AngelCentral Learning Forum: Fundraising in the New Norm

Startups fundraising during the COVID-19 was done almost virtually – pitch days, demo days etc were shifted online and conducted via video conferencing tools like zoom. Meetings between investors and startups, due diligence of the startup are also conducted online. It was very different from what we were used to. 

Many founders lamented that fund-raising was doubly tricky and tough, while many investors had openly commented that they could not commit without meeting founders directly. 

As we ease into phase 2 of the economy reopening (with many fearing the possibility of 2nd wave),  we have invited both founders and investors who fund-raised and/or invested successfully to share their experiences with us. What did they do differently to achieve success? What’s the mindset or perspective differences that we could all learn from? While we all hope and pray that the COVID-19 would quickly go away, it is once in a lifetime learning opportunity we should really exploit. 

Check out the insightful discussion by the panel in the video!

Transcript of webinar


Shao-Ning: Thanks, everybody for joining us today, and as I was sharing with the panelists today, I was actually quite greedy this time around. I called a lot of people because I thought that it’s quite rare to have successful fundraising for this period. And since I know the three cases here, and I have two very active investors during this period who are very happy to share. I’ll just grab you guys and everybody come and share. 

Yeah, so let’s just have a very quick introduction from the panelists today, because we have a big group and I was telling the group that we want to be very strict about the timing. We want to keep the last 20-25 minutes for the floor to ask questions. So please actively put out your questions on the Q&A box at the bottom. Before we start the chat today, can we have a quick self-introduction, we keep at two minutes each. Maybe we have ladies first, maybe Peck Ying can share first.


Peck Ying: Sure, thanks Shao-Ning and team for having me here. So I’m Peck Ying, co-founder, and CEO of PSLove. So PSLove, we provide game-changing period care for women. We have launched a range of period pain products that help females across the world. Just a brief intro about our company so you all can have the context of what we are about to share. Our key channels to reach consumers via offline as well as the online space. COVID has impacted in a very great way, which I can share more later. But maybe a little bit more about myself, is that I used to also work in NUS Enterprise. I’m quite familiar with the startup scene and happy to share anything in a very candid manner during the session.


Shao-Ning: Maybe we can have Caleb to share next, the co-founder of PSLove.


Caleb: Hi, everyone, nice to meet all of you. So Peck Ying already introduced the company so mine would even be shorter, right. I’m heading up the commercial side and business development at PSLove, both within Singapore as well as the Southeast Asia region. My main focus is to work with key channel partners and retailers to bring our products to the mass consumer market. The second hat that I wear, is managing the product development within the company. So that’s where digital as well as physical product innovation happen, as well as you know, working together with engineers, designers. A bit about my background, I like both hardware and software although I’m not a super expert at both. Managed to assemble my first computer at 12 then I did dive into some hardware conveyor systems, inventory management software while I was studying in NUS. So I studied real estate finance that has absolutely…I’m not sure what it has to do with consumer products. If you know, please let me know. And I was also from NOC Singapore and I have about 5-8 years of sales and business development experience. Thanks.


Shao-Ning: Thanks, Caleb. Okay, can we have Dustin next?


Dustin: Hi, everybody. My name is Dustin and I’m the co-founder and CEO of uHoo. And what we do at uHoo is we’re the most advanced and most comprehensive indoor air quality monitoring and management system to help you enhance your health and well-being, both in the home and in the workplace. Our market caters to the B2C market, B2B markets, and we also have clients in government. Due to the COVID-19 situation, awareness of air quality and health just skyrocketed like crazy. And as part of that, one of our innovations that we launched just last month is the uHoo virus index, where we are able to assess in real-time, the survival risk and transmission risk of COVID-19 using air quality data. That’s a world first and we patented it in Singapore. We’re right now we’re present in roughly 40 countries, through our channel partners, and we have our local offices in Singapore, Hong Kong, and the Netherlands. That’s a brief introduction to what we do.


Shao-Ning: Thank you very much. And could they have the last but not the least founder on the panel, Nimantha, please.


Nimantha: Hi everyone, I’m Nimantha, Co-founder and CEO of Ackcio. If you’re wondering over the name, it actually originates from Harry Potter, a spell called Ackcio, which brings far away things from you to your hands. That’s what we do at Ackcio. There’s a lot of industrial data in construction sites and mines, a lot of sensors that are scattered around and with our magical technology, we bring all of that to your fingertips for real-time decision making. The company was founded by myself and my partner Mobashir, the two of us did our PhDs in wireless networks and wanted to put that knowledge into industrial use and that’s when we started the company in 2016. Since then, we’ve come a long way. Our products have been used in about 15 countries now to monitor key infrastructure development projects and mining projects in North Latvia and several countries. We have recently raised an oversubscribed pre-Series A round with all this COVID stuff going on. It was a very interesting experience. That was the third round that we raised and by far the most challenging, so I’m here to share some of my experiences.


Shao-Ning: Thanks Nimantha and I’m glad to hear you are closing off the round because you started during COVID right? Next, we would like to hear from Wei Sheng and Michael, the two investors who have bravely invested during this period of time. Who wants to go first?


