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This article first appeared in Personal Wealth, The Edge Malaysia Weekly on January 1, 2018 - January 7, 2018

When technology veteran Datuk Yoon Chon Leong retired 14 years ago, after working at Agilent Technologies in Penang, he was not ready to hang up his hat. So, he ventured into angel investing.

He was drawn to this because he felt had a wealth of knowledge and experience to impart. Angel investing, he says, has allowed him to use his more than four decades of experience in technology and management to help propel start-ups and small businesses and see them through the difficult early stages.

“I chose not to continue working in the corporate sector because I really wanted to do something different in the last leg of my life. I had been working for people all my life and, although it was very interesting dealing with new technology, I felt that I needed to do something completely different,” says the 69-year-old Penang native.

“Armed with all this knowledge, I decided that I did not want to think about getting rich anymore. My currency has changed from how much money I can make to how much know ledge I can impart.”

Together with long-time friend Anita Tan Hai Poo, Yoon started Business Wise Consulting Sdn Bhd. The firm invests in technology start-ups and small companies, most of which are domiciled in the island state.

In doing so, Yoon is able to blend his love of science and technology with his experience in human resources management. “I do not invest much money. But I have a lot of experience, so I will give them a little bit of money and then mentor them in developing their businesses,” he says.

The funds are sufficient to provide his investees with at least half their last drawn salary for several years until the start-up is more established. The companies he has invested in have been founded by one or two persons.

“You would be surprised, but these people are very enthusiastic about coming out on their own and they want to do more than what is prescribed by their jobs. They are willing to try, and work really hard,” says Yoon.

“But they are usually very worried because they have families to support and mortgages to service. So, I offer them a deal where we pay them enough to support them so they can go on with their daily lives. They probably would not be able to go on expensive holidays, but they will not have to worry about the daily grind.”

Yoon’s investment ranges from RM50,000 to RM100,000 per start-up. The funds cover salaries and business expenses. Generally, he does not hold more than a 10% stake in any of the companies.

Most of the businesses, he adds, were initiated by those still in their twenties and thirties. “These people are just starting out or are mid-way through their careers.”

 

Investing in ideas

For all that he puts into a business, Yoon insists on holding only a fraction of the company’s shares and focuses his energy on guiding the founders to develop their technology and on demystifying the complexities of running a business. Yoon has invested in nine companies so far.

“In exchange, we will just take a minority share of your company. If I do not have enough funds to cover a particular company, I ask other people in my network, who are retired but have money, if they would like to invest,” he says.

Yoon stresses that he does not invest in business plans, but in ideas. “I will manage the funds and make sure the other investors are aware of the risks. But we do not want to make it all about returns. So, most importantly, they have to like the investees’ ideas as much as we do.

“Hopefully, our investments will turn into some kind of revenue because the investees now take half their pay and have to make up for the other half. So naturally, they will start building the business from that standpoint.”

Some of the businesses Yoon invested in in the early days have grown into multinational corporations that serve clients globally. They are in such sectors as electronics, nanotechnology, advance polymers, artificial intelligence and machine learning.

Some of these companies were not start-ups either, he points out. They were small businesses that had been around for years but had problems that impeded their growth.

“I want to make sure that all the companies are above board, with sound technology similar to those that come out of Silicon Valley,” says Yoon.

He points out that many companies in the country are profitable and hold some very innovative technology, but they are either going through a rough patch or the management does not know what to do to scale up. This is where his expertise lies. “Personally, I believe that if every stakeholder in the country can come together, we will be able to build companies that giants such as Facebook and Google would like to acquire.”

Yoon says even successful local companies must contend with the perception that they are only prosperous because of foreign investors. “When foreign investors come here, they are the bosses. They always say that you cannot do it. And even after you have done it, they will take the credit and say they helped us,” he adds.

The trick to helping local companies grow exponentially is to foray beyond Malaysian shores and target international consumers and clients, says Yoon. “But coming from a relatively small country, compared with China and India, we have been able to identify and develop excellent technologies that have the ability to go beyond the domestic market.”

One of the electronics start-ups that Yoon invested in and incubated has grown from a one-person firm into a company that employs more than 200 people. “When the companies I invest in become profitable and they pay me back, I put the money back into the fund pool. So, technically, I only put money in once and it rolls around from one company to the next,” he says.

“So far, I have been fortunate that they are doing very well with whatever I have given them. I guess I have been lucky to have chosen the right people. But it is also because I do not burden them with financial requirements and allow them to grow organically.”

According to Yoon, some of his investee companies are now valued 30 times more than when they started 10 years ago. “I am in the process of exiting some of them. But there are some companies I think I will not exit from because the dividends are quite good,” he says.

“What the investee companies give back is enough to sustain my lifestyle. I drive a Honda Jazz hybrid and still live in my family home.”

Yoon says he maintains an advisory role and does not interfere in how the companies are run. “My purpose is to keep supporting my investees without interfering in the running of the business. In fact, in all of the companies I have invested in, I do not want to have a say in how they go about their daily operations. I make it clear that I am just holding an advisory position.

“I believe this is one of the reasons I have been quite successful. It is because I do not interfere too much. I believe that I have found smart people, so they should be left to do their thing. We are not smarter than them.

“What I want to do is help them and make sure that I don’t get tangled up in all kinds of financial expectations. If their business is there to solve a problem, the money will come because they are solving a problem.”

 

The ‘gunpowder’

Yoon’s most recent investment was in a young mathematics graduate who is working on developing machine learning tools for the human resources sector. “She has a first class honours degree from Imperial College London. She is also a Rubik’s Cube speedsolving champion,” he says.

“I pay her a salary and we have started a business for her, which I am managing for the time being. In the last six months, she has achieved a lot of things. The tool she is developing can tell you which of your employees are performing best and provide reasons with the data.

