Message for Readers

If you find this blog post useful to your work or if you have interacted with me and have found my sharing helpful, you can pay it forward as follows :

1) Share what you know freely to all who are able to listen with no expectation of reward.

2) If you make big bucks, donate some of that to charity and give back to tech by becoming an angel investor or LP.

Tuesday, August 2, 2016

Analysis on Carousell

Edit: James has reached out to say Quest came in pre-seed. Very likely since it is ordinary shares. It also means their multiple on paper is higher than 47 times!

Mobile marketplace carousell just announced a 35.8m usd round valuing themselves at about 236m usd or about 320m sgd. this is probably the largest pre revenue valuation i have ever seen in this region and is testimony to their rapid growth and probably cheap money driving valuations.

No one has exited so far so it's all paper gains and all in the game. Biggest winner I can see is NUS who incubated them and so own a small stake worth on paper over 5m sgd. Each of 3 founder owns same stake at about 12.5% of company in ordinary shares now. That's about 40m on paper if I assume no funny liquidity preference or coupon terms. Wonder if private banks will give some liquidity based on such stakes. Maybe cut by 50-75% to offer loans? 

Seed round vc/angel like 500 durian, quest and Darius make about 47 fold on paper. Sigh.. Pity I passed on it last time. Can't even remember why. Would have made about 1m paper profit. Only consolation is that invested in 500. But much smaller order of paper gain :(

The other thing that is interesting is that Rakuten is the lead investor for seed, then sequoia did the vc series a round at 20.4m valuation and now Rakuten is back valuing them 11-12 times more after 2 years. Why skip the series A when it was so much cheaper? And in a sense it is also a form of averaging up for Rakuten. They are now biggest shareholder with about 33% stake. I don't pretend to know how huge corporates work so perhaps someone can share.

I met siu rui recently at a panel where minister Chan Chun sing was presiding. He hustled and tried to get minister to use carousell and struck me as very driven in his goal to make everyone use it. When questioned about revenue model, he spoke about classifieds margins and how freemium and other measures can be great monetization. He then refocused on usage regionally and stated that as his goal.

I also tried carousell once to see what it was all about and it is truly very easy to use and I managed to sell a few items but only the well discounted ones. It has a strong appeal for bargain hunters and perhaps to just get rid of stuff.

The beauty of raising without revenue based on usage is that no one really knows the ultimate potential. The true test will be when revenue tap is switched on. What will be the gmv sold? How many will pay for whatever premium service created?  How will epayment fees, delivery, escrow fees eat into the model. Will it be a lucrative business generating >10m profit annually to justify this valuation? My gut is this situation is not like Facebook or google. If fees are across the board or just certain categories but everyone pays, cheaper competitors will enter and users may move. If fees are only charged on freemium model, then will it be large enough to justify these numbers? Left to me, I would pick the latter first. Entrench more and evolve more sticky features and then do the former. Perhaps that's why so much money was raised. To have a war chest to slowly experiment. Carousell spent lost only 1m in 2014. Even if losses are at 3m this year, they have a 10 year runway!

Good news is all the shareholders seem to think numbers can grow even more. No one is exiting at all at least based on filings so far. Perhaps revenues and profits are the wrong target, perhaps with huge traffic across the region, a buy out by Rakuten or another corporate giant is also possible. We shall see. But in mean time, things are really heating up in our startup space!

Wednesday, July 27, 2016

Listing as a form of Series A or B - Migme

21aug 2016 Edit : Steven reached out and corrected me on some items. Here are amendments. First mgmt owns a fair bit more due to 53m restricted shares and about 20m option pool. About 73m shares in total which majority will be mgmt. so about 25-30% owned by mgmt. Second, migme has announced they will be raising 6.5m to 10m more very soon. At current burn, it will last 6 month to 9 months more. Their game strategy must really take off and reduce cash burn from current 5m per quarter. It looks like a key period coming up for the team!

