Carmen Yuen | Reflections from "Spotting Soonicorns: What makes the next big startup?”

Recently, I had the opportunity to speak at the Techinasia Conference in Kuala Lumpur on the topic of “Spotting Soonicorns: What makes the next big startup?” with my fellow panellist, Dr Siva. In this blog post here, I summarised my sharing for your reading pleasure. I welcome your thoughts and comments too!

1. From the perspective of Vertex Ventures, what commonalities do you see among startups that achieve a US$1 billion valuation?

First of all, I would highlight that a valuation of $1 Billion is not the ultimate aim of investors - to us, valuation is a vanity metric. Rather than potential unicorns, we are looking for great businesses that possess a valuation which reflects the value of the business.

Achieving the unicorn status should not be the end goal; it is a journey and this journey will comprise companies moving from minicorn, to soonicorn, to unicorn, and decacorn. And each stage is transient - We have seen decacorns fall back to being a unicorn, and some also disappeared. The end in mind is to build solid, sustainable businesses with strong moats rather than being focused on vanity metrics.

I love and agree with this reminder that Jeff Bezos always gives to his Amazonians - to have the mindset of being an "Always Day One" company.

What startups have in common before they become unicorns:

They have a

• Clear problem statement that they are solving for as well as business and value proposition
• Clear deliverables/ OKR - such as three key metrics to look for
• Execution capability - the role of a COO is not to be undermined.

A few examples of Vertex Ventures SEA and India (VVSEAI) startup companies (both unicorns and non-unicorns) that display:

• Clarity of Business Proposition:
  • Patsnap - the firm started with solving a global problem and pain point of patent search. Their first clients were A*Star and NUS. Leveraging on NUS' membership at the Association of University Technology Managers (AUTM), Patsnap managed to secure a few spots within the global university tech office computer systems.. Although this didn’t give them much revenue stream, they were able to leverage the opportunity to refine their UI/UX. When they came to Vertex Ventures to raise series A, the business had yet achieved $2 million in revenue.
• Storehub - provides a tech system for small mom and pop, long tail, F&B merchants - help them embark and sustain on their digitalisation journey to increase productivity and serve customers better. However, it must be noted that technology will not make a F&B company successful if the food tastes bad. For companies already serving tasty food, it will have a good chance of being successful if they innovate with technology. Today Wai Hong brought me to Kim Yong Gee Beef Noodle- a client who serves yummy food and who has been with them for quite a number of years.
• On Clarity of Deliverables/ OKR:
• Our portco, RPG Commerce - parent company of the Montigo brand- started as a digitally native brand creator and pivoted away from what we knew it to be initially - an ecommerce platform for men's shorts (great material), flip flops and casual shirts. The executive team was watching the numbers like a hawk and when the product sales were falling short of expectation, they decided to pivot. Pivoting to the Montigo range, and continuing to track sales performance against costs helped them to turn the corner. They continued to refine the product further and expand the range - with care and precision. Today, Montigo is not just in Malaysia, but we find it in Singapore and even the Middle East.
• On Clarity of Execution:
  • Sunday - insurance businesses are inherently challenging businesses to run. You have to take care of compliance, you need to have claims experience and need to provide good user experience when customers want to consider coverage. On top of that you also have to deal with regulators on maintaining regulatory capital, and negotiate provisions when you are considered a newbie in the insurance space. Yet Sunday's team has executed beautifully - they accomplished all those while living under investors' pressure and growing their topline. Their Gross Written Premium continues to grow double digit each year; and their combined ratio (sort of like net profit) improves despite not having to raise equity funds for a while. Whenever I sit in their board meetings, I marvel at the number of levers and parameters Cindy and her team have to balance alongside the multiple constraints (regulatory, business, user).

2. How crucial do you believe unicorns are to the overall health and dynamism of the Southeast Asian tech ecosystem? Can you provide examples of how unicorns have influenced the regional market?

I think the number of unicorns alone is not enough to give a good pulse of the overall health and dynamism. Rather, it is the momentum or activity level - from the number of startups being founded, angels hovering around and investing; institutional/ VCs coming alongside subsequent fund raise, corporates and consumers to adopt the solutions provided; and more VCs/ growth stage investors; PE investors and subsequently M&A.

The truth is that for investors here to make money, the startups’ valuation cannot be crazy high, else all of us have to take a “haircut”. Some investors (Limited Partners) may say VC is not an asset class for them - then we, as an industry will face challenges in raising funds to continue business!

