that have no hope in being salvaged, the VCs shared that there’s no room to balance decisions with compassion.
VCs look at their returns, how much potential their companies have to grow and scale.
“Unfortunately, if it’s bad biz then it’s bad biz, maybe it’s time to move on. Now is the time for a startup to really show that what they’re doing is valuable,” said Andreas.
Most of the time, VCs base their decisions on who to double or triple down their investments on, based on an expected return.
Jeffrey cautions that one thing nobody really talks about is the misalignment funders and founders face in these expectations.
“To a founder, if you exit at RM30 million you’re fine, but to us, you’re a failure. So when we decide between yes or no, sometimes the founders don’t understand.
Initiating more communication was the solution he gave, this is so that founders are able to have an understanding of how VCs do their business.
Jamal added that when bad things happen, founders can turn to VCs to play the bad guys, as some decisions can be very difficult to deal with.
He further exemplified, “To make the tough decisions, to remove people, cut budgets, close departments. This is where the VC comes in. We’re ready to play the bad guy for our founders.”
5. Founders Who Know When To Go Back To Basics
Tough times don’t last, tough people do.
The pandemic has pushed us all into a corner, we’re now forced to come up with new ways to battle the storm.
Andreas however, sees this as a time to slow down. For startups, it’s a time to go back to basics in defining who your customers are. Really think about what real problems the business is trying to solve.
Investors have changed their approach as well. They’re looking deeper than just building new solutions.
Andreas wants to see quantitative measurement metrics to prove that a product is viable.
“It’s an exciting time, just be flexible with whatever happens,” he said.
Preparation is key for Jamal. He believes that despite the dark we’re navigating through, things will get better, and he coaxed entrepreneurs to start preparing for that as well.
Additionally, Jeffery encouraged that it’s okay to believe that your dumb idea is the best in the world.
Even if you’ve been turned down by one investor, there will always be one out there for you with different types of expected returns.
“You need to be self aware, you need to know what you are and know what you’ll look like in the next 10 to 12 years,” he said.
He added that founders need to know how much money they need to get to where they need to go.
Whether it’s profitability, a potential exit, or IPO—that determines the type of money that comes in, a startup’s dilution, and how much funding it should have.
- If you’ve missed out on attending E-Nation this year, you can still access this session and others after registering here.
- You can read more on what we’ve written about MaGIC here.