GO FUND ME

Southeast Asia Globe - - Feature - BY JANELLE RETKA

AS STARTUP CUL­TURE IN SOUTH­EAST ASIA BLOS­SOMS, YOUNG EN­TREPRENEURS ARE SEARCH­ING FOR THE BEST WAY TO TURN THEIR IDEAS INTO THE NEXT MAR­KET GIANT. BUT AS IN­VESTORS OF­FER MEN­TOR­SHIP AND FUND­ING IN EX­CHANGE FOR EQ­UITY, EX­PERTS WARN THAT NOT EV­ERY DEAL IS AS CLEAR-CUT AS IT AP­PEARS

It’s al­ways been about the prod­uct, and get­ting it enough cash to fund the prod­uct fur­ther is re­ally im­por­tant to me

Ju­liana Lau has fund­ing on her mind. With a nascent startup on her hands, she needs an in­vestor to help her get the ball rolling be­fore com­peti­tors run her idea flat, she says. One op­tion is an ac­cel­er­a­tor pro­gram – through which com­pa­nies take slices of star­tups’ worth in ex­change for fixed-term men­tor­ship pro­grams in­tended to bring the en­trepreneurs in­vest­ment and boost their com­pa­nies’ growth.

“A lot of pro­grams re­quest around 20% to 30% eq­uity, and they’re pro­vid­ing us, I think, $1.5m to $2m in fund­ing,” she says. “I think that’s not a prob­lem for us.”

She’s stand­ing at the en­trance to the De­vel­oper and Prod­uct Stage at the Tech in Asia Sin­ga­pore 2018 con­fer­ence, hop­ing to glean in­sight into how to make her busi­ness con­cept sus­tain­able. In­vestors buzz around the con­fer­ence. Within a few me­tres is the “speed dat­ing” stage, where star­tups quickly chat with po­ten­tial back­ers in the hope of nail­ing down the cap­i­tal that could get their com­pany off the ground. Speak to just about any startup founder at the con­fer­ence, and they’ll likely be on the same wave­length as Lau.

“It’s al­ways been about the prod­uct, and get­ting it enough cash to fund the prod­uct fur­ther is re­ally im­por­tant to me,” she says. “It takes build­ing funds, and I’m not too wor­ried about the eq­uity I have to give up.”

An ac­cel­er­a­tor, she says, makes per­fect sense.

Over a decade ago, the first ac­cel­er­a­tor pro­grams kicked off in the US. Y Com­bi­na­tor – now one of the most well­re­spected ac­cel­er­a­tors glob­ally – started the trend on the East Coast in 2005 be­fore mov­ing to Sil­i­con Val­ley, where it went vi­ral. Since then, Y Com­bi­na­tor alone has in­vested in roughly 1,500 up-and-com­ing com­pa­nies, in­clud­ing the tech suc­cesses Drop­box, Airbnb, Red­dit and Wee­bly.

Thir­teen thou­sand kilo­me­tres away, these pro­grams are pick­ing up steam. In 2010, JFDI.Asia launched the first South­east Asian ac­cel­er­a­tor. Dur­ing its life, it alone poured about $3m into 70 star­tups, in­clud­ing Digify, the award-win­ning plat­form launched out of Sin­ga­pore for shar­ing con­fi­den­tial doc­u­ments, now used by over 50,000 pro­fes­sion­als across 138 coun­tries.

By 2012, the re­gion saw a rise in star­tups, now in the tens of thou­sands, ac­cord­ing to Mag­nus Grime­land, founder and CEO of Antler, a startup “gen­er­a­tor” kick­ing off its first co­hort of 50 founders-to-be in July.

“If you’re top tal­ent sit­ting in South­east Asia now and you’re think­ing of start­ing a busi­ness, now is the right time be­cause... you can kind of cre­ate the next giant in the re­gion,” he says. “You’re talk­ing thou­sands upon thou­sands, and some of them will be gi­ants – some of them will be the ones we talk about here in two, three years.”

Al­ready some re­gional star­tups have seen out­stand­ing suc­cess. Sin­ga­pore-based ride-hail­ing app Grab started in 2012 and has since taken over ri­val Uber’s South­east Asian mar­ket and been val­ued at roughly $9b. Grab also ex­e­cuted a re­gional “exit” – the rather rare in­stance of a startup get­ting bought out by a larger startup – when it pur­chased In­done­sian e-com­merce plat­form Kudo, founded in 2014.

