Welcome to the upside down podcast. My name is Yash, the host of this podcast, where we explore the upside in Southeast Asia’s growing startup industry and speak to its leaders and pioneers. My guest for today is Shao-Ning Huang who is the Co-founder and Chief Angel of AngelCentral, which was co-founded in 2018. AngelCentral is the most prominent angel investment collective in Southeast Asia, aimed at bringing together angel investors and investing in exciting early stage startups. Prior to this, Shao-Ning was the Co-founder of JobsCentral which she started in 2000 and bootstrap for to become the market leader in both niche and mass market, online hiring and HR solutions, and successfully expanded to Malaysia and Indonesia. In 2011, JobsCentral group was acquired by US based Careerbuilder which is one of the largest HR tech acquisitions in Asia. Given her exemplary experience building out one of the largest internet businesses in Southeast Asia in the early 2000s. And also an active angel investor, it’s a pleasure to have her here to share her views.
Yash: Hi, Shao-Ning, welcome to the episode. How you doing today?
Shao-Ning: Very Good! Thank you for having me.
Yash: Starting off, I would love to know more about your current initiative AngelCentral – how is AngelCentral structured and why is it so you know, what gaps are opportunities in Southeast Asia?
Shao-Ning: AngelCentral is an angel investing club, we are membership based and we have 140 members right now. We started in 2018. In 2016 and 2017, it was really a very casual community that DerShing and I started to pay it forward. But in 2018, we formally structured it as an investment club, we formed a private limited where we charge membership fees, we conduct trainings, we put out workshops and introduce it to anybody who are interested in what angel investing is about.
Then, we bridged the potential investors with the startups because at the time, we’re doing a lot of startups and with word of mouth, we were easily seeing about 100 over companies a year. So we curate the startups and then we bring them in and have them pitch to the angels. So currently coming to 2020, at the end of 2019, we have close to 140 members.
For 2019, almost 65 of our members actually cut cheques for the year of 2019. As a group, we raised over 6.9 to 7 million for the startups. So actually it’s nice to see it coming very fruitful. So the gap we’re trying to solve here is actually not the shortfall of deal flows, there are no shortfall of companies in this space. A lot of investors actually very interested in this space. But the tricky part is how do you evaluate a startup? And how did you speak the startup language? So we realized that we are very good translators here. And because we were founders before, and so the founders will be able to ask you and appreciate the fact that now I’ve changed seat from one side of the table to the other side of the table. I remember what it was like and now knowing both sides of the picture. We become good translators and will become, good facilitators will help two sides come together.
Yash: Specifically on the structure, do you end up syndicating in a more formal way or people still make their own decisions on where to invest in?
Shao-Ning: Syndication services is the 3rd services that we provide. The first is membership services where members get deal access, second service that we provide is angel investing workshops. The third is syndication. A lot of startups that come to us and if we believe they’re in the right stage for fundraising they will join us at our pitch day or they will showcase their details on our platform. The investors could invest in two ways one is directly into the startup, especially when the round size is not very big, maybe 200-300K, which is could filled up directly, so the startups will take the investors directly onto their cap table.
So in that case, we, in essence, have no revenue model for startups. For startups who are looking for bigger rounds, or typically when a VC is taking out half the round, they’re looking for the other half of the round to fill, then we will syndicate for that. Through the syndication, we’re actually providing another pair of eyes to help the investors to rate the company. With the syndications, we also help our angels to bring down the bite size. So, it’s more of a diversification at the same time is a portfolio approach that we advocate for the angels to do.
Yash: Extending that from the Angels perspective, what do you think is the most structured and effective way for the angels to start investing? And you know, what are the right motivations and ingredients for them to be successful (ingredients in terms of, you know, capital time patience?) What would make it successful for them?
Shao-Ning: I think for angels to be really effective in this space, first of all, you have to really know yourself. Angel investing takes both time, money, and a lot of guts. So, first of all, as an individual, you need to know your finances, how much amount that I can afford to write off without losing sleep. Because angel investing is very different from public market investing. In public market investing, you can sell shares tomorrow if you make a wrong call today but for angel investing typically you are locked down for 5-7 years or you have to write it off in 12 months, and on top of it, you need to know your bank account situation and your credit position. Ideally, you should not be just offering the cheque. Especially for well sought after companies, of course top startups, they don’t just want the money. They also want to tap on your network and your expertise. An angel need to know what are the value propositions on the check and what make a good investor that the startups would want to add on to the cap table.
