Managing the Noise: Universal Signals


(This is Part Two of a Three Part Series: “The Two Most Important Words in Venture Capital: Pattern Recognition”. You can catch Part One here.)

Before I begin, I think it’s helpful to define what I mean by ‘universal signals’. I am not referring to the patterns associated with a given industry, business model, or entrepreneur. I’m acutely aware of the negative impact that having a signal-heavy approach may have when it comes to assessing deals (read: the incongruous lack of VC-backed women and minorities), which can often lead to groupthink, cookie-cutter investing, or an unconscious bias towards or against certain types of founders.

Instead, I’m referring to the Other signals, the signals that almost always denote a lack of seriousness, forethought, or even-temperament. These are the signals that are often difficult to explain, let alone justify, because they sound insultingly shallow. But they’ve consistently borne fruit in time, resources, and attention saved.

That’s why these signals are important. They give investors the opportunity to cut through the noise fast enough so they can focus on the deals that require deeper analysis and insight. We want to go through your deck if you’re building a great business, we want to speak with you if you’re a serious entrepreneur.

What we don’t want is to waste that precious energy on ideas and entrepreneurs that we know won’t deliver.

The point is not to get an investment commitment from an email. That will never happen. The point is to get a face-to-face meeting, which can lead to a commitment, and that first meeting will happen if you follow the right signals.

With that out of the way, let’s first start breaking down those universal signals that investors rely on, whether they’re based in Silicon Valley or Singapore.

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Good Investors are guided by Patterns, not Trends


(This is Part One of a Three Part Series: “The Two Most Important Words in Venture Capital: Pattern Recognition”. Also, my apologies for the long hiatus. We’ve been doing some amazing things at Golden Gate Ventures, and I’m excited to announce some big news soon!)

Fundraising sucks. Fundraising in South-East Asia sucks harder.

It’s not that the capital isn’t here; it is. It’s not that the investors aren’t smart; they are. It’s not that the companies aren’t investable; they absolutely are.

It’s just that fundraising, in and of itself, is painful. It’s a time drain and ego killer, but nevertheless frighteningly important. Imagine: you need to raise a breathtakingly large amount of money from people you don’t know, otherwise your startup dies. And not die like, peacefully-in-bed-with-family-at-your-side sort of death, but a public-execution-with-your-family-in-the-audience sort of death.

And if that wasn’t bad enough, fundraising in South-East Asia is even more painful. Entrepreneurs here can’t simply borrow the lessons from more established markets like Silicon Valley or London; while some lessons hold true regardless of geography, many do not, like a critical mass of proximal investors to ease the logistical burden of traveling to multiple offices (i.e. Sand Hill Road in Silicon Valley) or a robust funding pipeline that linearly progresses from seed to Series A to growth and so on.

But you can get good at fundraising. Really good. But it can take time and a lot of (painful) lessons to get to that point.

When raising funds, entrepreneurs need to get in front of as many qualified investors as possible. Term sheets are made in-person, not through email. You need to move past that cold call, so you can sit down with an investor and actually talk about your business, express your passion, and show exactly why you deserve to be funded.

Hence, getting good leads is a critical component to any successful fundraise, just like developing a strong sales pipeline is critical to any SaaS company. It’s a percentage game: assume for the sake of simplicity that 10% of your cold calls lead to a deeper conversation. If you’re relying on one or two lead to raise your round, you’re setting yourself up for failure. Ten more? Now that’s something you can work with.

This brings me to my first, and most important, point:

Investors rely heavily on pattern recognition in their initial assessment of startups and entrepreneurs. I cannot emphasise this enough, and it’s so critically important that I’m only half-joking when I call it a trade secret of venture capital.

If you take anything from this post, make it that.

Funds, especially those with recognisable brands, can receive hundreds of pitches a month (thousands if you consider very large funds like Sequoia Capital and Andreessen Horowitz). There is no conceivable way investors can deeply, thoughtfully, and critically analyse every pitch they receive or hear.

Instead, investors need to rely on their knowledge, experience, and gut feeling to consciously and, in many cases, subconsciously assess the hundreds of deals they see on a monthly basis. Although this might sound lazy to the layman, the best investors are successful precisely because their pattern recognition is so accurate; they can separate signal from noise with almost preternatural skill.