This boom in star­tups was fol­lowed closely by a great swelling of the num­ber of ac­cel­er­a­tor pro­grams in the re­gion around 2015, ac­cord­ing to Justyna Piotrowska, head of a startup-fund­ing “hacker” pro­gram in In­done­sia, Malaysia and Sin­ga­pore for 500 Star­tups, an­other lead­ing Sil­i­con Val­ley ac­cel­er­a­tor with a lo­cal branch called 500 Duri­ans that pro­vides the big­gest amount of seed fund­ing to re­gional star­tups.

“The best star­tups will figure it out within a two- to three-year pe­riod any­way,” Grime­land says of run­ning a busi­ness – giv­ing a nod to tra­di­tional busi­ness mod­els that have seem­ingly gone by the way­side. “But why not get that two-, three-, four-month crash course in all of these things and en­sure you do it right from the begin­ning?”

Startup founders tend to agree that ac­cel­er­a­tor pro­grams seem to of­fer a fund­ing so­lu­tion – but what re­mains am­bigu­ous is at what cost.

An­other startup founder at the con­fer­ence says he would be will­ing to give up 15% to 20% of his com­pany’s eq­uity for the right ac­cel­er­a­tor pro­gram. Af­ter all, men­tor­ship and net­work­ing go a long way to find­ing suc­cess in the startup world, he says be­fore ask­ing if that is a sen­si­ble rate and con­ced­ing that he doesn’t know what a rea­son­able bound­ary to draw might be.

Grime­land says 15% is at the up­per thresh­old of what star­tups should be will­ing to part with.

“It re­ally needs to be the founders’ busi­ness, so there are a lot of com­pany-builder set­ups where the com­pany builder will take too large a share of the busi­ness,” he says. “Any­thing above 15 to 20% is a lot… be­cause typ­i­cally you have two, three, four co-founders and then you raise a cou­ple of rounds [of seed fund­ing in ex­change for eq­uity] and you don’t want your founders to be diluted too quickly.”

The less stake a co-founder main­tains in a com­pany, he ar­gues, the less drive and tenac­ity they might have to trou­bleshoot hur­dles. “Ev­ery startup has huge prob­lems in the begin­ning,” he adds, cit­ing Elon Musk’s SpaceX, which had only enough fund­ing for one more test run be­fore its launch and sub­se­quent rise to be­come the world’s most suc­cess­ful pri­vate space en­ter­prise.

Ac­cel­er­a­tor pro­grams are im­por­tant, Grime­land ar­gues, be­cause of the net­works and be­cause they help com­pa­nies get their prod­uct on the mar­ket and test it in the real world early on, rather than po­ten­tially wast­ing time per­fect­ing a prod­uct for years that won’t make it in the end. With a long list of re­gional ac­cel­er­a­tors to choose from, he says more star­tups re­search their op­tions thor­oughly be­fore sign­ing any agree­ments.

“Then again, there are star­tups out there who are just so ea­ger to get go­ing that they’ll jump into the first one they talk to, in which case ei­ther you’re lucky or you end up in the sit­u­a­tion where you’ve given part of your com­pany [away] and you might get ad­vice which ac­tu­ally doesn’t help you but moves you in the other di­rec­tion,” Grime­land says. “So it’s a quite crit­i­cal de­ci­sion.”

“You’ve just got to watch out for your­self,” says Taro Araya, founder of Myan­mar-based gaming plat­form Goama – a sort of Netflix for games – which won a judge’s choice award at a re­cent pitch­ing con­test in Ph­nom Penh hosted by e27, a Sin­ga­pore-based tech me­dia plat­form that runs ac­cel­er­a­tors. “Not ev­ery­body that comes to you try­ing to help is go­ing to help you.”

Araya says this back­ground re­search on ac­cel­er­a­tors is fun­da­men­tal: “It’s a busi­ness of its own… I know an [ac­cel­er­a­tor] in Myan­mar that asks for 12% eq­uity. They give it to 12 ad­vis­ers at 1% each and the [star­tups] re­ally get trash.”

With pro­grams like this in mind, Goama was re­luc­tant to en­gage in a pro­gram un­til they knew it would be ben­e­fi­cial and that their prod­uct was ready for it, Araya says.

“It’s a balanc­ing act in terms of how much an in­cu­ba­tor takes from you, how much cash they give you and, at the same time, how much ac­cess do they give you to dif­fer­ent re­sources or doors,” he says. “[My] ad­vice to an aspiring en­tre­pre­neur [look­ing for an] in­cu­ba­tor or ac­cel­er­a­tor: Just like they do due dili­gence on you and they kind of judge if you’re re­ally com­mit­ted and re­ally have a good idea, you also should judge them. They present to you a ‘wow’ pic­ture, and some­times they need to de­liver on that.” Mohan Be­lani, co-found­ing CEO of e27, echoed Araya. “There are al­ways a range of ac­cel­er­a­tor pro­grams that ex­ist be­cause the stake­hold­ers who run these pro­grams ei­ther have an indirect in­ter­est to­wards run­ning these pro­grams or be­cause for them it’s just a way to have a stake in the ecosys­tem,” he says. “It’s im­por­tant that star­tups look out for which ac­cel­er­a­tor pro­grams are struc­tured which way and... re­ally con­sider whether they should spend their time on it.”

