In the past few years, we’re seeing a huge boom in fund-raising for startups in South-East Asia. Startups are raising money at valuations higher than ever before having people wonder if we’re in a bubble.
Personally I’ve never raised money for Netccentric or Nuffnang before our IPO this year. Fund-raising can be a distraction to the main business because it takes a lot of effort and we never really had the fate or the luck to meet the investors that we think would work well with us. So the Netccentric you see today before IPO was the result of our SGD65,800 startup capital that we had from the beginning. As such our DNA was to make sure our business units were all profitable and able to contribute to a stream of profits that we could use to reinvest.
That’s a good and a bad thing. The good thing is that post IPO, Ming and I still own a substantial stake in the listed entity. We own approximately 36% each of Netccentric Limited.
The bad thing is perhaps if we had raised money earlier we could have scaled quicker.
In any case this year we went for an IPO and it was the first time we properly went into fund-raising. I came out of this experience with a lot of insights about the process and learning from the mistakes that I had been making in the past. Some really newbie ones.
Here are the most important things I’ve learned.
1) Don’t over-introduce your company in the introduction of your presentation.
This is a mistake I’ve seen a lot of startups make and is a mistake I used to make myself. You only get one chance to make a good first impression. Make a bad one and the investor is tuned out for the rest of the presentation.
I’ve seen presentations that start with what the company does and then on to the capital structure, the founders, the team, the use of proceeds and then the financials.
Why is that wrong? Because investors don’t really care about your company beyond a simple answer to “What does it do?”.
What do investors care about? If you answered “Considering they are taking the time to listen to my pitch I’m assuming, my company?”.Well then you’re wrong.
Investors don’t care about your company unless you’re an AirBnB or a Snapchat. They care about HOW YOU ARE GOING TO MAKE THEM MONEY. Focus as much of your presentations as possible to how much money you’re going to make them.
So the way I would start a presentation now is first with a VERY brief introduction. Then jump into how you’re going to make them money. Your traction, your growth plans, how much money you will make when you’re there, what your comparable are and how much you can be acquired for or IPO for.
After you’ve told them how you’re going to make them money, THEN you can go into the details of your company. The capital structure, the team etc etc.
2) Use comparables to value your company
In this potentially bubbly market, investors are getting more and more cautious when it comes to valuations. Comparables are your friends. You need to find what your peers in your industry are trading at.
I imagine Patrick Grove of Catcha does a really good job at this. He started a car classifieds website for SouthEast Asia. Then he goes to Australian investors and say
“You know Carsales.com.au? The billion dollar company? Well we’re like Carsales but for SouthEast Asia and SouthEast Asia collectively is a market with a much bigger population. So this is what we think we’re going to be worth and this is why we think we’re worth this now.”.
Pick a good startup idea where investors are pouring money into and you’ll be able to command higher valuations. All the taxi app companies in the world for (whether in SEA, China or India) trade as such high valuations because their comparable is Uber.
So they go to investors and say “We are Uber but for China” or “We are Uber but for India” and when investors compare your startup to Uber which is trading at a really high valuation they’re less likely to be sticky on your valuations.
3)) Line up your cornerstone investors as early as you can (Part 1): Start with the low hanging fruit
Imagine you’re an investor. Two similar companies come to you to pitch.
The first company tells you they’re raising $10 million but they’re still pitching and they haven’t confirmed their investors yet.
The second company tells you that they’re raising $10 million and about 80% of the allocation has been taken up by a number of existing cornerstone investors. There’s only $2 million left and it’s first come first serve.
Which company would you pounce on first? The second right? It’s mob mentality. Everyone wants to go for the thing everybody else wants. So the sooner you can lock down your cornerstone investors the easier it is to lock down the rest of your raise.
Don’t be shy to ask friends, family or anyone who knows you and is more likely to trust you and invest in your startup.
My uncle is a fairly prominent businessman in Malaysia. For the past 7 years of running Netccentric I never asked him for any favors and never wanted to. One day over lunch he asked me what I needed to grow my company. I answered money and he then asked why I have never asked him to invest in my company.
My answer was that I didn’t like to ask family or friends for favors and his reply was “In business you have no time and place for pride. If you need something to scale you have to explore every single option.”
So for Netccentric’s IPO he became one of our cornerstone investors.
4) Line up as many cornerstone investors as you can (Part 2): Now to the smart money.
Once you line up the investors that you know personally and will trust you, your deal automatically becomes more attractive. The next step then is to line up the smart money. Other influential people or funds.
In our case we managed to get Kevin Tsai who is the President of Want Want Media Group and comes from one of the richest families in Taiwan, Tan Sri Pang Tee Chew of Mamee Double-Decker and KSK (The group that was behind Kurnia Insurance).
People like to follow the smart money and when you have these investors on board it’s less likely that people are going to have confidence issues with you.
5) Times of exponential growth is the time to raise money, not sit still.
Most startups don’t have exponential growth forever. Sometimes you get exponential growth and then you plateau for a bit, consolidate your position then grow again.
The other mistake we often make is that when things are going really well you think “I don’t want to raise money now. I’m growing so well”.
But when your growth takes a temporarily breather you realize you need more money to supercharge that growth again and by then it’s too late. Investors want to invest in growth and not when you’re plateauing and they don’t necessarily want to wait another year for you to get your ducks in a row and hit hyper growth again.
These are the 5 lessons I’ve learned in the past 12 months. Fundraising can be a time consuming process that distracts you from your business. So if you can, get it done as soon as you can with as little mistakes as possible. Once you raise money the pressure is on to deliver which is what I’m really focused on now. To deliver long term shareholder value to our investors.
These are just my few cents. Hope you guys find it helpful.
Timothy Tiah – Co-Founder of Colony, Kuala Lumpur Co-Working Space