radical candour from a deep generalist
Finally can share this news :: https://e27.co/seedplus-appoints-lim-der-shing-as-venture-advisor-20170918/
Super honored and extremely grateful to have the opportunity to work with Lim Der Shing as an advisor.
Excited for the next chapter of SeedPlus.
Over a quick bite today I continued to read the latest edition of Venture Deals, it has been enlightening to read it post working in VC for over a year now. I have been able to validate some of the principles first hand while gleaning a thing or two to help me in stuff I am currently dealing with.
I wrote, https://seedvc.blog/2017/09/07/take-a-discount/, the other day and was thinking more about the book in light of how some founders may not understand how various rounds of venture financing works.
A couple of things to note is that usually once you raise money – you will probably be raising until exit or profitability. So an angel round will turn into a seed round, which will lead to an A and most likely a B. Maybe somewhere in that mix you might exit or generate enough cash to no longer need to raise money. It could also be that venture financing makes way for debt financing instead.
The point being that as you look at your very first fundraise, one must have a view to how the follow on rounds will work and the milestones you will achieve during the rounds. Usually this will map to burn rates and the hopeful product or revenue targets that match rounds and the end of cash cycles.
Being careful about valuations during this process is important but also realizing that more than one round will happen helps to put it all in context.
Long story short if you are a founder or thinkjng abor becoming one? Read the book before you start your fundraising journey since it will probably help you more than my ramblings.
Enjoy the weekend!
I often wonder if my kids will need to drive cars. When I was 15 or so my dad bought me a wrecked VW bug and our many months long father/son project was to get it on the road in time for my needing to use it to get to work. Oh the memories.
Guessing my kids won’t need anything like this.
Love this Monday Note article – also listen to the Kara podcast.
Fascinating stuff.
https://mondaynote.com/autonomous-cars-the-level-5-fallacy-247ae9614e14
This is such a great read. I am tempted to take item 1-3 and send it to every startup prior to our first meet up.
https://www.linkedin.com/pulse/raising-venture-capital-take-discount-your-valuation-marc-lore
It is always hard to explain this stuff as a VC without a founder assuming that it is just our ploy to buy more of the company for less money but it is not – it is us doing the best we can to ensure that we are helping to build the foundations of a great company.
Best to read the whole article but let me drop the three main points here.This one is so true and I have seen it first hand. A top tier VC will do the math, model the stages and model the exits. They will use these numbers to create their valuation but also take into account the stage and any other important signals. A founder, most likely not using any models, will decide they think the company is worth more and then go find another VC to give them that valuation. Usually the other VC is not top tier and is using valuation as tool to win the deal. Founder will think they have won but honestly they didn’t.
If you still aren’t convinced, here are three more reasons to take a discount on your valuation:
First, you get better investors. I’ve seen too many cases where second-tier investors outbid the top-tier. But a lower valuation ensures the very best investors want in.
Which VC do you think will do the hard yards down the road? The one that does the hard yards going into a deal or the one that just throws out the number you want to hear?
Second, a lower valuation helps protect you from a down round. Even great businesses face unexpected challenges like market downturns; I raised money during the 2001 and 2008 market corrections, and it was rough. Valuations got slammed, and the end result for many was a down round that seriously hurt their companies’ stature and ability to raise more money.
If you raising to perfection on the high-side any sort of issue might cause your next round to be a down or flat round. Less revenue, miss some metrics, tight funding environment or politcal/environmental issues can all create an event that might cause a flat or down round. If you raise with the discount or some “wiggle room” you can weather the storm much easier.
The third and probably least understood reason is that a lower valuation allows you more headroom for an exit. I’ve seen many entrepreneurs raise money at valuations that are higher than any buyer would be willing to pay. The result is that they get themselves boxed in, and when they see an opportunity to exit they can’t get a deal investors will agree to because their last round was done at too high of a price.
This is the one that trips of founders the most, it is also the one that SEA founders should think on the hardest. Most exits in our region will be from acquisitions and if you are not exiting close to going public then most likely you exiting somewhere between your seed and B round – if so then price is going to be a huge factor. On top of these regions being more expensive to get a deal done in, the acquirers may not have funny money and will be somewhat price sensitive. You may get an offer only to find out that your valuation means the exit isn’t going to be very meaningful.
Best to make sure you really grok how to fundraise.
Reminder to read Venture Deals and then superset it all with these three nuggets of gold.