For startups that had a weaker proposition, their founders would need to seriously consider canning these propositions, go back to the drawing board, and find the next problem to solve. There is a time for everything, including a time to search or build and a time to give up. Sometimes, the problem that the founders are solving could be ahead of its time, and in this case, the founders should have the courage to give up and work on something else.

Are we living with an abundance mindset? That we have created an environment that encourages new ideas to be tested, tried out and funded? Given our region has so many young people, and our population is not even peaking yet, I wonder, how can we access founders who are tinkering with new solutions, and how can we be involved in funding some of their innovation?

Have we acknowledged founders who had failed more than 5 times and now continuing onto their 6th venture, wiser and have honed their leadership skills, and become a better person? We celebrate successful founders, but do we celebrate persevering, long suffering founders?

We have invested in a founder who failed 6 times (Kelvin Subowo, founder of DailyCo in Indonesia), and we are kind of glad he still has the courage to continue hustling. To us, 6 batches of investors had helped him learn stuff and he has paid for his “school fees”. He has the maturity as a founder and possesses the ability to build camaraderie among his team, awareness of having to give reins to a hired CFO, and capability of forming effective partnerships. Has he learnt all he needed to learn? There will be blind spots and while we hope this current business will not be a lesson for which the 7th batch of investors would be paying for, we believe he is “coachable” and hungry for success and we are enjoying our ride with him.

At my panel, someone asked a question (he is 23 years old) on what the ideal age of founders should be. My fellow panellist, Dr Siva, mentioned based on his statistics of having personally invested in more than 50 startups, the ideal is between 30-50 years of age, as they have some working experience, some level of maturity and yet remain teachable. Those above 50 are typically more set in their ways, and those under 30 could use more years of working experience.

I shared that our youngest founder was 23 years old, fresh out of school, but had fire in the belly to do his startup. We like his conviction. While he was not experienced as a CEO, he was very receptive to guidance from us and other investors - and that helped him very much in his scaling up journey.

There was another question asked on how to help young founders who are insistent that their ways are right, and not receptive to suggestions from the accelerator. I said to show them youtube videos of founders of large tech companies who share perspectives in hindsight of them pivoting - and emphasize the need to pivot, showing that founders’ ways are not necessarily 'right' all the time. Dr Siva felt that it would be better to let them go with their ways and let them fail! Then, they will come back and acknowledge that they were wrong in the first place. One obvious Insight: Founders must have teachable mindsets, but it makes sense for them to fail... And hopefully they fail fast.

This reminds me of our portfolio company, where the founder was keen to try out a certain business line (it slipped my mind as to which one it was) and though the board felt it may not work, the board eventually gave her space to try the business line. 2 board meetings later, she realised it really didn't work... So while the board didn't have to say "we told you so", the effect was the same. I believe she appreciates being given the space for experimentation and I am grateful that she arrived at the outcome quickly rather than over a long period of time as it could have sucked up more resources (time, people and money)

Someone also asked a question of how important unicorns are for us. My response was - I am a VC and to be minting unicorns year after year would naturally be a bragging plaque for me. It helps in my professional branding. However, my LPs don't care so much about unicorns if I cannot give them DPIs. So I would much rather have multiple soonicorns which I can exit at many multiples of my investment cost, than a unicorn that gives me no exit (because it is out priced).

3. What advice would you give to startups aspiring to become the next unicorn in terms of strategy, market focus, and growth tactics?

My advice would be to look for problems that people have not been able to solve - these could be seemingly boring problems, but they are chronic and so prevalent in our midst. It is also critical to identify and define your moat.

The founding and building journey is lonely so always try to find a community of founders to  be part of. I admire the model in Taiwan where founders would support each other and even provide some capital to each other when in need. The journey is tough - very tough... You need buddies with you as you go through the valleys before you hit your high.

The seasoned entrepreneurs would appreciate the importance of this - being selective about your investors. Always ask yourself, why do you choose this particular investor? It doesn’t cut it to say that the investor offers the highest valuation. The hard truth is that you are going to be in a relationship with him or her for a long time so be very selective.

Lastly, life is short. Entrepreneurship may be tough but enjoy the ride anyway - this is an adventure, and you will live to tell your story.

(Thank you Techinasia for having me!)

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