Wei Sheng: I have my mic on so I will go first. Hello, first of all, congratulations to Nimantha as well as the other founders on the closing I think like they said, it’s not easy, right? So good job there. So for me, I’m an investment manager at Qualgro. Qualgro as some of you may know is a B2B focus venture capital company based in Singapore. Our sweet spots are usually in series A and B stages, although we do do some pre-A companies, pre-A stage investments. In terms of geography, I personally cover more of Indonesia as well as Singapore but we are really quite Southeast Asia focus. One of our partners is in Australia as well so we have some Australian investments too. I guess that’s a little bit about the VC fund. We are operating out of our second fund now, actively investing during this period. On our side at least, we saw some slowdown in deal flow but there is still quite a healthy number of deals that we’re seeing each week. A little bit about myself, my background, I started in consulting, a very traditional, kind of corporate background. From there, I did my MBA and I did a stint in China with the Alibaba Group, and then I was part of the founding member of a team that was part of an education tech startup based in Singapore.


Shao-Ning: Thank you, Wei Sheng, just nice. Could we have Michael, please.


Michael: Thanks again for having me and congratulations on being able to close their funding. A bit about me, I am a managing partner and co-founder of Cocoon Capital, which is an early-stage Seed fund based out of Singapore that covers Southeast Asia. We invest across the region and got companies from Myanmar to the Philippines and everything in between. We do Pre-seed and Seed deals, so we invest anything up to a million dollars. We’re active investors so we do a few deals a year but then support the companies, a lot post-investment. Our focus is on deep tech and enterprise tech. 

I’ve been an early-stage investor for the last 20 years and before that, I was an entrepreneur. I can honestly say I’ve never actually done so many deals as I have in the last three months. I have actually closed five deals, and I’m actually doing the first deal presentation but we’ve never actually met the founding team in person, which is really hard for me, got to admit. That’s very much about me and about Cocoon.


Shao-Ning: Thanks, everybody. As quite a few of our members actually have commented that AngelCentral is quite candid. So I’m going to take Peck Ying up on the candid part right. We want to share openly with both our members, investors, and also the startups who are here. I think we have almost about a 60/40 ratio based on our registration profiles, 60% being founders. So I want to address the elephant in the room first. In this whole process, in post-COVID, did the valuation come down? Was the expectation still so high, but the final offered and sector valuation, did it change, did it come down? And how far?


Michael: If I can answer from the deals that I’ve done, it’s impossible to value a seed deal. There’s normally no data. So we’ve always targeted to get around 20%, for 18 months runway, and sometimes it has been a bit below, sometimes it has been above that, but it’s normally I would say between 18-22% range. That’s how we pretty much finished. The last few deals we’ve done have been more around 23-24%. That’s because we’ve been asking the companies to raise for 24 months rather than 18 months. So they’ve given a little bit more money away, but we’ve invested slightly more for a longer runway, just because of the uncertainty of the market, going forward. We just thought of having a little bit of extra money, but the pre-money valuation for us hasn’t changed.


Shao-Ning: How about the actual cash projection that they think that they need? Because you changed from 18 to 24 months.


Michael: We’ve changed from 18 to 24 months, which is why we’ve taken a slightly larger chunk, a few percent more than we would have done prior, just because they’ve asked for more money because we want them to have a longer runway. And our assumption is the revenue is not going to come as quickly as we would like we used to. We wanted to overfund at this stage where normally we wouldn’t be so aggressive just because of the uncertainty that COVID-19 is bringing in terms of sales.

The percentage has gone up a few percent but otherwise, it’s roughly the same.


Shao-Ning: In a sense, it has come down right? I mean, mathematically speaking.


Michael: No, because the pre-money has stayed the same. It’s just that the amount they’re raising has increased, which means that they’re having to give away a few percent more.


Shao-Ning: Wei Sheng on your side, key change?


Wei Sheng: I guess we invested a little bit after Michael, after Cocoon Capital. From a Seed perspective, I completely understand. I think that there’s no way to value it anyway, so it shouldn’t matter. It is more about the dilution that you want to accept. 

For me, I think on average, I have seen the valuations come down indeed. It has been kind of like the great equaliser. There are some companies that, you know, even before COVID, we knew that the valuation was quite frothy so those companies have come down. But there are other startups that have not been as affected because of strong fundamentals, and things like that. Even with COVID, you know, they still hold up strong. 

In terms of numbers. I guess one of the more drastic ones I’ve seen companies who were asking at around 100 million before COVID coming down to 60. And even at 60, you know, still, it is not properly subscribed yet. I see most of my deals come from Indonesia and Singapore so I’m averaging it out. I think in any case, I think valuation at this early stage is just one thing to look out for in fundraising. The other thing, which I think Michael has pointed out is also cash flow requirements. As the uncertainty prolongs, we don’t know how much cash is required, and we don’t know what the market will look like, you know, even 10 months down the road. I think the general advice is to raise a bit more. I think it’s slightly easier for B2B companies, but not always, but you can kind of more easily project what B2B companies need because you kind of know these are the expenses that are required. It is not as variable, I would say, in terms of expenses as consumer-like companies. For us, I think we still got quite a good sight of what valuation ranges could look like. But in general, yes, and I think it has come down.


