Capital is more expensive now. We've seen this movie before: public valuations dropped, investor returns diminished - a ripple effect that has made it tougher for founders to fundraise. The market downturn caused a series of reactions - mass layoffs, hiring freezes, pivoting plans - but the goal for every founder was the same: staying alive.
Lots of advice have been given to founders, but most are generic, discerning at best. While these can still be helpful, we think more nuance is key to helping founders navigate the downturn. This is especially true for founders in Southeast Asia, the region that often lacks the most resources and access.
To help, we asked Shiyan Koh, the Managing Partner of the Hustle Fund, and Hsu Ken Ooi, Managing Partner of Iterative, to give their take on how founders in Southeast Asia should tackle fundraising in this current climate.
Both Shiyan and Hsu Ken have been operators before. Shiyan spearheaded business operations in NerdWallet, helping the company grow from US$1M to US$150M in revenue. On the other side, Hsu Ken started Decide.com, an early machine learning company that predicted the future price of consumer goods (later acquired by eBay), and was Head of Product for Weave (2014) and Chief Product Officer at Workmate (2018).
You can listen to the podcast here:
We've compiled the key pointers from the podcast (and added relevant ideas that could help more founders) in this article - here are the five things founders need to know about fundraising in Southeast Asia:
"Survival is the prerequisite for success" Founders need to temper expectations around speed and valuation
“In a worsening macro environment, it's hard to raise big money unless you have significant traction. Sales cycles will be elongated, and you might have to orient your business plan to be more frugal. The key is to make it last longer to get to that next step.” - Shiyan Koh
Investors are either being more cautious about the pace of deployment, or they're more selective in who they invest in. For founders, this impacts three key things:
- Timeline & speed
- Investors you reach out to
On timeline & speed
The previous average timeline to start fundraising was six months, but it's at least a minimum of nine months now. In fact, even before fundraising, you should make sure you’ve extended your runway enough to allow for this longer process. (For how much to raise, check out our previous article here.)
Founders can also expect to see slower processes because there's less FOMO than before. Without the sense of urgency, it's now taking longer to book meetings, replies are taking longer than usual, and more diligence will be done.
On investors you talk to
This is largely impacted by the timeline & speed factor. Because the process is much slower, it's important to increase your pool of investors. When things were good, you could talk to 50 investors and maybe get one to finish line. Now, you likely need to 2x that number.
Another expectation founders need to manage is around valuations, and how much they can raise. Valuations aren't at the same rate as last year, and to survive this downturn, founders need to be realistic about it.
"Founders seem to tie valuation to ego," says Hsu Ken. "The name of the game here is 'don't die' - and if you have to take a flat round, or even a down round, that's infinitely better than dying six months from now. Don't hold on to some valuation that somebody was interested in three months ago.”
It's important to remember that funds are still being (and have been) raised. Other VC firms like East Ventures and Jungle Ventures have raised US $550m and US $600m respectively, and those funds need to be deployed over the next three years (regardless of market conditions).
The only difference here is investors are now more careful with where they invest. Which means the only way to get it done, is to keep going.
As Shiyan says: “Your job as a CEO or founder is don't run out of money. Item two, hire well, and three, set direction and keep people motivated. We're just telling people to be realistic and get it done. Don't hang around. Send the docs, sign a wire, send the docs, sign a wire and move.”
Another way to think about it is going into cockroach mode. "You need to survive long enough to come back with results that investors are going to be interested in," says Hsu Ken. "If you haven't got a lead after two or three months, and there are no good prospects, you need to rethink this. Sometimes, the answer is really just to get back to work.”
Flight to quality and monetisation matters
“When markets were hot, VCs were more experimental. Now, there's been a flight to predictability and quality is more important. Money is going into higher quality companies, rather than people taking bets." - Hsu Ken Ooi
Founders need to have an increased focus on monetisation. Before, you could raise based on a good story alone; now, investors care more about revenue (or at the very least, a clear path to revenue.) When pitching your startup, there should be a balance of a good story ("this is a big opportunity") and a line of sight to revenue ("here is my sound strategy to get there, and my financial projections").