This brings me to my second, and equally important, point:

If entrepreneurs initially convey enough positive signals, then investors’ pattern recognition will identify you as a potential investment and will be much more likely to initiate a call or meeting. On the other hand, if entrepreneurs initially convey enough negative signals, then investors’ pattern recognition will identify you as a pass and will not engage in deeper conversations, or worse, ignore you.

This is universal. Indeed, this probably applies to many other industries where there is a voluminous amount of information, and success depends on separating the noise from the signal. The key, then, is acutely understanding what constitutes a positive signal, and then fundraising exclusively with those signals in mind. In other words, those signals should literally shape how you speak to, engage with, and interact with investors through every stage of the fundraising process.

South-East Asian entrepreneurs, take note; this brings me to my third, and final, point:

Investors in South-East Asia have very different pattern recognition than investors in other markets. This is why entrepreneurs here do themselves a disservice when they blindly emulate best practices elsewhere. Again, while some lessons are certainly applicable here, many are not.

If you understand the patterns that investors look out for, you can understand what they’ll invest in.

Dumb Money Burns, Smart Money Learns


As we close out 2015, it’s remarkable the progress Southeast Asia’s tech ecosystem has made in the last year. Startup formation, especially in places like Malaysia and Vietnam, is rapidly accelerated; thanks to the influx of new Series A funds, rounds are becoming larger and more frequent; and financial returns, albeit unrealised, are nevertheless making venture capital as an asset class more attractive.

A positive iterative feedback loop is genuinely coming into focus across Southeast Asia: more funds are entering local ecosystems, driving more startup formation, which in turn generates greater returns, subsequently bringing in more money.

Just look at the new funds being raised by Venturra Capital, NSI Ventures, Sequoia Capital, and Golden Gate Ventures; this trend of new fund formation is not exceptional. On the contrary, it has been the norm for the past year.

So it should come as no shock that everyone, especially traditional investors, are jumping on the startup bandwagon. These high net-worth angels are wealthy individuals who, instead of investing in conventional industries like real estate or commodities, are opting to invest in technology startups.

And given the density of millionaires and multi-millionaires in Singapore this shouldn’t be a surprise. These are obviously bright, ambitious individuals. They’ve made their fortune in traditional industries. Surely they can easily replicate the same success in technology investments, too, right?

No. Not even close.

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Bet on the Forks-and-Chopsticks


Southeast Asians love their food.

Filipinos have eighteen ways to cook a pig. Thai have discovered what is possibly the most perfect cup of coffee. Malaysians have somehow managed to fall in love with a fruit that smells like garbage.

Yes, Southeast Asians really love their food.

And there are so many different culinary variations, recipes, and specialties throughout the region that tasting them all is impossible, let alone identifying the ones that are actually enjoyable to eat.

(I honestly can’t understand the gastronomical devotion afforded to that King of Fruits.)

But the one thing all this food has in common? The one thing Indonesian ayam penyet, Vietnamese pho, and Malaysian bak kut teh all share?

No matter where you are, you’re probably going to be eating that meal with a fork or chopsticks.

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When Going Mobile Backfires – And What to do about It


As Benedict Evans of Andreessen Horowitz might philosophise: “mobile is eating the world.” And he’s not wrong, either: in 2000, there were literally smartphones in the world; by 2014, there were two billion. And by 2020, this is expected to reach four billion. Indeed, according to Evans, the next one billion people to come online in the next five years will do so exclusively through their smartphones.

While highly consequential in developed markets, it represents a paradigm shift in emerging markets like sub-Saharan Africa and Southeast Asia. In a recent study by Accenture titled ’Surfing Southeast Asia’s Powerful Digital Wave’, 87 percent of consumers in Singapore and Malaysia have a smartphone; in the four less-developed economies Indonesia, Thailand, Vietnam, and the Philippines, mobile phone penetration is over 90%, but smartphone sales have continued to grow at an average of 30% year-on-year from 2011 to 2016.