Just like [ac­cel­er­a­tors] do due dili­gence on you and they kind of judge if you’re re­ally com­mit­ted and re­ally have a good idea, you also should judge them. They present to you a ‘wow’ pic­ture, and some­times they need to de­liver on that

Some­times when you ask deeper ques­tions about how the pro­gram is go­ing to be run... you can get a deeper sense of whether the guys run­ning the pro­gram have re­ally thought this through

It’s more than a mat­ter of eq­uity ver­sus in­vest­ment, though, Be­lani ar­gues.

The longer an ac­cel­er­a­tor has been around, the big­ger its alum list is, mak­ing way for in­sight into the pro­gram, men­tors and po­ten­tial fu­ture in­vestors on the other side of the ac­cel­er­a­tor, he says. The amount of time your startup must de­vote to a pro­gram is an­other big con­sid­er­a­tion, be­cause if your com­pany is not ready or is too ad­vanced in its de­vel­op­ment to be suited to the con­tent of the agenda, it might stall progress rather than pro­pel it.

Star­tups should also de­cide what mar­ket or mar­kets they want to delve into and look for ac­cel­er­a­tors that work specif­i­cally in that coun­try or re­gion in order to re­ceive tai­lored as­sis­tance and net­work­ing, says Laura Smithe­men, pro­grams and in­no­va­tions di­rec­tor for Im­pact Hub Ph­nom Penh. Re­search­ing the net­work of com­pa­nies and men­tors a pro­gram has on of­fer will also give star­tups an idea of whether the pro­gram aligns with the fledg­ling com­pany’s needs, she says.

“I think what star­tups should re­ally do is to spend time to reach out to the pro­gram man­agers who are run­ning these pro­grams and at least in­ter­view them,” Be­lani adds. “Some­times when you ask deeper ques­tions about how the pro­gram is go­ing to be run – what kind of ac­tiv­i­ties are go­ing to be done, is there a plan for a sec­ond batch mov­ing for­ward – then you can get a deeper sense of whether the guys run­ning the pro­gram have re­ally thought this through.”

Piotrowska of 500 Star­tups said it’s also up to star­tups to slow down and think things through – which, in this emerg­ing mar­ket, of­ten gets skipped over in the ex­cite­ment of try­ing to launch.

“We’ve learned that [of­ten] there’s no process that they fol­low,” she says of South­east Asian star­tups. “It’s just chas­ing the next shiny ob­ject – if that’s In­sta­gram, if that’s Face­book – with­out un­der­stand­ing what re­ally is hap­pen­ing in the cur­rent busi­ness[es] they have that are work­ing [and then] killing or op­ti­mis­ing the ones that are not work­ing.”

Piotrowska rec­om­mends that star­tups re­search mar­ket and com­pany data and make de­ci­sions based on num­bers rather than as­sump­tions; de­fine your cus­tomer base, sort out where your money is com­ing from and plan steps ahead for busi­ness de­vel­op­ment.

But ac­cord­ing to Steve Land­man, founder of mul­ti­ple star­tups, manag­ing part­ner of RPSH Ven­ture Cap­i­tal and a for­mer ac­cel­er­a­tor op­er­a­tor based out of Viet­nam, ac­cel­er­a­tors of­ten serve as a dis­trac­tion rather than con­trib­u­tor to learn­ing these fun­da­men­tal busi­ness skills.

“I think we should be teach­ing fi­nan­cial man­age­ment – cash flow is ev­ery­thing – not teach­ing peo­ple how to cre­ate pitch decks and pre­sent­ing to in­vestors,” he says. “When I started my first com­pa­nies a long time ago, there was no ac­cel­er­a­tion or in­cu­ba­tion... [W]e had to figure it out, and I don’t think there’s any bet­ter way to learn to be an en­tre­pre­neur and to start a com­pany than to just do it.”

I don’t think there’s any bet­ter way to learn to be an en­tre­pre­neur and to start a com­pany than to just do it

e27 co-founder and CEO Mohan Be­lani (R) speaks to the me­dia at one of the com­pany's startup events

At­ten­dees speak at the Tech in Asia 2018 con­fer­ence in Sin­ga­pore

Tech in Asia 2018 in Sin­ga­pore brought to­gether startup founders, in­vestors, aca­demics and more

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