Yash: On the mathematic side of it, what would be the right return expectations and time horizon you addressed for the right return expectations? How big should an Angel’s portfolio be for them to have a balanced outcome? You can have one or two big hits but many of them can be write-offs as well. So what’s a good long term structure?
Shao-Ning: First of all, AngelCentral itself has no fund, we are a platform to support. For my personal portfolio thinking, right now between my husband and me, we have 28 companies that was we started building it around 2012.
Every year, we invested four to five companies. Methodologically speaking, we set aside a sum of money and we know that how much each company to allocate for bite sizing. So what we do is make sure that this is the sum of money that will not affect the lifestyle, if we have to write it off. So that’s the first thing and second thing was actually from out point of view, after we settled what’s our investment philosophy, we set a broad guidelines, what’s the maximum valuation that was set to your stage of company and typically, what are the key things for that. After that, set a discipline bite sizing, cheque sizing and for us, the target is between 35 to 45 and over a period of years. This is our investment horizon. For outcome, we are prepared to wait 7 to 10 years per company. So, it’s actually very similar to a seed VC thinking.
Per investment ideally for Angel because of the early stages and because of the high risk factor, I would actually say that mathematically speaking for portfolio of this size I would expect 60 to 70% not to look up. So, in order to cover that, and in order to make sure that the rest work out, you have to plan to import these 25-35x of returns right so that you overall aim to enjoy an IRR of 30-40x. Openly, our first investment from 2012-2014, we have quite a few expensive tuition fee paid. But our IRR improves greatly since 2014, to now it’s about 52%. We realized that market is actually getting very saturated and it’s actually not easy to find new opportunities there. So we have to broaden our investment skillset and scale to other verticals.
Yash: You shared that from your perspective what your longer term vision is, but there was some tuition fees along the way, as you mentioned, what is the minimum number of corporate companies angels should target because often they get pulled into one or two interesting things, and if they don’t work out and despite of the whole asset class, so you know, is it a minimum of 7 investments? 10 investments? 15 investments? before they figure out are they good at this and do they want to do this?
Shao-Ning: So that’s why I mentioned actually it’s a very time consuming hobby. Right now, 60-70% of our members are still working full-time. What will work out for them very well is the syndication deals. For the syndication deals, they follow a person that has been doing it on a bigger scale basis, so that helps. Find a person that you can trust and I believe that this is a person that you can actually openly discuss your concerns. Investment at the end of the day is a learning opportunity, and you need to broaden your approach and learn from other people and be willing to share your thoughts and concerns.
Yash: That makes a lot of sense, you did mention the different approaches of doing a syndication is a very interesting one I wanted to jump to discussing as a space overall, you know, how do you think this will evolve in Southeast Asia, you have angel list in the US where there’s a few super angels who invite other people to follow them, they put out there but they are nesting behind and people can take a week or 10 days or 15 days to decide whether they’re in or out. It’s obviously not that organized here today, is that the direction you would go in or, you know, how do you think the space is?
Shao-Ning: That’s what we are trying to go after. Typically, super angels tend to work in a very private manner. They would have a SPV with a few good friends and they always go together. There’s an actual SPV, the investments are properly governed, but on the other hand – four of them are going together, but every time it’s a different composition, and it’s recorded casually behind a person’s name on the cap table, so that actually I think it’s a time bomb. It’s not a great way to go for future financial planning purpose. What AngelCentral is trying to do is that we make sure that there is governance, so every syndicated is a Pte Ltd. All angels will go behind that Pte Ltd and this Pte Ltd is one line on the company’s cap table. Through a proper set up this way, we have a Subscription Agreement, Constitution for this SPV. In the event if there’s any decision making that needs to be made, there is a framework, there is a guideline, there is governance.
AngelCentral position ourself as a syndication manager, and while we curate the startup, we make sure that the process is done properly and the SPV has to go through annual filing with the government and things like that. We would also make sure that information is shared properly.
Yash: Today, for the angels in the US there’s a few PayPal mafia, and the famous ones, there’s a few school mafia folks who went to Stanford and these years, how are those groups structured? Raise it between just a few people who are interested and friends around them. Is there a way to reach them? target them?
Shao-Ning: For founders there are a few key groups of founders, so actually, we’re just having a barbecue with a bunch of founders. And one of the founders , I think, is a series B company, she was commenting that our ecosystem is still quite immature. So using the word mafia, she caused a generation of 4.0. Our generation 1.0 is my group – The JobsCentral group. The Zopim group. Then you have the Property Guru group. So these are the three groups, you can see that your internet founders coming back into the scene to support. I will say actually there’s also the HP mafia but they were more of the slightly earlier days. The background is more towards manufacturing and hardware.