Migme has resumed trading after a 1+month trading suspension. It is not normal for a listed company to stop trading for long because the basic idea of a listed firm is be liquid and tradable all the time for it's shareholders.  Migme has announced raising $8m more various investors of which Mnc group is one. Mnc is a large conglomerate in indo with a lot of broadcasting interests. A good strategic investor. However market is punishing it today with a 23% drop in stock price to 0.36 below the subscription price of 0.4. What I wrote earlier still stands. The key period is upon migme now. It has to use this 10m over next 9mths to prove it can improve financials and maybe even be cash flow breakeven. To me, this whole suspension episode is a good reason against raising via public markets instead of usual Vc. Mgmt has so much more public stress than needed. Readers can read Steven fb post to feel his pain.


I am writing this because someone asked me what I thought of migme.

Have commented about this before. Essentially, migme was a 7m series A "ish" round raised via an ipo route. Then over the last 2 years raised another 15m or so ala a series B. So while there is added complexity clearly there is some advantage to be listed. However end of the day cash flow and subsequently profit is king.

So in migme case they are still like most series A and some series B type company, deeply unprofitable and need cashflow aka more funding. One thing good as a listed entity is that has a bit more options to raise via more non vc routes like rights issue, corporate investors etc. they proved this by further raising the 15m.

An interesting downside for listco style raising is that a listed entity structure may deter traditional vc firm from investing. Too many moving parts, less control, public disclosure and also have to spend more to maintain listing status.

So if we treat migme like a usual money losing  series b firm, then there is nothing surprising it needs to keep raising. The only issue is that it has to be all public due to listed status!

The question then turns to whether non vc investors will have the patience to fund migme moving forward. Financials are not pretty. The 22m or so raised all spent. But business still losing 10m per half. In 2015 negative cash flow of -17m!

1H2016 Cash receipts growing only 7% QonQ so not massive growth. The good part is cash receipts was 12m in 2015 and looking like 20-30m this year. But again it is not revenue and we don't know how much is high margin stuff or how much is just low margin ecommerce. How much is recognisable revenue, how much is future revenue. Too many questions.

Final point is that Mgmt has too small (about just 20m shares or < 10% of company) a stake now and it is a concern. Granted the company is extremely generous with options. For the financials of company, CEO was paid 1.35m of which 933k is in options which are in the money still as issued very early so low strike price. In contrast, Patrick grove of iprop paid himself $1 for first few years and had a much more sizable stake.

It will be interesting to see how this story turns out. There is a limit to investor patience and when it is all public, it can all go downhill very fast esp if key business metrics don't perform. Ibuy/ensogo is a good example. From 100+m company to just 20+m market cap, CEO resigned and shares

Monday, April 18, 2016

Building a strong startup culture in SG

I have been thinking about the role of startups and the role they play in the SG economy. Part of this is interest, part is because I am a volunteer on a economic planning committee. Here are the key thoughts I have on this topic. Please do feel free to comment.

Startups matter because they are the future MNC and SMEs of our country. They also matter because they add vibrancy and innovate quicker than established companies. Personally, I also advocate entrepreneurship for those with the right temperament because it is a way of life that is immensely empowering.

I don't believe only certain sectors will produce all the high value add companies. We should encourage all types of startups and focus more funding, grant money, govt help on the low lying fruit like ICT, certain services (eg. fund mgmt. startups), Medtech etc. But if a startup in F&B starts growing like bazookas and builds a strong regional brand, we should embrace the company. It is actually the way the entrepreneur innovates, dreams and executes that counts most at the end.

We also want startups that succeed with or without govt help. Government schemes that end up creating a crutch mentality are a major no no. All government level help given to the startup ecosystem needs to viewed through this lens.

Local ownership of startups matter because citizen ownership implies knowledge and profits stay in SG. However, we have a shortage of founder and cofounder talent, so we need to open our doors to outside talent to come here and start companies at least in the short to medium term.

We need to dispel the idea that failure in work life is bad. We need society to view enterprise as something very positive and as a worthy career path if one is so suited. We need an active funding landscape at Seed, Series A, all the way to IPO level. One that not just funds SG startups, but also regional startups that take SG money.

