In March, I wrote a post about how Southeast Asia is the next big opportunity. The gist of the message is a lot of the “raw materials” are in place (founders, large markets, increase of capital, budding startup communities, etc) and how my partners and I are getting into the action by starting Iterative, an operator-led accelerator modeled after YC. We invest $150k USD into promising early stage startups. Since then I’ve had the privilege of talking to ~200 founders in the region. This is a post about what I’ve learned.
By far, the biggest takeaway for me is: Founders are ready for primetime. A “primetime founder” is someone who’s ready to take venture capital, grow at ungodly speeds, has the knowledge and capacity to control the “organized chaos” of a a startup company, and are ambitious and thinking big. To be frank, I was worried about the founder quality when I first approached this market, but thank you founders for proving me wrong. To make it more concrete, here are couple observations from our batch selection process:
- 48 companies (~24%) made us really think - to keep our batch quality high, we wanted to be pretty rigorous with our selection process. Companies would have to fill out a detailed application, then get screened separately by two partners (who fill out a structured rubric) before they were invited to the finals. So many companies got pass what we initially thought was a rigorous screen, we had to add a final 1.5 hour interview round with all 3 partners to make our pick of 9.
- Half made it to final interviews (~12%), half were difficult passes - partners had to fight to get a company into the finals. When the eventual outcome was a pass, we kept a “good founders” label on the company for ones where we thought the founders were high quality, but we thought something was off, too early, or not well thought through enough about their companies.
- We really struggled to pick the 9 - It took us 3 days of debates to make the final picks when I thought it would only take a day (we’re usually a fairly aligned bunch). We decided to write investment memos for all final companies (the partners would pitch the companies to each other), and multiple times we had to flush out these memos more to really articulate why we’d fight for a company to be in the 9. I’m stoked about the outcome and we’ll shortly be announcing our batch.
Attributes of Great Founders
Defining “quality” of founders was an iterative (pun intended) process, but to help those working through their own entrepreneurial journey’s, here what stuck out to us as defining traits of great founders in southeast asia:
1. They knew their numbers like the back of their hands
Growth rates, conversions rates, 30-60-90 day retentions, default or origination rates (for fintechs), average loan size, revenue growth, cogs, etc, etc. You get the point. the best founders also were able to articulate which numbers mattered the most, their strategy to rapidly improving it, and levers they could move to do so. For pre-launch companies, they knew their competitors numbers, and got it through a combination of amazing networking skills and ninja-like resourcefulness.
2. They are realistically ambitious
Being ambitious is easy. Being realistically ambitious is harder. This typically looked like the ability to plot reasonable path to a $1B company through (1) really understanding the ‘real’ size of their markets (2) having a very clear strategy for distribution (3) having some critical insight about what makes their business defensible from future competitors.
3. They understood why they were a southeast asian company -
The one insight that got clearer to me over time is to be a southeast asian company, you really needed to understand why you’re particularly suited and differentiated for this market. You can’t just be a Airtable clone, or a Airbnb clone, Redfin clone, or a Quickbooks clone unless you had some reason of why those large companies can’t just do the same thing and crush you. (Yes, we ran into all of these). Specific examples of good reasons would be “all Singaporean companies require this specific audit” that quickbooks doesn’t cover, or “it turns out 75% of Singaporean market is HBD’s (government housing), which works very differently than traditional housing market trades”. My partner Hsu Ken likes to say “Turns out the Instagram of Southeast Asia is just Instagram, but the Uber of Southeast Asia is Grab.”
Why We Sometimes Still Passed
While I was impressed by a larger number of founders than I had expected, it’s sometimes instructive to look at why we passed on some great founders with good ideas. Taking a look at our decline reasons, here’s a couple interesting insights:
1. No rapid growth usually means small TAM
Founders often think you need $ to grow, that is true to some extent, but the bigger reason you’re not growing quickly is because there’s just not that many people that really need what you’ve built. Great founders are oftentimes extremely optimistic and persuasive (even to themselves) and it’s easy to be blind to what really is a just a “small business”, not a “venture business”.
2. Wrong team
There are cases where this is very obvious (AI companies where founders are just learning how to write AI models), but the harder ones are when the founders are great, but not exactly the right fit for the business. The best example that comes to mind are B2C businesses where brand and marketing will make or break the company and it’s clear that the founder is a passionate and competent marketer, but they don’t eat, sleep, breathe marketing.
3. Dependencies on grants
This one is pretty region specific. I love the Singapore government because they’re really good at helping companies get off the ground, but it’s also very easy to rely on grant after grant for your prototypes and completely miss the “business side”. When you can’t identify your customers or get them to buy any of your product/services, a day of reckoning will come when grants will dry up and you’ll need to figure out how to be a real business.
We’ll probably write an entire post on this someday, the top 3 reasons were ones where founders were good, but business had issues. There’s a lot of other companies where they were just making common founder mistakes (internally we call these “traps). Examples include: “Just need $ to hire or market”, product expansion strategies that are completely separate businesses, expansion strategies that are too early, etc.
If you’re already working on a startup, or are thinking about making your own entrepreneurial jump, hopefully that helped you a bit think through what to focus on or traps to avoid. We’ve already announced our S2020 batch companies, and plan to write more observations, learnings, and how do material. If you’re interested in following us on our journey, please subscribe to our blog below.