The part on whether we have the Stanford alumni equivalent. I think it’s still a little early. So that’s why we see that we probably need to encourage more exit plans. You mentioned Grab, GoJek and Shopee, right now I’m not seeing them in a very active way. I will say that I think they will actually be very good network for the existing founders to tap on to learn from their experience.
A lot of them end up coming across a lot of interesting things but they just don’t have the time. So I think a syndication structure worked very well for them. I think the next wave of meaningful angel investors will come from those markets because they’ve benefited from this journey themselves.
Yash: Switching gears to the other side, you know, you did mention how founders can reach investors. But beyond reaching investors, how should they do due diligence, you know, can this angel add value to me? And what value should I even ask for this will never be a full time person delivering projects and contracts to me? What is the right expectation to have from founders perspective
Shao-Ning: On founders thinking, on one hand, I don’t encourage founders to have this huge board of advisors as this is too liberal and it sets me thinking if this founder really knows what he’s doing?But on the other hand, when you want to engage a full-time working person, you have to be very clear about what is it that you’re looking for? Are you looking for networking? Are you here for introductions? In fact, a lot of them are actually offering advisor shares. So, market rate advisor shares between 1-3% is not too expensive, but long term, I would suggest to do it on the return basis outcome basis rather than out-front promise. This will probably solve and prevent a lot of pain. And at the same time, you probably need to do a lot of reverse reference checks.
From angels point of view, we will recommend for them that when you know as a benefit that you could bring to the table, you should actively showcase that and not to be too aggressive? There are some barter angels in the market. So, if you belongs to this group you probably have to completely showcase what you’re doing.
Yash: Do you think it’s okay for founders to not engage deeply if they don’t see the early signs of the benefit? Which is often people say, you know what, let’s do the deal. Then I start helping you, as opposed to interconnects for us before, let us see what kind of access we can get before that.
Shao-Ning: I would think of it as a similar situation in employment situation where you have your probation period. In the probation period, you still have that public contract on your behaviours. In a lot of situations, there’s nothing guiding and it’s more of trust. There is no time frame around and in the end, we are always uncomfortable pointing out the negative part. If you leave it, from the founders point of view, if nothing comes up then never-mind but if you have an exit and the person come back and start haunting you, it’s not a good situation.
We met founders who actually had nightmare of this. For our angel investing workshop, we do have a soft push on what is good angel investing etiquette. There are a-lot of behaviours that are not ideal but the thing is at the point, it’s just no big deal. But over time, it piles up. For angels, actually reputation is very important. Bluntly speaking the good startups, they have plenty of cheques to choose from.
It’s also much more personal interaction, generally with someone who’s much more senior placed in terms of experience. You end up holding back or taking their word for it. Or they end up sort of asking you for more things, and you’re used to giving an offer. On the other side, like you mentioned, the founders who have choices, they are being a bit too blunt as to what can you offer me, and I don’t think it can work that clear cut as well. This is not a service provider you’re speaking with. I think there should be a quick and fast way for both sides to be clear on what is available and what can be done.
Also as an angel, I’m very clear on what I’m good for. So, I’ve been running JobsCentral. we exited when it’s about 150 people. I don’t think I can advise anybody who is running a manufacturing plant with 5000 people. So I am very clear that I’m probably good for founders up to the first 24 months, or up to 10 million dollars. That’s where my skillsets and experiences are relevant. I’m also very clear that they are not my children and I cannot dictate. I should be offering my views, but whether to take it or not, It’s up to them. We can’t force.
Yash: That makes sense. And to your 35 to 40 companies, do you have a sense now on which specific aspects of the business stages are typically quite helpful versus which other aspects they are not? Are there certain areas which generally work well or are good to expect from an angel investor.
Shao-Ning: It depends on angels. So for me personally, I’m very particular of processes. I feel that that is a discipline that you need to put in. Because I went through that journey, I’ve felt that they have the confidence of when they explain the situation to me, I could put myself in their shoe. And I think that is the purpose of my call. When you’re so caught up with your huge to-do list, you don’t see things coming. So sometime when you do catch up with them, you will see certain things, especially between co-founders behaviours, you could tell through the language and body language, you could see something’s coming up and you try to nudge a little bit. That’s actually how I support. Processes itself, there are plenty of books on it. A lot of you need to be on the ground to do it and sometimes our best role actually is really just highlighting the hidden potholes.