We need to raise the quality of our startup entrepreneurs. The best entrepreneurs are always comparing, benchmarking, improving their knowledge. To this end, we must provide both formal and informal learning channels for startups to learn from each other, from mentors and from universities.

One important role of government is to catalyse specific startup segments like what was done with ICT. This can be via funding, grants, special manpower quotas, partnerships with MNC/GLC/Govt/Overseas etc. Another key role is to get MOE to start including entrepreneurship as a career choice at school level. Government can also take the lead in awarding more contracts to SMEs esp majority locally owned ones.

Finally, government can also influence talent development and where it goes. Recognition of stock options as compensation, raising ICT salaries and training more ICT graduates are all good measures.

As with anything worth doing, we must define and measure our startup ecosystem. Its not just about funding rounds and exits though those are important metrics. It is also about the broadness and quality of our investor base, quality of employees who choose to work in startups and of course, the number of startups that graduate to become the next SIAs of Singapore creating many jobs and wealth for our country.

It is my hope that in 10 years time, startups become a core strength of our economy with a constant, deep pool of talented founders and employees creating vibrant, innovative new products and services demanded by sg, regional and global consumers and businesses.

Thursday, November 5, 2015

iProperty sold to REA group in biggest dot com exit in ASEAN to far

I have met with Patrick grove two or three times last 10 years. Always impressed me with his deal making prowess. He has done it again by getting REA to pay 28.7 times last 12 month sales (not profit!). Furthermore on a forward earnings basis, iProp is expected to do about A$35-40M if they maintain growth rate of > 50%. Divide by A$750M valuation and we get about 19-20 times forward sales. Either way we look at it, this is a super high valuation that exceeds what all companies including SAAS companies get which is about 10 to 20 times sales. It eclipses both the Zopim and Hungrygowhere multiple by a factor of 2! Also to note, it has not even broken even and is slightly loss making though MY is solidly profitable.

So what could prompt REA to pay so much? Obviously it is a new geographical market in countries where buyers are like Australians pretty crazy about property. iProp operates in Malaysia, HK, SG, ID and Thailand. So from a geographical synergy point of view, it makes great sense. REA has also tested waters owning a <20% minority stake in iProp for quite a while already. So they are clearly comfortable with the ex REA management team that Patrick has gathered for iProp.

In addition, the demographics are in favour of Asian property portals. The population here is huge and HK is an entry into the China market. Both make for excellent long term stories to investors of REA.

The other synergy could be in terms of putting REA practices to help leapfrog what iProp does to really rule the region. iProp is relatively basic classifieds system and maybe with REA better products and processes, it can accelerate growth even quicker and take a lead over chief competitor Propguru in the region.

Of course REA can afford the acquisition, they have about 280M EBITDA, strong cash position of A$80M which will allow them to finance the needed 480M debt comfortably. On the competitor side, Propertyguru will probably view this as a positive as it takes time for new management to effect positive change and this kind of valuation will probably help them in their next rounds or IPO. Propertyguru has raised a lot of cash last few years and so will probably be able to take iProp on even with REA as a shareholder. A possibility could be for REA to do what SEEK did (bought out both JobsDB and Jobstreet) and buy out both iProp and Propguru since in terms of revenues, I believe the overlap is not huge with Propguru being so dominant in SG while iProp does so in MY.


In terms of shareholders, iProperty major beneficiary will be the shareholders of Catcha Pte Ltd which owns 16.7% or about 31M shares worth A$124M. Patrick last I checked owns about 61.5% of Catcha Pte Ltd, so that is a A$76M payday. Very similar to what Jobstreet Mark Chang got for his sale of Jobstreet last year. He has only 2 other partners, Luke and Ken who own the rest of the 38.5% with Ken having more. Very nice pay day for them too.

Another positive thing is that this deal also gives the shareholders of the companies which Patrick acquired to build up iProp a nice bonus. These smaller shareholders took cash and iProperty shares at various prices over the years depending on when he acquired them. If they held on they would have gotten a nice premium due to this sale. Its a great win win which will help Patrick be even more credible in his future deals when he stitches for more companies together.