Combine torrid economic growth — annual GDP growth 5% from 2010 to 2020; a growing middle class — an increase from 39% of Southeast Asian households in 2010 to 59% in 2020; and an overwhelming acceptance of ‘mobile’ as the de facto platform for communication, digital consumption, and even purchasing behaviour, and it should come as no surprise why investors and entrepreneurs alike are so bullish on mobile-centric businesses.

Today in the United States, you can build a billion-dollar business just on the web.

Today in Southeast Asia, you can build a billion-dollar business just on the smartphone. But in five years, there’s going to be a lot more smartphones.

This potential is reflected in the outsized attention and growth of some of the region’s fastest growing companies: GrabTaxi, Carousell, Go-Jek, to start, all began — and live — on mobile (Author’s note: Golden Gate Ventures is an investor in Carousell).

Add to those three the hundreds of other startups that are exclusively mobile, and endless soundbytes about the importance of mobile (case in point: this entire column), and it’s no surprise that most startups and entrepreneurs attempt to go the ‘mobile-only’ route.

Word of advice: don’t.

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The Adolescent Ecosystem: Singapore Reaching Puberty


People can’t seem to agree on Singapore these days.

Barely one month after Compass released their Startup Ecosystem Ranking 2015 report qualifying Singapore as the 10th best startup ecosystem in the world, a new report by the folks over at SparkLabs Global Venture resoundingly dismissed that claim with some good, ol’ fashioned shade.

In an article on e27, Bernard Moon, managing director at SparkLabs, says:

“We know that from looking at a lot of Singaporean deals that 1) There is a lack of Series A investors, and 2) There is definitely a lack of historical exists. We would never put Singapore in our top 10, maybe even top 20.” (emphasis mine)

My response:


This dude’s trippin’. 

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When Unicorns become Extinct, the Only Things Left will be Cockroaches and Startups


China’s ‘Black Monday’, as financial pundits have unimaginatively come to refer to it, was an economic cataclysm. Let’s list the reasons:

  • The Shanghai Stock Exchange Composite Index has dropped over 40% from its peak in June.
  • Global stocks have lost an accumulative $5 trillion since August.
  • The Chinese government has scrambled — and ultimately failed — to stem its markets from haemorrhaging any further; for that matter, most experts don’t have much faith in their counterparts to exercise any real control in this crisis.
  • China’s economy, the engine for global economic growth but sustained by a property bubble fuelled by a tremendous amount of debt, is looking increasingly shaky, and pundits are split on whether this is merely a short-term correction or the first sign of a long, painful return to Earth for Chinese markets (and prices).

Or as Chicken Little might characteristically proclaim:

“Holy shit you guys,

the sky

is fucking



(Author’s Note: I’ve taken liberties to better capture the hysteria.)

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Venture Capital: Explained through … Food


Venture Capitalists often make fine dinner guests.

I’m convinced that people would understand term sheets and investment agreements if we just included food anecdotes for every line item:

Equity“Here’s five bucks. I get half of that steak. …What?”
Convertible Note “Here’s some cash. I don’t know what you’re ordering, but if it’s good I’ll want a bite.”
Conversion Price – “You bought a steak? Shit. Okay, I think what I lent you should be about a quarter of that steak.”
Conversion Discount“I expected a better steak than this! Screw you, I deserve a bigger cut.”
Automatic Note Conversion“The moment our waiter brings the food I’m eating, I don’t care.”
Optional Note Conversion“It’s taking this long for our food? Gimme my money back, I’m going to McDonalds.”
Target Closing Date“I want to be done by 9pm. Ugh … that ain’t happening, is it?”
Employee Stock Option Pool“Put some of your food on that plate over there to entice people to join our table. …Hey, I didn’t mean to use my food!”
Dividends“Every so often I’m going to want to nibble on your food.”
Liquidation Preferences“I get to take a bite of your food before you do.”
Liquidation Overhang“We all get to take a bite of your food before you do.”
Participation“Are you eating those fries? Can I have one? …Can I have another?”
Board Seat“You can decide where we go for dinner. Except there. …And there. And I can’t eat there. Food doesn’t look good there. Oh! How about we eat there?”