The New Wave of Scalable Entrepreneurship in South East Asia
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Scalable entrepreneurship and venture capital are on the rise in South East Asia.
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The New Wave of Scalable Entrepreneurship in South East Asia
- 1. October 2014 The New Wave of Scalable Entrepreneurship in SEA Vistage CEO Summit
- 2. 2 6XXXX About the speaker Wharton MBA JP Morgan – Vice President IB Technology, GM Internet Marketing Parallax Capital Mgmt – Co-founder and MD Venture investing Extream Ventures – Co-founder and MD S$20 million seed fund Expara & Expara IDM Ventures– Founder and MD Incubator, advisory, training NUS – Adjunct Associate Professor, Business School, Entrepreneurship Sasin - Visiting Professor, Venture Capital
- 3. 3 6XXXX What is the relationship between risk and return? Risk and return are highly positively correlated You cannot increase return without taking more risk Return Risk Potential outcomes
- 4. 4 6XXXX Risk and return – small versus scalable business Small business: limited scope, complication and risk. Slow growth. Scalable business: significant scope, complication, and risk. Rapid growth.
- 5. 5 6XXXX Product or service: which is more scalable? Product-based start-ups – High risk of failure to achieve scale – High return if successful Service-based start-ups – Higher risk of failure to achieve scale – Lower return if successful
- 6. 6 6XXXX Additional returns to scalable business What type of life do you want to have? – An average life or an extraordinary life? What do you want to do with your life? – Create something of value from nothing or just make money? Do you want to: – Make a difference? – Change the world in some way? – Leave something of value after you are gone?
- 7. 7 6XXXX Returns to successful high-growth entrepreneurs
- 8. 8 6XXXX Facebook: ROI to 1st round ~5,000x Feb 2004: Mark Zuckerberg, 19, launches The Facebook from his Harvard dorm room, with ~10K investment. Half of Harvard signs up in the first month June 2004: Facebook receives $500K funding from Peter Thiel Mid 2005: Accel partners invests $12.7MM and Greylock $27.5MM Oct 2007: Microsoft buys 1.6% of Facebook for $246MM Nov 2007: Li Ka-shing invests $60MM 2009-10: Elevation partners invests $210MM at valuation $12 - 23B 2011: Goldman Sachs buys shares in the secondary market at an implied valuation of $50B 2012: Valuation after IPO $65B 2014: Valuation $190B “The youngest billionaire on earth” - Forbes
- 9. 9 6XXXX Instagram: ROI to 1st round ~200x 2010 - Kevin Systrom and Mike Krieger focus their multi-featured HTML5 check- in project Burbn on mobile photography Mar 2010 – Close $500K seed funding round from Baseline Ventures and Andreessen Horowitz; est. val. $5 MM Oct 2010 – Product launches on Apple App Store Feb 2012 – Raise $7MM Series A funding; valuation $25 MM Apr 2012 – Raise $50 MM at $500 MM valuation; sold to Facebook, val $1 B 0 5 10 15 20 25 30 35 Millions of Users
- 10. 10 6XXXX Google: ROI to 1st round ~1000x 1995: Sergey Brin and Larry Page, two Stanford University graduate students develop the technology that will become the Google search engine. 1998: Sergey and Larry raise $1 million in funding from family, friends, and angel investors to start Google in a friend's Menlo Park, Calif. garage with four employees. 1999: Google raises $25MM from VCs and angel investors 2004: Google goes IPO at a valuation of US$23.1 billion. Sells 7% to public for $1.67 billion. 2014: Market cap US$388 billion. Value of shares at IPO: US$3.8 B each Value of shares now: US$14 B each
- 11. 11 6XXXX YouTube: ROI to 1st round ~125x Feb 2005: Chad Hurley, Steve Chen, and Jawed Karim found YouTube, Inc. Nov 2005: YouTube receives funding from Sequoia Capital Dec 2005: YouTube service is officially launched Nov 2006: Google acquires YouTube for US$1.65 billion, 20 months after the company was founded 2013: Youtube revenue 3.5BB Value of shares at exit US$760 MM