The last lesson I have from Patrick is that deal making can be a supremely effective skill set for an entrepreneur. Besides iProp, Patrick via Catcha Group has his fingers in Ensogo, Rev media, iFlix, iCarsasia and also a VC fund! He has leveraged his smallish sized print publishing Malaysian catcha media into a veritable internet empire! And most of it has been done by buying out smaller players who don't have his ability to sell a regional vision and to tap the capital markets in ASX.

Will be waiting to see if he can do the same with the other companies in his portfolio. My hats off to this deal maker!

Ps: there is a break deal penalty of 7.5m and the deal will only complete 1q or 2q next year. So as usual everything needs to look lovely both ways and it ain't over till the money's in the bank!

Sunday, July 12, 2015

Analysis on Luxola Deal

This is a nice deal all round. For investors, management and hopefully for sephora over time. I first met Alexis at Blk 71 at a closed door event for a European politician. Not enough time to know her well but it was a positive one. Very no nonsense and strong lady. At that time luxola probably just raised the 2+m gree round and so it was all very much early days business wise.

Fast forward 2 ish years and she has sold her business to sephora. Though Acra has neither reflected the transfer of shares or any new invested capital, perhaps that will come in time.. No reason to doubt her, so I am sure all forthcoming. Though I would urge readers to not count our chickens until they are hatched. For me, that means no press releases until shares transfered and money in the bank.

 Summary of key points.

1) luxola started in 2011 by Alexis who is American and another cofounder Todd. Idea is to do niche ecommerce in women's cosmetics and skincare. Learned from another ecommerce investment that nicheing is the way to higher gross margins which is super important for Ecommerce firms. General sites live wth 5-15% gross profit margins of General Merchandise Value (GMV). Niche sites should be higher. Also, GMV x gross margins gives us in a sense ,the real revenue of the startup. And you need that real revenue run rate to hit 50/60k a month to raise series A. So if your gross margin is 10%, you need at least 500k sales per mth. If a niche site with 40% gross, then you just need 150k ish GMV.

2) Luxola in year end 31st March 2014 did 2.654m sgd with 2.253m cogs. That means gross margin is 17.8%. That is actually rather low for a niche site. Could be because have not scaled up yet so no bulk discount on purchases and other economies of scale. Anyway I am sure most of that revenue is in 1q2014 which explains confidence by transcosmo, Priolo, global brain and others to invest the series B round of 10-12m usd.

3) before that luxola also had gree investing 2.456m sgd in April 2013 and wavemaker investing 600k usd or so in 2011/12. These 2 funds are good winners esp the latter.

4) sephora probably sees the team and audience as something they want in asean. I am not a cosmetic or fmcg expert. So will leave it as that. Perhaps someone else can fill in who knows more. Ecommerce multiples are now 3-4 times GMV. Used to be 2 to 2.5 just 1 year ago. But I guess niche maybe worth a bit more. Let's use 3 GMV and assume from 2.6m to 15m in GMV which is pretty fast for 2 years work. That means sale price is 45m sgd + 7.5m remainder cash or about 52.5m total sale price which is pretty close to what press seems to say. That's about sgd 10.8 per share.

5) so who gets what? And is it a good deal?

a) Alexis and Todd are main founders owning about 550k shares and 230k or about 6m sgd and 2.5m for 4-5 years work. Kudos to them! It also appears that Company gave up 3m worth of options to staff including Todd.  This is very generous and seems to have come from Alexis shares.

b) wavemaker is a big winner. They paid about 1.66 per share. Make about 6 times their money in 3/4 years! So 600k usd to 3.6m usd or so. And if this was an nrf deal, even better irr!

c) gree also win. About 4 times their 2.45m investment in 2 years!

d) the latest round Priolo guys not so good. About 18% gain since they paid usd 7 per share. But they do have liquidity pref.