Michael:  Just following on that point though. A couple of our follow on rounds that have happened. There’s always hot sectors and so the hot sectors have changed, kind of from where they were December of last year to where they are now. Our companies that are in like telehealth, or logistics, or edtech, their valuations have shot up because all of a sudden it becomes hot and as VCs, we kind of follow the trends most of the time. We’re being realistic, you can shoot me later. And then for other sectors that were hot, like there was a lot of stuff going on in travel, there was a lot of stuff going on in ride-hailing and all these other spaces, they’ve become very unpopular. So their valuations have come down. It’s literally, you know, it does depend on where your sectors are and what’s seen as hot by VCs has a massive impact on valuations.


Shao-Ning: Changing the focus a little bit to the founders right now. PSLove started before the COVID period, right, but it kind of overlapped during that period. uHoo also started before that. Ackcio started at the time when COVID was when we are all getting worried about whether we need to get our masks. Can you share your journey along the way? How were you feeling and, I mean, you were raising actually your second and even third round for some of you. So the thinking very much was, you had projections and now projections seem like something is not quite the same. How do you manage your whole process? And what was your learning along the way that you think you really had to change? Do you literally have to pivot your thinking?


Nimantha: Definitely. I’ll start from January when we were planning our fundraising stuff, the capital raise for this year. In January, we actually had a venture-led offer as we had some equity capital in the bank, but a big portion of our software is hardware-focused. There’s a lot of manufacturing that is involved, which we had to pay upfront, like props to our contract manufacturer for which we need capital. 

Investors, our board, and our advisors advise us that we should have a rented facility that could be used for the manufacturing costs and use the equity capital just to finance our day to day running expenses, salaries, and stuff like that. Along those lines, our plan was to have a venture-led offer and use that capital for our manufacturing expenses, as I said, and then go for a series A round towards the later part of this year. This is the plan that we started the year with. We even had a really attractive facility, high-level terms for our arrangement. Things were discussed, negotiated and we had like, kind of like almost finalised everything. 

But before we could get to an official term sheet and sign, COVID struck. I mean, COVID was there but it got worse. The institution that we were speaking with switched into more of a portfolio management option to ensure that their existing portfolio didn’t die and they sort of like heavily clamped down. This is February when they completely clamp down on their new investments side of things because like when COVID was going to get worse, so they really wanted to wait it out and see how things would go and whether we would be able to get through COVID and all those uncertainties came into the picture. We really had to pivot at that point. And in February, I still remembered the board meeting, we had a quick call, figure out what to do and we thought, Okay, let’s do a bridge round and get the capital that we need to keep the business going. Go for our planned Series A like maybe early next year. So that’s how we pivoted and we ended up doing a pre-series A round. 

Valuation wise, I think we got a fair one based on where we were so no complaints there. But the key difficulty that we had was getting new investors to join. We did have some new investments coming but the majority of the round was raised with our existing investors. All of them helped out and we’ve managed to close the round. Mostly with those existing parties, we reached out to quite a number of new investors to see whether we could get them on board, like early-stage investors. We didn’t get any positive responses because a lot of them were managing their existing portfolio, or like having cold feet about getting into new deals. That’s how our success came through, like the relationships that we have built and our business was doing well, like organically, we grew our quarter 2 revenue by five times when compared to quarter 1 revenue, despite all these stuff that was happening, because we are focusing on our industry, like steel construction, right? It’s going on in a lot of countries and that helped to give confidence to the existing investors.


Shao-Ning: That’s actually that’s a very insightful point because it is what you have done with the existing investors along the way, right? Because if you basically ignore them, they are not going to take your calls when you need help. Is this the same experience for PSLove and uHoo?


Caleb: Similar to what Nimantha faced, we also did raise a slightly smaller round. In terms of the process, we started preparing slightly before Chinese New Year. A bit of context, we did close our pre-Series A about two months ago in May. The usual preparation, get a long list, find a fit for geography, stage, cheque size, focus areas, and then ask for warm referrals and then just keep following up. 

When the pandemic struck, we had to adjust the projections especially like, the nearest to the 3, or even 4 quarters. There was an excellent AngelCentral event with ShopBack and PatSnap, so definitely learn a lot from that event about streamlining, cutting expenses. I mean, obviously, quite a number of investors had to walk away because of various reasons, you know, could be capital conservation, etc. 

So for us, I think how we approached it was reach out to more of them, evaluate other options, such as raising later or raising a smaller round, which we eventually did. When you’re reducing the immediate burn, which anyway should go down because near term growth spending will also be reduced because of the pandemic. The last thing would be, we did diversify. We do mix up both debt as well as equity.


Shao-Ning: So you changed the strategy of how you raised?


Caleb: We were initially looking at a mix of debt and equity, but I think, given the low-interest rates, we decided to do more from the debt side.


Shao-Ning: That’s extremely smart. So one of my other startups did the same. So he was actually planning to raise, getting ready to raise by 2021 early, but because of the low-interest environment and he has a benefit of having a good flow of POs, so he’s able to get the buy-ins from the banks to perform some cash flow support. Dustin, anything to share?