Of course, this sounds obvious. Clear sights of profitability means elongating your runway, which means having a higher likelihood of surviving. But what isn't as obvious is why this matters to investors. “Investors aren't hoping that you can make money for the sake of it," Hsu Ken says. “A lot of it comes down to, can you elongate your runway in case this whole market downturn takes longer than we think… or worse?”
Thinking long-term is key, and your ability to run cash runway for a longer period of time is more important.
Be more organised than before
“Key to being successful in fundraising before was being very organised, and being prepared for it. You're trying to build momentum, and momentum is really hard to build. You don't want to lose momentum for things that are internally within your control. I would stress to founders these days: be even more organised than before, about who you're talking to, do your homework on who it is.” - Hsu Ken Ooi
For the last four weeks of Iterative's core program, we teach founders how to fundraise successfully in a fundraising bootcamp. There are multiple advices we give, but the one thing we often stress on is the need to be organised. Fundraising is sales, and like any sales team, having things in order helps you move faster.
Here are a few ways:
Use a CRM - You can find more details on this in our previous blog post, but the general idea is to treat it like a sales process. Add investors in the pipeline, qualify them and reach out after. This is where
Plan for different outcomes - Investors don't know what's going to happen, so planning for different outcomes shows you've thought about the different scenarios of what might happen. Have a…
- An optimistic plan (When money is available)
- A pessimistic plan (When money is hard to get)
- A zombie apocalypse plan (When there is no money)
This doesn't just show the investors that you're thoughtful, it's also a good exercise for you to think about the different trajectories for your business.
Prepare for more diligence – Again, investors being more cautious means more diligence, and they'll likely ask for more information (metrics, documents, etc.). It wasn't as obvious before because hot deals moved so fast. Now that we're in a slower investment pace, you'd want to prepare a stellar data room that can speed things up, have all of your financials, metrics, market reports to support your TAM - ready in whatever tool you use (Notion, Dropbox, GDocs etc.)
Founder stamina plays a big part in fundraising
“As investors, we give advice, and we try to be helpful, but ultimately it's always up to the founders." - Hsu Ken Ooi
Much like how investing is very much human, so is fundraising.
When Shiyan and Hsu Ken were asked this question in the podcast: "how would you help founders, who for some reason, just can't seem to fundraise?”
The answer: it's founder dependent.
"I don't think there's any formula or rule for this," says Shiyan. "It's so founder dependent, and it depends on their morale and stamina." For Shiyan, founders can have drastically different responses to the same problem. "Maybe there's no traction. One founder could say, “it's not happening for me, let's shut it down”, but another founder could say, "it's okay, we're going to make it through. We'll do something else, and then we'll survive.” It all depends on the founder.
Determination, grit and continuous belief in your business will play a huge part, and like Andreessen's article on why not to do a startup states, “absolutely nothing happens unless you make it happen.”
As investors, they can guide, advise, help in the capacity they can, but ultimately, it's always up to the founders to decide. Hsu Ken shares: “When we get to the cost-cutting part, the part where they have to endure the pain, you can see it in the founder's faces that they don't want to do it. Like the idea of having to lay people off (again) and take no salary (again), and fight it through - you can just see it in their faces if they're going to do it or not.”
Based on this context, community building is key because having that dedicated space for founders to share their vulnerabilities is already more than enough to help them weather through the tougher days.
“You are not your startup”
"You are more than your startup." - Shiyan Koh
All founders know: fundraising takes a lot out of you. On top of dealing with things like making decisions with little information and feeling imposter syndrome, you also have to go through a string of rejections when fundraising.
"You're trying to do your best with what you have," says Shiyan. “But it is incredibly hard. When people are burnt out from startups, it's not just the work. It's literally the emotional roller coaster than the actual physical work that you did.”
While it's hard for founders to accept this, but it's an important truth to remember : you're not your startup. That's really it.
Even though our goal is to be helpful, we know it might not feel as such because after you close this tab, you'd need to get back to work and the markets still look bad and everything still feels bleak. So we'll end the article with this quote from Hsu Ken:
“I often try to remind founders that this has happened before. And it's happened many times before. And we're all still here and look at all these companies that started during the last downturn.”