Note : the pref shares esp from various  round have 6-8% liquidity preference. So probably ordinary guys like mgmt and wavemaker get a bit less than what I counted. Also the sale price of 52.5m is guesstimate. It could he 40m or 65m.

One thing that strikes me writing as a Singaporean is that there is minimal Singaporean shareholders in this deal. While having luxola based here does create jobs , build talent pool and help our buzz, it is a bit like viki. Minimal capital gain benefit to any sporean vc or mgmt. This is not a bad thing by itself so long as we also have deals like zopim, Streetsine, JobsCentral (all majority sporean owners) at the same time.

The other thing is that if indeed Alexis was the one who gave 300k shares to staff as option pool, she is a very generous lady! She has also been paying herself and Todd together about 105k in fy2014. That is a very fair salary for even 1 pax who owns 10-15% of company. Wrote on this before.

Last of all, I find the multiple of 3 on gmv quite high. Just 2-3 years ago it was 1-2 times. And I actually think it should stabilize at 1-2 times max depending on gross margins and ultimately profits. But that is just conservative me. Those of you running ecommerce firms should make hay while the sun shines!

As usual best effort based on Acra reports. Take what I write with pinch of salt and feel free to comment. I do this to help promote transparency and help share on how I think about deals. So if you find it helpful, please share your knowledge openly too and give a helping hand to fellow entrepreneurs.

Saturday, June 27, 2015

Thoughts on Crowd Funding Platforms as a Business

Have been exploring and evaluating this area from the pov of an investor in the platform. Here is a summary of what I learned and think about the segment. Feel free to comment. In summary, I think crowdfunding works and there will be companies that do well. But the market is not as big as say ecommerce and growth will take a while. To me, it is not immediately obvious that it will scale like groupon clones or social media or sharing economy firms. Anyway, there are 3 types of crowd funding. Some players do only 1, some do all 3.

1) rewards crowd funding

This segment makes good sense to me as a platform and for the businesses who crowdfund. The downside is that it encourages sleek marketing and over promising at the expense of proper prototyping and testing. Improperly executed crowd funding can end up in pr disaster for the company and platform and consumer end getting nothing. Eg 3d pirate still can't fulfill all its orders up to today if the papers are right.

Perhaps a good tweak would be to escrow all the monies and only give the money when the product is delivered as promised. The firm can then use the promised sales to raise interim capital at their own risk. If terms are breached, platform returns escrowed funds so consumers are protected. Too bad for the company in this case but at least only they suffer which is fair.

2) debt crowd funding

Will end up attracting mostly middle class and high income professionals who may not fully understand the risk they are taking. People with more wealth to buy bonds direct will not be attracted to the 10-20% yields as junk bonds of >100m cap listed companies are yielding 10-15%. The extra few percentage of yield is not worth the risk. Don't forget, the companies that raise crowdfunding probably are at 1m to 20m market cap at best with couple of million revenues at most.

So if I were the authorities I would be very cautious on debt crowd funding. If companies fail, it will hit the crowd creditors who may have the wrong impression that debt is safe. Debt to small unlisted firms is not safe. I don't think the crowd funding platforms will warn people to fully understand the risk they are taking.

3) equity crowd funding

This is the most complex and interesting one. Somewhat similar to debt issue in that rich investors would probably do better sticking to Angel, vc or pe funds esp for tech area. Will attract income professionals who always wanted to angel invest but had no deal flow / smaller capital so can't do the min 50k angel bite sizes. I hope the platforms don't target middle class as early stage private equity is not a suitable asset class for average joe. It is telling that mas only allows accredited investors to invest in equity crowdfunding in sg. It is the right move.

On the company side, my feel is that good tech companies probably can raise seed (500k -1m) to series A (3/5m ) from vc funds. Why would a strong tech company want to raise passive crowd money compared to a brand name, value add vc? So perhaps non tech firms who need to raise will find the platform useful. This area may work.

