Funding: In search of companies that can collaborate

This article first appeared in Digital Edge, The Edge Malaysia Weekly, on November 2, 2020 - November 08, 2020.

"At the end of the day, business is about people. If you have strong integrity, you would be able to carry out your responsibilities to your stakeholders and have reliable people who are comfortable working with you. ”- Chua (Photo by Victor Chua, Vynn Capital)

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All venture capitalists have their own particular preferences when it comes to investments. For Vynn Capital managing director Victor Chua, it is all about whether his potential portfolio companies can attract collaborations and partnerships, as well as work hand in hand with his existing portfolio companies should the opportunity arise.

This is something that Chua has believed ever since he started his career in venture capital (VC). “When I do my due diligence, I will look at whether these companies have what it takes to work with other companies. These companies are usually small, as we invest at seed stage. It is very difficult for them to survive on their own, relative to larger corporations. They need a partner in crime. Therefore, this ability is one of the most important ones that we sniff out,” says Chua.

He cites the example of Carsome, Southeast Asia’s largest online used car trading platform with a presence in Malaysia, Indonesia, Thailand and Singapore, and one of Vynn Capital’s portfolio companies. The platform entered into a partnership with CIMB Bank Bhd to provide a co-developed inventory financing solution to used car dealers, directly reducing processing time and minimising physical documentation via Carsome’s online platform in Malaysia.

It was the first time such a collaboration had been established between a bank and an online used car trading platform, says Chua. “Carsome also collaborated with Shopee recently. Through that collaboration, Carsome was able to sell used cars on Shopee, allowing consumers to browse and shop for used cars easily. This is what we meant when we say we want the company to be able to synergise with others  it opens up a lot of possibilities for further business expansion.”

Founded in February 2018, Vynn Capital is an early-stage VC firm that focuses on opportunities in Southeast Asia. It aims to bridge the knowledge and experience gap between incumbents and start-ups, within the travel, property, food and fast-moving consumer goods (FMCG), and female economics industries. Its typical investment ticket ranges from US$250,000 (RM1.04 million) to US$1 million.

“Many VC firms are sector-agnostic. For us, we only focus on tech or tech-enabled companies within these four sectors,” explains Chua.

He notes that he gets a lot of queries as to why he is focusing on the travel sector, given that it has been battered by the Covid-19 pandemic. According to a report released by the United Nations World Tourism Organization on May 7, the pandemic had caused a 22% fall in international tourist arrivals during the first quarter of 2020.

Arrivals in March dropped sharply by 57%, following the start of a lockdown in many countries as well as border closures. This translates into a loss of 67 million international arrivals and about US$80 billion in exports from tourism.

“While we acknowledge the challenges, our definition of travel is not just about hospitality. We are actually also looking at how products can move across different areas and borders. So, when we say travel, it could mean the entire supply chain and cross-border commerce,” says Chua.

Vynn Capital’s portfolio includes Travelio and Dropee. Indonesia-based Travelio is a short-term home rental marketplace that provides customers with professionally managed properties ranging from apartments and houses to villas. It lists more than 4,000 unique properties in 25 cities within Indonesia.

Meanwhile, Dropee is a business-to-business e-procurement platform. It aims to help businesses — especially those within the FMCG and retail space — source for supplies and deal with one another in a more effective and efficient way. Today, the platform supports over 2,000 suppliers and serves more than 20,000 retailers.

Looking beyond obvious advantages

Chua started his career at advisory services firm Towers Watson. As an investment consultant, he worked with clients such as the Employees Provident Fund, Kumpulan Wang Persaraan (Diperbadankan), Citibank, and IBM Singapore. He was vice-president at Shanghai-based VC firm Gobi Partners before setting up Vynn Capital.

In a way, Chua does have some experience being an entrepreneur. He started a crash course business with a few friends when he was still studying in Australia. Chua and his friends tutored students from China who had difficulty understanding English, providing a 100% money-back guarantee if they failed their exams.

They made enough money for a luxury holiday in Hong Kong. Chua believed that this tutoring model would be very profitable and decided to bring it online. The team spent a lot of money, time and effort building their website and writing the materials as hosting videos was expensive. They even had plans to offer internships and fresh graduate placements. But the business never took off as students were not ready for online education at the time.

Today, part of Chua’s job is to judge founders and their capabilities in running their businesses. He does not deny that there are certain things that tip the scales in their favour: a strong background and experience in their current businesses, being highly educated or coming from a wealthy, well-connected family.

However, Chua stresses that what matters most are grit and integrity. “As a founder, they don’t have to be the smartest person in the room. But they have to be able to go out, network, lobby for support and attract good talent to become the engine of the company. Their jobs are not to stay in the office and do desk work. If the founders are not able to do this, then I would probably say no to them.

“At the end of the day, business is about people. If you have strong integrity, you would be able to carry out your responsibilities to your stakeholders and have reliable people who are comfortable working with you. I think these are the most important aspects of an entrepreneur,” says Chua.

Currently, the country is still facing volatile economic conditions owing to the Covid-19 pandemic. In light of this, how should entrepreneurs reach out to funders such as VCs? While Chua understands that there may be some companies looking for financing to expand their businesses at the moment, he does not think it is the right time.

“Funding is scarce nowadays, so entrepreneurs should focus their efforts on surviving and improving what they already have, which will attract more investments in the longer term. The markets are very volatile right now, so funders are very careful about where they put their money. It would be a very frustrating experience for the entrepreneurs,” says Chua.

In the meantime, he encourages entrepreneurs to work on getting their stories out. Compared with entrepreneurs in neighbouring countries, Malaysian entrepreneurs are not very good at marketing themselves, says Chua. “The country houses some very good, established advertising firms. Yet, the Malaysian individual is still too humble. As long as you have a good story and product, why not go out there and shout about it? Convince people that your business has value and is worth their time … there’s no harm in this,” says Chua.