Dustin: Our story would be pretty much similar as well with what Caleb and Nimantha mentioned. We started fundraising for our series A right after Chinese New Year, so that was early February. That’s when we started reaching out to investors, feeling the market and all that, and suddenly COVID struck in March and what we did was okay, this is going to be much more difficult. We decided to raise a bridge round instead of going for Series A. That’s when we spoke with our existing investors, Wavemaker and a few other angels and they were the ones who led this bridge round. The moment they put out the term sheet, we were able to complete within three to four weeks, and we were 50% oversubscribed. So that was a good thing. 

What happened to the business was, instead of just focusing just on fundraising, we actually focus a lot on the customers. so we didn’t really pivot. But we made our solution, our product much more relevant to the COVID-19 situation. Thus, the launch of the uHoo virus index, which we did in June, and that really helped push the demand for our product much more. So since we started this year, up to June, we were expecting a slight decline in revenues. But in fact, we are 20-25% above plan. We’re still growing, even on a monthly basis. So far, the COVID-19 situation kind of benefited us, in a way.


Shao-Ning: That’s good to hear yeah. Okay, so we are at around the 30 minutes mark now. We have a question on Facebook right now. But I was actually just going to ask 1 more question because Michael kind of like led to it. 

The whole due diligence process was virtual and was online. How did that feel? I mean, from an investor’s point of view, how did that feel? Because the thing is you got to write cheques out based on this person that you basically see on a computer screen and then you know, your spider-sense probably doesn’t work. Like for me, a lot of time is really how I feel engaging with the person and then one personal experience was actually one company that we were very interested in investing but I just couldn’t commit. When phase 2 started, I told Der Shing, let’s call the guy out for breakfast, then it’s only after breakfast then I could settle myself. So, how was it for you guys that you know, Michael, and then Wei Sheng maybe it’s probably not so bad because previously you would fly, but I think a lot of conversations are still through virtual yeah.


Michael: I think for me, in terms of the due diligence in the early stage, it’s all about the people. Very rarely is there the product or anything. So you know, there are not many customers we can go and talk to, there’s not much data that we can review. So it’s very much about the people. All the deals that we’ve closed so far, we had a chance to at least meet the founders once in person. We did have that and we’re going through a process now where we’ve never actually met the founders and I struggle the same as you. 

We have just a lot more meetings and it probably the deal is going a lot slower than it was previously because there’s that uncertainty because I feel very much the same as you unless I meet the person in person, then it’s very hard for me to take the leap. We have to do more checks and balances and we also do a lot more. We’ve started using tools that we’ve actually found really useful and doing some like motivation testing and everything. We’ve actually done it, kind of backdated on our whole portfolio, and actually, it’s come out being very accurate in terms of supporting some of our decisions and showing what we made right and wrong decisions. 

Probably what we do now is we have a lot more calls with founders than we would have before sometimes just for general chit chat. So it’s literally like having drinks over zoom just because a lot of it is not just getting to know them as business people but getting to know the founders on a personal level. We’ve tried to do it that way. I would say what’s happened is things have gone slower, all the due diligence stuff outside was mostly done remotely anyway. I think the only thing that we’ve not been able to resolve is that I’ve always like to go to the offices of the companies to actually talk to employees and like, see what the environment is like that they’re working in. 

Obviously, we’ve not been able to do it. But you know, like, we always tell entrepreneurs they’ve got to adapt, us investors have to adapt as well. We’re just going to have to live with it but I think for me on that side is that we will still be actively investing but with methods that we have never done before. So, it’s obviously not stopping me on that side.


Shao-Ning: Okay, Wei Sheng what about you?


Wei Sheng: Since COVID started, we have made three investments and I’m in the midst of looking at 10-ish also right now. Quite deep in, you know, more than just the preliminary stage. Of the three, one was actually done more or less, the terms were settled before the lockdown, so don’t really consider that part of the COVID investments. The other two, we actually only met the founder once last year, just one time at that event, and that was it. Then the remaining diligence was done all by online. 

Interestingly, these two deals were slightly earlier than what we would normally do. So both were kind of like in the pre-A stages. I think because it’s pre-A, therefore, the cheque sizes are smaller. I think we were a little bit more comfortable writing those cheques, even though we didn’t have the chance to do as deep due diligence as we would like. But that’s not to say that we will not consider writing cheques for larger companies because I think right now we can do some meetings now so I think it’s okay for now. 

The one thing that I think that I did, one of my behavioral changes was that I did a lot more reference calls than I would have normally did. In the past, I always did reference checks, and it’s part of the process and you don’t do as many because you meet the founder like 10 times before you invest and during those 10 times you kind of get a sense of who he is, where he is at. You problem-solve some questions together, you negotiate, you get a sense of who he or she is. On video it is harder to do that and therefore, those reference calls really make a difference. Especially those reference calls you know by parties, they did not know that they would receive a reference call for example, or it was not recommended by the founder. They will give pretty candid feedback and of course, you have to calibrate and take it a little bit at face value because different people experience different things. After you make 15 different calls, it kind of lets you know you converge on a point. Some of the commonalities, common traits come up and then you make a decision based on that. Definitely, I think, actually, now that I think about it, post-COVID. That’s probably a behavior I’ll continue to do as well because I thought it was really useful.