Another group that may find equity crowdfunding useful is deals that require syndication. Say a company has already found its lead and raised 600k. They want 400k more. Crowdfunding could be a good choice here. Crowd Investors will feel safer that there is a lead who negotiated price , terms etc.. and it is not the platform or worse the company who unilaterally decided. This point about lead investor also applies to debt funding. 

Beyond 5m for all types of companies, pe funds, later stage vc and ipo on main/secondary boards are better alternatives for their strategic value and liquidity (in ipo case).  

Another reason running around which crowdfunding players say is that having many shareholders add user base but it seems like a roundabout way to do it. Maybe for some consumer oriented startups.... But I am not convinced.. the max shareholder cap at 500 means too little advocates.

So my guess is equity crowdfunding will revolve around mainly non tech companies and maybe some consumer tech, raising anything from 50k-1.5m. Beyond that, there are cheaper and easier options for the company. Below that and it is not worth the platform time to do it. 

Same as debt funding, crowd investors need to understand this is an angel investment they are making with a 5-10% sales fee paid to the platform. Most angel investments at such early stage fail. I doubt the platforms will warn investors about this. Also the investment is illiquid. It cannot be sold or transfered easily. Most equity platforms plan to offer an exchange or work with one to allow some liquidity but all that are just plans at present.

From a portfolio allocation point of view, I encourage crowd investors to view this as highly speculative positions in their overall portfolio. This means for equity, view it as angel investment with high chance of getting nothing back. For debt, may end up having to be party to debt collection process. As mentioned before, private investment should be no more than 20% of total investible assets.  

Also be careful on how the deal is structured. Special purpose vehicles could be set up for such deals whether debt or equity and both can have detrimental terms. Eg. Can't sell or transfer equity as you wish. This is where a deal where there is already a professional lead will help a lot.

Make no mistake, I think crowdfunding is a viable way to raise money and for some suitable people (probably Hnwi up to 5m net worth) it is a new way to invest and offers deal flow. Angelist and kickstarter are good examples with the former being relatively high quality and have attracted vc money too.

But as is the case with any new channels, the industry wiil over promise and some clearly unsuitable people will buy in. And over time it will seesaw until a balance and a place is found in the entire funding ecosystem for it. My guess is that it will take 5 years to determine what the stable market state is for our region. My bet is on it being much smaller than what people think unlike the ecommerce/ social/ sharing economy boom. The big danger for the industry is too many negative stories of joe average losing money on such platforms due to badly represented risk reward!

Analysis on techinasia fundraising

Tia has announced a usd 4.6m round from investors lead by SoftBank on a premoney valuation of usd 9.56m. That's about 13m sgd premoney. Post money will be about 19.2m sgd. this is based on acra data submitted by company 22nd June 2015. 

I first encountered Willis back in 2011 ish. Company was still called Penn Olsen. He was asking JobsCentral to sponsor something for their first event. I remember he was a driven , gusty founder. Somewhat green in his expectation of why clients would sponsor but clearly hungry. We did not sponsor as no clear value to us but he left with me a reader of the then blog. 

Over the years, I have seen Tia grow well and become far more professional and under jungle I attended one of their events. They are a great example of a niche media play with online and events revenue streams. In 2013 they did almost sgd1m in revenue, doubling from 2012. Losses were 180k. If we extrapolate that to 2015 and considering their many more events and execution, I would venture a guesstimate of 2-3m probably closer to 3m in 2015. So that mean a deal valuation of 4+ times sales. A fair deal definitely not overpriced. Of course if revenue in 2015 is lower, then the multiple will be higher but a range of 4-6 is probably correct.

To note: they raised $1.3m in 2014 and issued 14009 shares for it valuing the company at s$8+m. So it is a up round and existing vc like fenox continue to participate which is always good. 

Two things stand out to me. Why raise so much for a media company? 6m sgd is quite a fair bit of money. My guess at sgd 3m revenues they are near breakeven or slightly profitable already. So it must be to scale up core/geographically and execute the techlist side of the business which is a saas and analytics platform. 

Second thing that stands out, Willis is a single founder and used to pay himself just 30k in directors fees. He now owns 22.5% of the company post money. If this is true, he has been more than fair to shareholders and dedicated to building the business.