Yash: Senior bankers, senior executives in large companies has interesting value to offer from a market insight structure, maybe even business development in the future. In those cases, the right expectation is connections and advice or does it get more commercial than that as well?
Shao-Ning: In the first three five years probably is still not so relevant. I would suggest that founders remember who were with you in the early days. I have this situation where my founders send them a monthly email updates and always end off with an ask- what you need. The ask is always more companies more customers, actually there are more knowledge that you need to pick up along the way. One thing that I realized especially is that experience big company employees get very good at strategy setting, and going forward planning, which a lot of founders really need that. And the discipline of setting aside some, maybe two to three months to start planning that is actually an exercise that I think a lot of startups should deal with. These are the group of people that you can tap on and just find out from them what are the best practices. Maybe they can’t afford the 2-3 months off site meetings, so, just learn the techniques of how to do it, the discipline and stability.
Yash: Part of the motivation from the start this podcast was to ask the specific questions, because like I said, the founder has revenue to deliver and effort all he’s thinking is who can help me with that. But there’s so many other things, 3-6 months out, which is also so important that it may not help you this week or this month, but it’s still very important. Having those insights, what can be the right expectation?
Shao-Ning: One thing I realized that it’s very easy for us to identify who are the strong founders. The strong founders are the ones who listen. Not just listen to what you’re saying, but after listening to you they will ask questions to clarify, melt the divide and get something out. You have that and you have the other group of founders where there is always a “but” and there’s always what I think is more important than not doing it. There will be one or two that just cannot hear it.
Yash: Moving on, probably my last question of the session on personal projects. I’ve read a lot of your other media coverage and you’ve highlighted that one of your key personalities is to improve and increase the role of women, especially in the new technology economy. And, you’ve been a very successful female founder yourself. Advice from your side on women who can become more impactful founders. And to the much larger market, which is founders, whether male or female, on how they can become much better leaders.
Shao-Ning: I would like to do more of this. I realize when I was doing this, it’s at the juncture where women in this stage are usually between the 25 to 35 years. It’s a very pragmatic question and sometimes it’s not even about starting up a business. It’s actually about the family. That is actually a very concrete timeframe that these questions get posted to us. A lot of times a lot of people feel that it’s something that I have to do, I want to do it, but the society expects of me, my family. So it’s that juggling in prioritisation. A lot of women actually asked me how to do it all. But my question to them is, my life is a horizontal way, right now you’re looking at a cross section from the front. That’s what it looks like. But along the way, actually, I realized I have to compartmentalize. I have to decide that right now. This is my call. That’s why I have to give up on certain things and I am okay giving up that. So my favorite example is, I have kids along the way and a lot of women actually struggle with the fact that “Oh, I missed the first word, I missed the first step”. But, to me it was a choice. I need to miss the first step because at the time the business, I have to be working on it.
So do I regret that? I will say No and then I shouldn’t doubt myself at that. Alot of women will actually turn around to say that, ” I don’t want to give up that. So, because I don’t want to give up that I’m giving up in my career, my business.” Then when things come back, unfortunately the timing is missed. So I think what I’m trying to say is, you need to be very clear why you make that call and do not regret that. Of course, that call is going to be difficult, as you can’t have everything. So I used to get really upset whenever I am asked, you know, you seem to have a little more and how do you do it? And I get very upset with this question, because I don’t think they ever asked a man this question. Because I think a lot of men, they actually felt that they don’t want to fight over this. In their mind, probably because there’s a way. They have the boxes very clear in their head.
In the past 50-60 years, humans boxes are changing very rapidly. But the men lenses are not changing. For those men who actually adapt to the shape of that box, they adapt a lot faster and are a lot more supportive. So to see how to get men, co founder to be more adaptive is actually really be more open about it. But actually, not all women are equally receptive to other women. We actually had a founder who was was struggling with the younger ladies in office for not supporting the older ladies enough because they know the gap and will tend to ask the younger ladies to support more. They are just not willing because from their perspective, it is not fair. So I think in terms of structure, in terms of mindset, we need to embrace it. But do we really need some kind of policies or laws to structure this? Ideally, I would like it not to be.
Yash: One point that you did bring up was very interesting, which is you yourself should be very clear on things. But the immediate externalities you face would be, you know, your family, your immediate sort of co workers, your current boss, do you recommend to have clear discussions with them as you arrive at that clarity?
Shao-Ning: Yes, I think it’s very important that you spell out what you are able to do and what they are able to accept.
Yash: Great insights. Thanks alot for this.
Shao-Ning: Thanks a-lot for having me!
