The first session of the Randstad Technologies Roundtable Series for 2016 focused on the growing startup scene in Singapore and Southeast Asia. Michael Lints, a partner at the venture capitalist firm Golden Gate Ventures attended the roundtable to discuss the intricacies of what investors look for when hunting for startups to fund.
Lints, a former tech entrepreneur himself, jumped into the startup world when he helped set up a successful data centre in the early 2000’s before setting up his own venture fund. Now a partner at early-stage VC firm Golden Gate Ventures, he helps manage the company’s over 30 investments in internet and mobile startups, including familiar names such as RedMart , Coda Payments and Nitrous.io .
Due to a heightened focus on the startup scene in Asia, we are seeing more companies rapidly ramping up with massive amounts of foreign investment being injected into the region from around the world.
One such example is KKR& Co, a leading global investment firm which has committed US$7 billion to be invested in Asia over the next few years. Singapore-based VC Venturecraft Group has also recently announced the launch of its second investment fund, Venturecraft Two, S$50 million (US$36.8 million) fund aimed at boosting medtech and ICT startups in the region.
In addition, Lints expects mergers and acquisitions that drive technology startup exits in Southeast Asia to increase by more than six times by 2020. Although there is more and more investment pouring into the regions, it is getting increasingly difficult for startups to attract potential investors and secure funding through each phase.
Investors have a plethora of options available to them. They are becoming increasingly picky and funding rounds are taking longer compared to previous years. Despite the mounting challenge, finding a good investor remains crucial as it can lead to significant partnerships that will allow startups to grow, bring in new hires and even expand to new countries.
So how startups can set themselves up to be in the best possible position to attract funding? Investors will be looking out for the following five attributes, before funding start-ups:
Any startup’s core foundation will be its founding team. Each member must be able to showcase deep market knowledge and provide unique expertise that adds value to the team and to the company.
Investors will want to see a history of strong execution from these members in the startup. How have their past decisions impacted the company and where it is today? How viable and logical is the growth plan that the founding members have put in place for the company?
Organic user traction is crucial. Product development and marketing should be in place where user growth is spurred by an excited and loyal user base. In addition, this user traction would need to translate into strong figures that show investors how the startup understands its audience.
One driver for Series A funding is real revenue. Investors need to see the potential that their investment in the company will start paying off immediately. In the past, investors used to be more concerned with potential growth. However, increasing competition in the startup scene means that investors are now looking to better safeguard their investments and will be expecting quicker returns.
Big ideas and work-in-progress projects may be exciting to present to potential investors, but that vision alone isn’t enough to make it through a funding phase. Investors are more interested in finding efficient small-scale systems that demonstrate high engagement and success with a small group of users or buyers.
Smaller scale systems are easier to implement and get off the ground, and this will allow more room for the company to scale upwards in latter stages.
Investors are naturally drawn to strong metrics, yet a major factor in the decision to make an investment is one that is completely subjective. Founders will need to display a vision and promise for the company that not only gets themselves excited, but also anyone they deal with.
This passion can come in many forms: a big deal they’re about to close, an exciting marketing campaign that’s about to launch or perhaps an industry veteran coming in to help as an expert advisor or consultant.
Author credits: Daljit Sall, Director, Randstad Technologies