Shao-Ning: Yeah, totally agree. So from the founders, do you have anything to share, like, how do you prepare for the virtual due diligence? What do you do differently that you didn’t have to do, but you actually had to do it? I know that we did a virtual office visit, right. Caleb was walking around with the laptop to show us the rest of the office and the storeroom.


Peck Ying: I think the challenge is really in building trust. You know, how do we convey that trust through a virtual meeting per se. I think the office tour kind of help in that because I mean, apart from just knowing the founders, I think that knowing the environment and the kind of workspace area we are working in, kind of help form a certain impression of how the startup is looking at things or growing the business. So I think, as founders, maybe some tips that we can give to other founders is to think of creative ways that you can really build the trust, even though it’s just a virtual. Whether it is getting some of your team members online to just share the experiences or even showing the tour of the company. I think all those could help and I think for us, it was a very interesting experience as well because we didn’t have that before. Typically physical meetings, you know, we just meet the investors and we have a chat. But I think that the whole experience was really interesting.


Shao-Ning: Okay. Dustin and Nimantha, any experience?


Nimantha: From what I said, nothing changed Shao-Ning. Yeah, because I said most of the investors were existing ones. So for the new ones that joined, they were happy to get access to our data room and like all the usual due diligence and stuff on the financials, the product. We went through quite a number of calls and did deep dives into the technology and the other calls, deep dives into the business models, and then gave access to the data room, which we typically do with all our potential investors. And that was about it. I think the process-wise, it was pretty much the same for us, nothing really changed.


Shao-Ning: Dustin, anything to add?


Dustin: The same case for us, nothing much changed. It is just that no face to face, virtual is fine. I mean, we’re all tech companies anyway.


Shao-Ning: We have quite a few questions now pending. So I’m just going to go through the list. Okay, Oscar asked a question. He said, how has COVID impacted the speed at which VCs make their decisions and how long it takes to close a round? So I think actually just now it was hinted, you do a lot more work behind the scene. So I guess, but how much longer?


Michael: I would just say because we do so few deals, I think if we made the decision relatively quickly, we’re very much like, you’ve got to go on gut when you’re doing kind of early-stage deals. 

In terms of the due diligence, probably an extra kind of few weeks. During normal time, you try to close deals within two months from meeting the company to closing. I would say it might be like two and a half months now, but the intensity of the amount of interaction that we do is very far. So of the five deals that we’ve closed so far, one of them we had met at the end of last year and we closed quite quickly. Two of them we had met the day before lockdown started and we managed to close it within kind of just over, both of them within like two months. It was very much focused on that one. It’s just that the amount of meetings and calls that we have with them is probably a lot more than we would have done in the past because we would have been able to sit down with them over a whole afternoon. What we found with zoom calls, doing a full five hour like zoom meeting is not really productive for anybody. So we’ve broken that up as well but speed wise no, it damages the companies because they’re too distracted if it goes on for too long.


Shao-Ning: Wei Sheng?


Wei Sheng: So the question is around the speed of the fundraising close right? 


Shao-Ning: How long does it take.


Wei Sheng; I don’t think I’ve seen a significant change. I mean, ultimately, the speed of the fundraising closing kind of correlates or strongly correlates with supply and demand, like how hot that particular startup is, how many investors are chasing it? I guess, for some companies that you’ve seen, which have good fundamentals before COVID or during COVID, it doesn’t change those fundamentals. During COVID, I think some of these companies wanted to extend their cash buffer a little bit. Yes, they have been affected by COVID but I guess investors know that these guys have strong fundamentals. They’re still quite sought after and so they were able to close quickly. I don’t think I’ve seen COVID impact the speed of fundraising close that much.


Michael: One thing I have seen change is of all the deals that we are receiving, they’re all good deals, but normally when we give a term sheet, there are normally one or two other term sheets at least, that the companies are receiving. But for all the companies, we were the only people that were even willing to take meetings or supper, let alone having competing term sheets. The VC community over the last few months has definitely been more inactive than they have in the past for some of them. If you look at a lot of seed funds, they have a much bigger portfolio. So I think a lot of it is because their focus has been more on supporting their portfolio than it has been on doing new deals. And I think I don’t know, but I’m assuming things that could begin to kind of begin to pick up now because they’ve stabilised a lot of the companies within their portfolio. The length hasn’t increased, but I think the amount of VCs actively investing in the last few months has definitely decreased for a period of time.


Shao-Ning: I think I agree with that. I don’t know whether Teck Moh you see the same also right? Because on our side, we can see that a lot of our early stage, a lot of angels and early-stage funds are a lot more cautious.


Teck Moh: I would think so, mainly because there is sufficient uncertainty in the environment. When you think about the success of the startup and the founders, the journey, we need to think about how they are coming out. How do they adapt to the current situation? And how do they think about their runway, and especially what the KPIs are, because you must remember, for startup founders, if you cannot raise a second round when your money runs out, all of us lose some money. So, of course, we want to think about the journey of the founders and think about how the quality and the ability for the founders to adapt.