From a fellow entrepreneur perspective, I hope he has/will negotiate a much better package for himself and team in the years ahead as I believe a company which is profitable should be fully loaded with market rate costs and still be profitable. That is a sustainable business esp since the firm is now more owned by investors than management team.

Would be interesting in the years ahead to see how Tia executes esp on the saas/analytics side. It is actually quite hard to transit from a media company to saas (JC and cb are doing it still...) but that is another long topic. Feel free to comment or correct my data. 




How do VC actually work in terms of revenues?

UFor a vc, funding a company is just the first step. It is like hiring a potentially great employee or finding a good business partner. All potential no real revenue. Even subsequent rounds raised at higher valuations are just unrealized gains which can evaporate esp at early rounds. Eg. Vc invest in company at 2m post money. Company raises 1 year later at 8m. Vc will change the net asset value of the company on their books by 4x. But later if firm fails and is written off, all the unrealized gain disappears.

So what is real revenue worth celebrating from a VC point of view? Finding more investors or lp. Each 1m in investments is worth 20-30k in annual mgmt fees for 5-7 years. That's real revenue and the hard vc work happens at pre-start of fund. Then vc work even harder, "hire employees" and then after 3rd year onwards of fund life hope to start exiting companies in trade sale or ipo. This is real cause for celebration as it is the carry revenues that count the most to the partner. Roughly for every 1m in excess of lp capital, vc partners in aggregate earn 200000. 

So a 50m fund in ASEAN, say 2 major partners will earn :

1) 1m per year revenue from Mgmt fee for 7 years. Usually not much profit here after all costs like legal, transport, salaries, compliance, marketing etc

2) 12-15% of the 20% carry at end of fund. So if fund in the end exits 150m. The classic 3x, the 20% carry is 20m. Their 15% is worth 15m. So each take home 7.5m before any tax (10% if concession or 17% normal corp) if equal carry.

Reward is sort of like running a startup for 7-10 years and exiting for 20m. But the risk is lower since there are 20 bets made rather than just 1 concentrated bet.

VC friends, pls feel free to chime in!

Wednesday, March 25, 2015

My main learning point from Mr Lee Kuan Yew

I feel much sadder than I thought I would at the demise of Singapore's founding father Mr Lee Kuan Yew. I must have shed tears at least 5-6 times in the last few days as I read his speeches and see his life pictures. Not the type of tears one sheds for a loved family member, but tears shed because his was a life worth living and I feel a great sadness that such a well lived meaningful life has to end just like any other life. And as I reflect on what Mr Lee Kuan Yew represents to me, I realize what I learn most from him is that it is possible to dedicate an entire life to a single greater purpose and have no regrets at the end of it.

Mr Lee Kuan Yew was clearly extremely intelligent and eloquent. He also was a natural leader, knowing when to play nice and when to be tough. But there are many other people in the world who are extremely intelligent and who are strong leaders. It is a genetic lottery and there is not much to respect or learn from that. Mr Lee himself believes that over 70% of a person's ability is determined at birth. I totally agree.

What sets aside Mr Lee is his amazing strength of will and alignment of his entire life to the idea of a strong Singapore. The closest approximation to this I have experienced is the way a good entrepreneur sacrifices and obsesses over their business. But we entrepreneurs do this because we own the company and so we tap into our base human nature to love what we possess to drive our obsession.  But Mr Lee is too smart to not know that he does not truly own Singapore but still he consistently chose to subordinate his life towards what he felt was best for Singapore.

And reading all his books and looking at his home and pictures, I can honestly say I don't believe he did it for any monetary reward or creature comfort. His sense of purpose and benchmark for personal achievement is the Singapore story. That explains his now famous quote about giving up his life for Singapore. He had so many chances to take it easy but he never did it. It could be because he has aligned himself so much, he cannot let go even if he wanted to!