- 12. 12 6XXXX Obstacles to scalable entrepreneurship in SEA Lack of entrepreneurial skills Attitudes toward risk Cultural attitudes toward failure Entrepreneurial success is difficult Lack of an ecosystem
- 13. 13 6XXXX Evolving cultural attitudes toward failure Failure is bad; avoid at all costs Traditional
- 14. 14 6XXXX Evolving cultural attitudes toward failure Failure is bad; avoid at all costs Failure is acceptable; leads to learning Traditional Current
- 15. 15 6XXXX Evolving cultural attitudes toward failure Failure is bad; avoid at all costs Failure is acceptable; leads to learning Failure is desirable; necessary for innovation Traditional Current Future
- 16. 16 6XXXX Startups and ecosystems Coral reefs – 10% of earth’s surface; 25% of known species Cities 10x larger than neighbor are 17x more innovative Residents of city of 5MM are 3x more innovative than resident of town of 100K
- 17. 17 6XXXX Factors that drive innovation require ecosystems Liquid networks Slow hunches Serendipity Error Exaptation Platforms Where Good Ideas Come From – The Natural History of Innovation
- 18. 18 6XXXX Networks in the enterprise ecosystem
- 19. 19 6XXXX Strengths of Singapore’s enterprise ecosystem Public policies promoting entrepreneurship and venture capital Public policies supporting the venture capital industry A business friendly environment Strong IP protection regime and corporate governance Strategic location in Asia
- 20. 20 6XXXX Launchpad at One North – Block 71
- 21. 21 6XXXX Asia VC increasing exponentially 2014 VC investment in Asia $10.5B up from $6.3B in 2013 New VC/PE funds raising $113B targeted at Asia in 2014 Venture capital investment in Singapore went from 27.9 MM in 2011 to 1.71 B in 2013, a 60x increase
- 22. 22 6XXXX SEA deal flow pipeline is full S$90MM invested in Singapore seed stage in 2013 alone Deals Amt (USD MM) Population GDP (USD B) Total SG 264 71.8 5.312 274 Total US 908 361.4 314 15000 SG / US 29% 20% 1.7% 1.8% [1] Crunchbase Jan 2014, Wall Street Journal Feb 2014
- 23. 23 6XXXX US and Singapore public sector VC The US federal government alone invests as much in small businesses as total VC investment through SBA/SBIR Federal contracts to small businesses dwarf total VC investment Start-ups are also funded at state and local levels Both US and Singapore invest about 1% of GDP into programs supporting start-ups and small businesses
- 24. 24 6XXXX Who are the players in scalable business? Entrepreneurs – Lifestyle entrepreneurs – High-growth entrepreneurs (scalable business) Venture investors – Venture capitalists (VCs) – Angel investors – Corporate VCs and investors – Banks – Government
- 25. 25 6XXXX What roles do they play? Identify opportunities Provide funding Oversee finances Assist with growth Generate returns for themselves or their investors Venture investors Create opportunities Raise funding Manage finances Increase value Generate returns for investors Entrepreneurs
- 26. 26 6XXXX Why do ventures seek investment? A big piece of a small pie? A small piece of a big pie? Risk and return? Founder Investors Investors Founder
- 27. 27 6XXXX How to fund growth? Internally generated Debt Hybrid Equity
- 28. 28 6XXXX Cost, control, growth and risk Internal Debt Equity Source of funds Cost Lose Control Growth $ Risk Impact of funding Low Somewhat High
- 29. 29 6XXXX Financial leverage and firm value
- 30. 30 6XXXX Companies founded with venture capital www.nvca.org
- 31. 31 6XXXX Industries created by venture capital www.nvca.org
- 32. 32 6XXXX Why invest in venture capital? As of 31-Mar 2014 The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,494 U.S. venture capital funds (962 early stage, 163 late & expansion stage, 363 multi-stage and 6 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2013. 1Pooled end-to-end return, net of fees, expenses, and carried interest. Sources: Cambridge Associates LLC, Barclays, Dow Jones Indexes, Frank Russell Company, Standard & Poor's, Thomson Reuters Datastream, and Wilshire Associates, Inc. *Capital change only. Case Shiller Real Estate Index 4.1