I wrote this before about how I am trying to manage my time.
https://seedvc.blog/2017/07/19/time-management/
I always get asked as I have transitioned to VC from a product guy, how I feel about VC life. I think most folks are surprised when I tell them it is all good but managing my time is hard. Why? It is easy to get busy with all the stuff we do. Meeting companies, helping portfolio companies, fund management stuff, meeting LP’s and just spending enough time with your own team helping each other improve our craft.
I am not complaining but just highlighting that if I am not careful – I can easily fill up my day and then wonder where my time went.
Regardless, I still feel it is important to meet new people. Recently I was contacted to provide a referral for a former employee of mine. The person asking for the referral also requested a coffee to chat more. I have made time for these coffees and used my trusty admin Evie, Evie is well trained and knows that coffee meetings are 45 mins at a specific location I like, had it all set up in a few emails.
Yesterday I had that coffee. I am glad I did.
I actually got to meet the guy who helped lead the acquistion of Path and who ran the transitional Path engineering team. There were lots of interesting things I learned but not all I can share. Some small tidbits – the transition team was mostly all Koreans who moved to Jakarta, they all eventually moved back, there is one Indonesian engineer still working on Path, and Path is basically dying a slow death.
We enjoyed our chat given my Yahoo/Koprol experience and it reminded me that the “culture of busy” will keep these fun meetings from happening.
Have fun out there!
Apart from the catchy name – Rahul has been crushing it lately. All we can say at SeedPlus is, thanks bringing us along for the ride.
Updated the post with some new info.
His latest book :: Narrative and Numbers: The Value of Stories in Business (Columbia Business School Publishing)
Also this is his main web page with all the courses :: http://pages.stern.nyu.edu/~adamodar/
Private company valuation is a tough craft – part art, science, gut feel and negotiations.
Came across this the other day:
I love the Prof so figured this was going to be good. And it is.
That lead me to a few more docs.
http://pages.stern.nyu.edu/~adamodar/pdfiles/ovhds/inv2E/PvtFirm.pdf
http://people.stern.nyu.edu/adamodar/pdfiles/ovhds/dam2ed/ValIntro.pdf
But this one looks like a gold mine:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcastvalonline.htm
ABL
Was quoted today in this article :: https://techcrunch.com/2017/07/22/alibaba-tencent-southeast-asia-game-of-thrones/
My general view is that although the Chinese VC and Chinese company activity in SEA region is probably the most as compared to any other region – my gut says that in general Singapore will continue grow to become a target of other regions like the USA and Europe as well.
Singapore has become the default SEA HQ and as the startups continue to mature – the attractiveness to Singapore acquisitions and investment will climb.
One of our views is that automation will eat the world – like it or not. For me personally, I try to figure out ways to get more productive and manage my own time better. As a VC, I take a lot of meetings. Which means being heavily into my calendar. I have pretty much always relied on Fantastical. They have a new update :: http://flexibits.com/blog/2017/07/fantastical-2-4-for-mac-midsummer-edition/.
Which is killer but I must say that I use it less and less. Why?
Cause my calendar is largely automated via email using Evie.ai.
They have just launched their new product and rebranding.
Full disclosure – SeedPlus is an investor but I was using it before that happened.
Anyways. Check it out. You will love it.
This was posted today :: https://www.dealstreetasia.com/stories/future-early-stage-funding-asean-exciting-seedplus-77307/
Which is great – I appreciate good press.
However I want to clarify the first paragraph:
Michael Smith of early-stage venture fund SeedPlus, an affiliate of Jungle Ventures, is uncertain about the trajectory of early-stage funding in Singapore and the wider region but believes that deep technology as a segment will emerge a winner in the long run.
This was the question that this answer was lifted from:
From your current perspective in the ecosystem, what’s the general trajectory for early-stage funding (i.e. pre-seed to Series A) and its evolution since 2015? What is the future?
My answer:
The future is something we can’t predict but we feel that deep tech will emerge as a winner in the Singapore ecosystem and that across the region there will be startups raising substantial money at the pre-A level for regional or APAC wide business ideas that need institutional money on their way to their Series A. The future looks pretty exciting in our opinion.
I don’t think what I said was I am uncertain. What I said is I can’t predict the future. I don’t have a crystal ball, startup opportunity, and I don’t think it ever makes sense to try and predict the future.
I am just honest in saying no one knows what will happen but I am confident the ecosystem has a very promising future.
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