So it all boils down to this. That this super intelligent, thoughtful, eloquent, happily married individual can at the end of his life, reflect and say that his life of conviction and service to Singapore is a life worth living and which he has no regrets. This is very unique viewpoint as most people at the end of their lives don't reflect on business or politics but instead wish they travelled more or spent more time with family.

Mr Lee Kuan Yew has shown another path for those who seek purpose in life. It tells me that it is possible for a highly talented man to devote his entire life and talents to a greater non monetary good and be engaged throughout with it as it grows and evolves. And at the end of that life, have no or little regrets.

Monday, February 9, 2015

How much should startup founders be paid?

This is a very sensitive topic which many startup founders grapple with whether they raise capital or not. I am sharing based on personal experience both as a startup founder and also as an investor. I am not saying it works perfectly or is the best. In fact, I found that I had to bargain a lot over the years and the key is to be transparent and open. So will be happy to hear how other readers do it.

1) Bootstrap Stage (Usually first year, up to $150K expenses)

At this stage, I feel founders should be paid a roughly similar basic wage. Meaning plus minus $500 of each other. In Singapore, that can range from $1000 per month to $3000 per month.  This is enough for food and transport. Anyway, this money comes from the founders themselves. My cofounder and I were paid $500 a month and later $2000 a month back in early days.

The reason for similar pay is because the roles are all mixed up in the beginning and if everyone works equally hard and full time, each key role of sales, marketing, tech and leadership all make and break the company.

One point of view I sometimes hear from founders is that they used to earn $5K, or $10K outside. So that is their opportunity cost. That is fine to say but should not affect the actual pay. Once you decided to come out and do a startup, your last drawn pay matters little, though it would be good if your co-founders appreciate your sacrifice. Also shareholding should not affect pay. If I put in $80K and you put in $20K, we should still agree to a roughly similar pay at this stage. Though if shareholding is very different, the basic may be closer to $3K whereas if the shareholding is similar, then it can be $1K.

The only time where it makes sense to me when a bootstrapped stage founder is paid >$4/5K or more is when there is a passive investor who joins the bootstrap round. Even then, I feel the various founder pay should be roughly similar.

2) Seed Stage (Year 2-3+, S$500K expenses)

Seed stage founders should be paid about $3000 to $5000. During our seed stage equivalent, we drew about $4-5K salary all in each. The thinking is somewhat similar to bootstrap round in terms of how founder pay should be similar to each other. Again, my logic is that the outfit is still small. Everyone has multiple hats and roles. So paying a similar value reflects that all founders are contributing on multiple aspects.

3) Series A Stage (Year 3-5+, $>1-3M expenses)

At Series A, it becomes necessary to have different pay for founders as roles get more defined and some roles start to be outsized in impact. For me, 3 principles are followed.

a) Pay does not exceed  and is usually below market rate for same role in similar sized company esp of outside money came in.

b) Founders are ok with the differential among themselves. Usually vesting is used to make things fairer. Founders are usually ok with differential once they agree what is the market rate for each role. Then from each role, take a fixed discount off it and build it up through a combination of base, incentives and vesting options. The biggest shareholder founder may need to be behave more generously at this stage.

c) Clear KPIs are written up for each founder role with bonuses tied to those KPI and overall company KPI.

4) Beyond Series A (Year >6, revenue 3-10+M and usually profitable)

At this stage, it really depends if the company is profitable and whether it took VC money. If the company is profitable and has not taken VC money, founders usually pay themselves up to market rate. Once market rate is hit, dividends are paid to founders based on shareholding basis. The logic is that we can always hire a market level replacement for a founder so there is never a need to pay more than market.

If the company took VC money, then there  are some controls on management pay but it is reasonable for  founder management to negotiate KPI based incentives and advocate to move towards market pay as the business grows according to plan. A good mgmt. team will ensure they feel aligned and balanced by discussing mgmt. targets and pay annually with their board.

To my knowledge, a fair market rate for a single country MD of about 50-100 staff in a dot com should be paid $200-$350K all incentives including options factored in. Base would be about 60% thereabouts of total. The CTO pay would be lower  at about $150-250K but with much higher base component.