Shao-Ning: I have another question now from the QnA within the zoom itself. There’s a question to ask about your advice. I think it’s again on Wei Sheng and Michael, what would your advice be in dealing with situations when investors walk away from their signed term sheets before COVID? I actually know of one startup that actually decided to wrap up the business because the term sheet, even though it was signed, the investor decided not to honor it. What would your advice be?


Wei Sheng: I don’t know if I have any good advice other than the fact that you need to recalibrate your trust in this particular VC then. I mean, it could be a legitimate reason. It could be, because of COVID,  the demand for that particular product in that particular business just kind of went to zero for the next foreseeable one year. The VC, in the interest of protecting their own investors, could walk away and I think that could be a legitimate reason.

In any case, the term sheet is a gentleman’s agreement, it’s not legally binding, and in the event of such a drastic situation, it’s not in good form, I suppose. But I can see why the VC thinks that way. That said, I think what is not so good, and I’ve seen this happen in a few cases. In fact, one to our own portfolio company. What happened was, there were predatory instincts so there were as opposed to, I still want to invest, but now my terms have changed. So it’s not walking away completely but now, my terms are a little bit more onerous. Then there was some back and forth and entanglement, in terms of wanting to renegotiate. So we did that, helping our portfolio company to renegotiate terms to come to a better conclusion. I’m not sure whether there’s anything that you can do because legally speaking, there’s nothing. This is just not binding. I would say give yourself options, speak to more people, start your process earlier on. First of all, if you think that you need two months to raise, start six months in advance, and then hope for it to close in two months, and talk to as many people as possible.


Shao-Ning: Michael? You have been both angel and investor, you were in different shoes. How would you advise?


Michael: I will answer in a very similar way. When you’re raising money from an investor, very much of what we’re investing into an entrepreneur is very much based around the relationship and it’s about keeping a good relationship. Pardon my language, for screwing over the entrepreneur in the short term, it’s going to cause me issues down the line because it’s going to damage the relationship. For a successful company, you need everybody working on the same hymn sheet, you don’t want the entrepreneur to feel that the investors have taken advantage of them, they’re in a difficult situation, it’s not going to build that trust and support that you need to be successful in the long term. 

As we’ve just said, if there is a fundamental change in the business, then it’s up to a point it’s okay to change the you know, sometimes the valuation or the terms of the business and as long as it’s not waiting till the last minute. One of our companies literally at the last minute, literally two days before the deal was due to close, the investors came back and said we want to reduce the valuation by 30% and it’s to take it or leave that type of thing. We decided that we could leave it because we would fund it ourselves and do a bridge round ourselves. 

I’ve definitely seen some predators so we have seen some term sheets out there that have not necessarily changed but they’ve been very aggressive from the VCs. So they’ve asked for a kind of like three times liquidation preferences and everything else like that. Again, we just tell them no. It’s better not to have the money from them than to have the wrong money. If from the entrepreneur’s point of view, if you think that the investors are being dishonorable, it’s better not to take the money than to take the money because as investors, we go very much in our gut reaction. You’ve got to do the same thing and you’ve got to think of it as a relationship. So sometimes, it makes your life more difficult turning money down. But it’s better for you in the long term to make that decision than take the wrong money. 


Shao-Ning: I can’t imagine 3x preferences, the liquidity preferences. Might as well hang an axe over your door.


Michael: And it was participating liquidation preference. 


Wei Sheng: I thought I thought I was the only one who saw above 3x but it seems like you have the experience. 


Michael: Yeah and this was a pre-Series A round. It was quite shocking, to be honest. But you just got to be aware of what was accepted. What so it wasn’t standard but yeah, I think that it was surprising.


Shao-Ning: This question actually was asked by a different person, and came out in the previous chat we had with the five VCs, right. And at the time, the advice was really to move on and know what this VC is about. If you want, you could share with your close circle to warn everybody else about this. But I think for the VCs, if they do it nicely like what Wei Sheng said, they advised accordingly, explain properly what’s going on with them, then it’s something that’s acceptable then so be it because situations change. But if they are predatory, I think it’s something that as a founder, you will want to cautiously warn your circle of friends, so that you prevent people from falling into the same trap. 


Michael: It should be a norm anytime, even pre-COVID. I would always say that even before you take a term sheet and this is from the entrepreneurs, even before you accept a term sheet from a VC, don’t reach out to the founders that I tell you to reach out, it’s easy to find out who my founders are. 

You got to ask the right questions. You’ve got to ask when things go badly, how do the VCs react? That’s probably the most important question for you to ask. Because if everything has gone well, everybody’s like, Oh yeah, another wonderful you know, if you ask some generalised question how to find VC, your VC investments and all that, fantastic. What you’ve got to find is when things go wrong, do they roll up their sleeves, or they try to take advantage.  Off the record, founders are very honest when they’re talking to each other. As Shao-Ning said, they will, if somebody is bad, or you know, whatever, they will tell you, honestly. So you should always be doing that because there are certain people out there that do have a certain reputation. There are others that have a better reputation. And you just gotta be aware of it, but this should be all the time, you should be doing that because the VCs have a track record.