- 33. 33 6XXXX What is the scalable business funding process? Founder’s CapitalSeed/ AngelSeries A, B, CMezzaninePre-ExitExitVC hurdle rates60-100%40-60%20% OM F,F&FIncubators corporations governmentCustomers, suppliers, strategic partnersVCs, Banks for VC loansR&D Establishment GTM/Rollout Accelerated Expansion MaturityEnablement growth
- 34. 34 6XXXX How do VCs make money? Trade sale – sell to another company IPO – sell to the public through listing on an exchange
- 35. 35 6XXXX Trade sale or IPO? www.nvca.org
- 36. 36 6XXXX Exit markets at an inflection point Exit activity in SEA, especially in Singapore, exploded in 2013 • Increased investment in startups since 2007 is beginning to yield results • Number of exits increased from 6 in 2010 to 20 in 2013 • Singapore alone has had 30 exits since 2007, 13 in 2013 • Value of exits increased from 51 MM in 2010 to 400 MM in 2013
- 37. 37 6XXXX Recent exits in SEA Company Country Acquiror Price Year ZopIM Singapore Zendesk US$29.8MM 2014 Non-Stop Games Singapore King US$ 100MM 2014 sgCarMart Singapore SPH S$60 MM 2013 DS3 Singapore Gemalto S$50 MM est. 2013 Asian Food Channel Singapore Scripps Networks Undisclosed 2013 Reebonz Singapore MediaCorp and Existing investors S$250MM 2013 Yfind Singapore Ruckus Wireless Undisclosed 2013 Techsailor Singapore TO THE NEW Undisclosed 2013 travelmob Singapore HomeAway Undisclosed 2013 Catcha Digital Media Singapore Opt Inc Undisclosed 2013 GridBlaze Singapore Undisclosed Silicon Valley Startup Undisclosed 2013 Viki Singapore Rakuten US$200MM 2013 SGE Singapore Tech In Asia Undisclosed 2013 ThoughtBuzz India To The New Undisclosed 2013 AyoPay Indonesia MOL AccessPortal Undisclosed 2013 Tongue in Chic Malaysia PopDigital Undisclosed 2013 Ocision Malaysia Star Publication US$ 4.36MM 2013 Glamybox Vietnam VanityTrove Undisclosed 2013 PaymentLink Singapore Wirecard US$41.2MM 2013 Dealguru Singapore iBuy S$34.28 MM 2013 Buy Together Hong Kong iBuy S$21 MM 2013 Dealmates Malaysia iBuy S$10 MM 2013 PropertyGuru.com Singapore ImmobilienScout24 S$60 MM 2012 HungryGoWhere Singapore Singtel S$12 MM 2012 AdMax Network Singapore Komli Media Undisclosed 2012 TheMobileGamer Singapore Singtel US$1.5 MM 2012
- 38. 38 6XXXX • EIDMV I portfolio of 16 companies 19% success rate 2008-2014 • First exit in Oct-2013 at 36x ROI and 2.2x on total invested capital • Second (partial) exit in May 2014 at 250x ROI and 5.13x on total invested • 42% IRR 2008-2014; 5.13x; two live companies in portfolio Expara venture capital returns in SEA
- 39. 39 6XXXX How does a venture capital fund work? Fund Investors VC 8 $ 10 mm 2 $ 10 mm $ 58 mm 25% 75% Fund size10,000,000$ Life of the fund7Management fee2.5% Investable8,250,000$ Investment size1,031,250$ Companies8Fail450% Break even225% Exit225% Investor's required ROI35% Fund multiple return5.76Fund size at exit57,600,000$ Carry @ 20%9,520,000 Distribution48,080,000$ Fund return multiple4.81Fund ROI35% Required return per exit28 timesEquity per company F/D15% Required value of equity at exit28,800,000$ Required co value at exit192,000,000$
- 40. 40 6XXXX GVMs for all first-round investments 10 years after investment. Data from Sand Hill Road Econometrics. Companies received first financing before 1 January 1999. First non-seed round investment. Returns are gross - before fees and carry
- 41. 41 6XXXX What makes a scalable business? Develop an innovative product – Innovation Solve a problem for customers – Value proposition Identify your customers – Market identification and analysis Reach your customers – Marketing strategy Compete when others enter - Sustainable competitive advantage Make money – Business model and financial plan Team – A team or B team
- 42. 42 6XXXX Key elements of a VC deal Board of directors Protective provisions Drag-along agreement Conversion Control Price-per-share Valuation Amount of financing Liquidation preference Vesting Options pool Anti-dilution Pay-to-play Economics
- 43. 43 6XXXX Contact us Douglas Abrams Expara Pte. Ltd. dka@expara.com www.expara.com 65-6323-3084, 65-9780-5381 (hp) Block 71 Ayer Rajah Crescent, #02-10/11 Singapore 139951