“You would be surprised, but she works under her desk because she is able to think better there. She is still working on her maths, but I will be teaching her business planning and she will eventually be part of the business. Anita and I make it a point to talk to her every day to keep her motivated.”

Yoon says he evaluates a potential investee by gauging the individual’s enthusiasm, ability to listen to new ideas and willingness to make sacrifices for the business. “I always use this metaphor. I evaluate the amount of ‘gunpowder’ in a person, which is their potential. If it is not managed properly, it will blow up in your face. But if you put it in a bullet, you can hit your target from miles away,” he adds.

“I also look at whether the person is open enough to accept other people’s opinions. And I want to know if the person is willing to

sacrifice the lifestyle he or she has been used to for the next few years. An entrepreneur is not someone chilling in a café and drinking coffee. It involves hard work. So, I need to know if you will buckle under pressure.

“If you feel these are your strengths, then I will invest in you. Of course, your idea has to be aligned with what I want to do as well.”

 

Paying it forward

While the internal rate of return on his investment ranges from five to 20 times, the returns Yoon values most is the support his investee companies have given to the development of science, technology, engineering and mathematics (STEM) in Penang.

Many of them do this by supporting activities run by the Penang Science Cluster (PSC) — a social space made up of cafés, laboratories and workshops that focus on interactive learning and the promotion of STEM curriculums — which Yoon is an active proponent of. “Since my currency is essentially not money, the investee companies have given back a lot by supporting this initiative [the PSC] that I started with a group of veterans six years ago,” he says.

Every year since the establishment of the cluster, more than 50 tech companies based in Penang or with roots in the state — including Agilent, B.Braun Medical Industries Sdn Bhd, Boston Scientific Medical Device (M) Sdn Bhd and Dream Catcher Consulting Sdn Bhd — participate in the annual Penang International Science Fair (PISF).

Yoon, who is director of the PSC, initiated the setting up of the cluster to reinvigorate the tech sector in the state, as the appeal of cheap infrastructure begins to wear off with the rapid growth of manufacturing in China, Thailand and Vietnam. There is no area of business, society or life that technology is not upending, and the backbone of Penang is technology, he points out.

“But Penang is starting to run out of people. We are now very dependent on foreign labour. So, we cannot compete in high-labour activities anymore,” says Yoon.

“Fortunately, Penang has been like Silicon Valley. There are still a lot engineers here and many of the industry players are beginning to transform their respective industries and going into high value-add businesses.”

As the lack of talent is exacerbated by the fact that fewer students are taking up STEM subjects in schools and universities, the PSC figured that it would get the industry players themselves to participate and make their technology child-friendly to encourage and motivate children to get involved. According to Yoon, the PISF in November saw the participation of more than 35,000 adults and children.

The development of the PSC and annual fair are just some of the ways the companies Yoon has invested in share their journey as entrepreneurs and pay it forward by encouraging people to get into the STEM sectors. “If I had taken a bigger share, I would have made a lot of money. But the way I modelled the angel fund is to get you started with your innovative idea. And I want you to be successful so that you can pay it forward too. I am really lucky to say that all the people I have invested in are not 100% driven by money,” he says.

 

Knowing when to hold back

As fulfilling as Yoon’s journey as an angel investor has been, it has not been without challenges. In the early days, he had a hard time shedding the habits he had become accustomed to when he was still vice-president at Agilent.

He had to learn how to keep his opinions to himself and to manage entrepreneurs. “I may have a certain point of view about how things are run, so I have to constantly check myself, which is the hardest part. When I was working, people used to say that I was an aggressive manager — the kind that had ice in his blood.

“Anita has told me many times that I can be very condescending. That is because I get very excited and I have become the investee ... that is also a failure.

“So, I have to bear in mind that I am investing in the other person, which means sitting down and listening to the person’s directions and decisions. Even if I feel it is not the best way to do something, I have to check myself to make sure I don’t overstep my bounds.

“I am not at war with them. I can think of a lot things at once and I know that I can spin the companies around really fast. But I cannot take their company from them. I have to remember that I am there as a mentor and that they hold the majority share.

“None of them has ever exercised their majority positions to counter me and they always refer back to me. So, I have to be very careful of what I say because I know that my opinions carry a lot of weight.”

Yoon says teaching young entrepreneurs financial prudence can be a daunting task. While money management determines the success or failure of a start-up, many do not manage their funds strategically.

“Sometimes they keep too much. And sometimes they have no money at all. As a start-up, you cannot keep too much because people have invested in you,” he says.

“On the other hand, they have some money and they want to spend it on hiring people instead of outsourcing the job or using external contractors, which is a fixed cost rather than a variable one. They don’t think that when they hire 10 people now, it is a cost they will be saddled with. What happens after I exhaust all of the funds paying the salaries? I still have to pay 10 people.”

Yoon stresses on focus. This does not only apply to the companies but also to angel investors who want to do too much. “My mentor, William Redington Hewlett, founder of Hewlett-Packard, once told me that companies do not die from the lack of opportunity but because of indigestion, which means taking on too many things at once,” he says.

“This includes me, because I also want to do all the things out there. So, it is about checking myself and making sure these people understand the importance of focus.”

For aspiring angel investors, it is crucial to be emotionally involved in their investments, says Yoon. “As an angel investor, I have to bear in mind that I do not have the knobs. I have to create the conversation and I have to make sure that it is positive and going forward,” he adds.

“The investment community must try very hard to understand the technology they invest in. I have come across many investors who do not seem to understand what is the technology the company requires. Instead, they just invest and expect a profit and loss statement every week. If you do that, you are bound to kill the investee before you even get started.

“You have to be part of the company you invest in, but in such a way that you do not interfere in their daily operations and that you do not overshadow them.”

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