Shao-Ning: The next question is also targeted at investors. Are the risk appetite of the investor smaller now or more cautious and does it mean that the lead investors prefer to have more investors join in for the round as well? And if the ticket sizes are smaller? 


Wei Sheng: I can’t imagine the fund will suddenly change, fundamentally change its strategy because of COVID. I think at the start, when it was around the March or late February period, I think it was quite clear that there was some uncertainty and it was also clear that we don’t know when the uncertainty will end. Some people think it is a few months. Some people think it’s a few years so I think there was more or less a wait and see approach at that point in time. I think now most investors have normalised and we are all living with the fact that this is going to be the case going forward. This is going to be it. So all these appetites are returning. I don’t think any investors are holding on to their wallets now. Another, I guess, semi pro-tip is that often, most VCs have a fund life right? I can hold on to my money for three months, I cannot hold it for three years. Otherwise, there’s no way I can meet my obligations as a fund. This also goes back to the previous question, right? If somebody pulls out from a term sheet. Well, I would say the following. If you can, and I might be letting on more than I should but it is a bit of a waiting game on both sides right. The investors need to invest, it is not that we can just hold to money forever. If you are able to understand a little bit of the dynamics then you can come up with a better fundraising strategy. So yeah, I guess that’s my two cents. 


Shao-Ning: Wei Sheng highlighted a very, very strong insight on fundraising, which a lot of founders, I realised that when you’re fundraising, you don’t do the due diligence, understanding how VCs work. It’s the same thing as you’re trying to provide your customers, you need to understand how to trigger them to buy your product. When you’re fundraising, you really need to understand how the VC industry works. Short off telling you where to read up, it’s really research you need to do to understand how the industry works and how they deploy their funds for you to do very proper fundraising activities. 

Here’s another question. He feels that, actually, basically, the investor mindset didn’t change much, but perhaps how founders are able to show their difference, in fact, is relevant to the market, perhaps even more so during the pandemic will help them to become more attractive to investors. The question is, during this period will it be making a difference to investors if a start-up is able to showcase their capability to start, build, and still create a difference during this period. Like on top of usual pitch content, add extra emphasis on this. Do you mean that you can showcase your caliber and additional things that you do? I would think that the answer should be yes.

We have one question here on if it is true that investors are more interested in tech businesses as compared to traditional businesses such as brand suppliers?


Michael: I think it goes back to what Shao-Ning was saying, is understanding what the VC mindset is and Shao-Ning, I can send you a really, really good deck, which really simplifies the VC model and how we make money. It’s really good for entrepreneurs, understand what motivates VCs. I will send that to you later.

We’re looking for high growth businesses. We’re VCs or businesses ourselves, we’ve raised money from our investors, and we promised them gigantic returns. And that’s how we’re going to make money. The reason that we do like tech, it’s more to do, it’s not necessarily tech, it’s like high growth, we’re looking for companies that are potentially going to be home runs rather than kind of infield hits. Quite often we end up with infield hits, but we’ve got to have these start with the belief that they can give us gigantic returns if everything goes according to plan. 

I’ve turned down a lot of companies, which I think are good companies, they’re going to make money. Best case scenario, they’re going to make 2-3 times a return for me, which as a seed investor is not going to pay for all of the crap that I end up investing in. So I need big returns to make money but also to cover all the companies that don’t succeed because I’m investing in fumes and hope more than data and reality. It is slightly different for later-stage investors as their invested companies will have stuff like revenue and such like. 

The reason I’m looking at is not so much tech but high growth. 


Shao-Ning: Yes, so this is what we usually will tell our members what we are trying to find is highly scalable businesses that can scale. And so like, both Dustin and Peck Ying and Caleb actually recently did the syndication with AngelCentral. They are consumer facing technology businesses. So usually, it’s very different from what Michael is doing. But the thing is in this space, like what Dustin was highlighting a lot, is that right now during the COVID period, as a founder, his storytelling has changed. He has employed COVID to his benefit, and that’s why he’s not affected. In fact, the sales actually went up a couple of times. It’s really what the founders, it is like what Michael said, is investing in the founder. We’re investing in a story or investing in people who know how to steer the ship during whatever time it is, and Ideally the investment will get us 10, 20, 30 multiples. We can’t do 2-3 multiples for early-stage investors because mathematics just doesn’t work out. So again for the founders, for fundraising, you really should read up on how the VC industry works and how the VCs evaluate and do their projections. 


Teck Moh: Can I suggest both PSLove and uHoo make a comment, because technically, they are on the borderline of tech companies, but consumer-facing companies. They are high-growth, which is why we invested in them, so maybe they can make a comment on high growth versus tech. 


Caleb: I think for investors because there are so many different, in a way categories, but definitely they need growth. Definitely, growth is like the key metric, even if it’s in a traditional sector or using traditional channels. If there is very high growth and can be very scalable, it can still be very attractive. That said, if the business is not encountered by that high growth segment, or you don’t see a way to do it, then I think maybe like alternative investments, whether is it debt, or you can also look at like single-family offices, multifamily offices where they might have lower thresholds on the return, it could be something to explore as well. 


Peck Ying: I think for a consumer business like ours, it is also on us founders to also share how we see the business in terms of how we think you can really go for scalability and high growth. Investors are looking at a tech space specifically, all kinds of business models may not be very familiar to them. I think it is on us to really share why we think that what we do can really grow fast and scale fast. 


Shao-Ning: Okay, in the interest of time I just want to bring up the last question. I think it’s quite an interesting question. I think Michael will scream. As a founder, I personally find fundraising a very tiring process. Are there companies out there that we can outsource this to?


Wei Sheng: Yes, there are. I guess they are called investment bankers and other capital advisors. But I would highly recommend not to, especially at the early stage. I think that at an early stage, investors are investing behind founders. Not so much the product, not so much traction, not so much your cash flow, as cash flow is all negative. So we are investing behind founders and who else better than to tell the story yourself? Your banker can’t do it for you, the other people can’t do it as well as you can. 

I would highly recommend that you go through the process yourself. It helps as well, because even that later on stages, right, and I’m stretching a bit further ahead, when you’re thinking about series C, series B, exits, you need to be at the forefront and to have that experience at the start will be useful for those experiences that come later on.


Michael: I 100% agree. The only caveat I would say is when you get to Series B, quite often, if you’re a Singapore or Southeast Asian based company, when you get to Series B, quite often you’re looking at global funds. Actually getting somebody to help you outsource a little bit to do the connections and introductions to those global VCs or corporate investors or if it’s to do an acquisition, I think then use professionals of that stage. 

But at the seed and series A stages, it got to be you. If somebody comes to me, especially at the seed stage, and they’ve outsource, like their financials or their deck, I actually say no, because they’re wasting their money. I mean, they don’t have the confidence to do it themselves. I’m not looking for perfection. I know, at the startup that the founders, it is the first time that they are fundraising and they’re pretty inexperienced, but I want to see what I’m working with. I don’t want to hear somebody else’s idea of what they think the company should be doing, because that’s what they think I want to hear. So I want to have the raw, the data, and the knowledge because then I know what I’m working with. It’s all about uncovering the strengths and weaknesses of founders. Not just about my investment decisions but I then know how much support I’m going to have to give and what support I give to the founders post-investment.


Shao-Ning: In the interest of time, I think the last question is actually quite relevant for a lot of founders. So fundraising is a very time consuming affair. How do you still manage to focus on running the company or engaging your customers? I think it’s a struggle that all founders go through and Nimantha will remember my nagging.


Nimantha: Yeah, definitely. So I just jump in and after that, the other panelists can share their experiences as well. This is, I guess, the best part of having two co-founders. So in our case, I completely switched to fundraising. I think I was spending 80% of my time on fundraising matters, having investor calls, sending decks, having calls, and help to support DD and all of that, and the remaining 20% was on the sales stuff that I oversee. That was my entire role during this whole process, so it’s definitely time-consuming. It took more time for us as well though it was like a pre-Series A round. 

We were trying to get new investors on board, so we tried quite a lot, although we had commitments coming in from the existing investors, because we thought it would be nice to have new connections. Because each investor like what Michael pointed out earlier, it should be smart money. Each investor should bring something other than money. We’re trying to look out for strategic support, although we were rushing for time. But predominantly, I was spending a lot of time doing that and my co founder was running the business, the product, and helping with that.


Dustin: Yeah, in my case, I had to split my time, half on fundraising, and half on the business itself. I don’t have to do a lot of those cold emails, cold pitches because we had really good support both from Wavemakers and also Endeavour. So they were able to make the introductions and all I had to do was to follow up, pitch to the investor, work with them on the due diligence. So that helped a lot.


Caleb: I think maybe we can sleep less, just joking. I mean, if you have a co-founder, that helps a lot, else you might have to delegate. Basically, either you are in fundraising mode or not. So once you start, go as fast as possible and then remind yourself as with all fundraising rounds, you can have 100 no, but you only need one yes and it’s done. Usually, when you have one yes, you have more yes that follow? I think we did reach out to probably close to a 100? So try to have fun while fundraising, focus on learning from the people you get to connect with, rather than individual outcomes. Yeah, and a lot of the times, the people you speak with after they get to know you, maybe they can come into the following round.


Peck Ying: Maybe just add on to that as well. I think building that relationship is important because they may not invest in you now, but then you never know how they can come into picture in the future. I think instead of just seeing it as I need the money then I’m fundraising but treat it as like really relationship building and making that connection so I think that mentally it helps a lot. 


Shao-Ning: Fundraising really is a very tiring process. And nonetheless, the COVID situation and one of the questions that I didn’t highlight is actually a lot of founders, they feel that it may not be very reasonable for the investors who focus on revenue during the COVID period. 

But then the thing is, businesses are meant to be business so VCs are also doing business. If you are asking VCs to ignore a key feature, or key indicator of how to evaluate a business, during the COVID period, it’s actually not very fair. 

I think it’s really how the founders evolve yourself like a Pokemon. You really just have to evolve yourself. There’s no fixed way of doing things, but you need to know the map you’re playing on and you need to know how to play with the environment that you have. You cannot expect the VCs to forgo their primary objective for running a business as well right. 

With that, I would like to thank everybody for taking an additional six minutes with us and please stay safe. Thank you.

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