This article first appeared in Personal Wealth, The Edge Malaysia Weekly on February 11, 2019 - February 17, 2019

Ignatius Ho and David Foo were earning good money in the financial industry when life took a turn during and after the 2008 global financial crisis.

Ho was working as an equity analyst at Hwang DBS Investment Management Bhd when he had to quit his job in July 2008 to take care of his ailing mother, who had been stricken by late-stage cancer. Unfortunately, she died in September, a few months after the death of his father. He then joined his cousin’s manufacturing business.

Foo quit a high-paying job at Credit Suisse Ltd in Hong Kong, where he was on the debt capital market team, because of what he saw happening around him during the financial crisis. The team had more than 20 people when he joined in 2007. By 2010, there were only three of them, including Foo.

“Some banks were firing people while other banks continued to hire. Headhunters were still calling at the beginning of the crisis. But slowly, the calls stopped and our people started to leave,” he says.

“I saw my colleagues fired on the spot. They came into the office, sat down, picked up the phone, went up to the HR department and were gone. Some never went into the office because they were stopped at the lift and told to go. There was a pub near the office and it used to be so crowded. Then, it became empty and closed down. All these things happened on a daily basis.

“At the same time, my managing director was still telling me, ‘Hey, David, prepare the sales pitch. We still have to pitch. If you do not, there is no business, which means no prospects and no team. You understand?’”

Foo had seen much greed in the industry and decided to quit his job in 2010. “I saw people who would do whatever it took to hit their targets. Loans would be pushed to parties even though they did not need such borrowings. These situations were similar to what was described in the book, Billion Dollar Whale. In fact, some people mentioned in the book were familiar names in our circle,” he says.

“However, the whole experience made me think about what I wanted to do with my life. Do I want to be a banker? Do I want to be in finance? The answer was no. So, I decided to resign.”

That year, Foo joined Mamee-Double Decker Sdn Bhd as its business development manager. The following year, he was promoted to head of international business.  

“I thought it was a good opportunity [for me to leave the bank] and join a manufacturing company. I wanted to be involved a company that produced physical things. I wanted to work in a factory and solve real business problems,” he says.

A few years later, he joined forces with Ho to start Red Ideas Holdings Bhd and JaGaApp was born.

Solving a real business problem

JaGaApp, a mobile application that helps the community to enhance security and communication by providing services such as intercom calls, facilities booking and visitor registration. The company was eventually listed on Bursa Malaysia’s Leading Entrepreneur Accelerator Platform (LEAP) Market.

The idea for JaGaApp came about when Ho was a management committee member of the residential building he was living in. “I was the treasurer of the residents’ committee for quite a while. I encountered all sorts of issues such as intercom communication, the lack of emergency buttons in the parking lot and the dissemination of relevant information to the residents. For emergency notifications, we had to get the guard to print them out on paper and drop them in every unit,” he says.

These issues spurred him to develop a mobile app that could solve such problems. Ho believed that he had spotted a huge opportunity because he had not seen a product like this on the market.

When he shared his brainwave with  Foo, the latter thought that it was a good idea too. The duo discussed the notion further and then mentioned it to Michael Loke, currently a non-independent, non-executive director of Red Ideas Holdings Bhd.

Loke, who is regarded as Ho’s mentor, was the angel investor who invested in JaGaApp in the early stages. “He is an ex-developer with a lot of experience in the property industry. When he said it was a good idea, we took comfort in it and felt more confident,” says Ho.

With the funds provided by Loke, the duo quickly embarked on their plan to develop the mobile app. The whole process, however, cost them RM800,000 and took two years before they found the right people to develop the first version of the app.

The challenges of launching a start-up did not end there, however. Ho and Foo had to sell JaGaApp to the people who would use them. So, they visited the management committees of residential communities in the Klang Valley.

It was not an easy process as the appointments were not always easy to set up. However, things got better after they made friends with the security guards at these communities, who were mostly Nepalese.

“It was just the two of us and we would go door to door with our demo set. I would take one block and David would take another,” says Ho.

“We would walk up to the security guard and say, ‘Hello, I want to see the management committee. The guard would say, ‘Tak ada appointment tak boleh masuk. Sorry.’

“We would then ask them to make an appointment to meet up during lunch time. Then we discussed and exchanged ideas on what we could do to smoothen the process.”

After learning to speak their lingo and developing methods to effectively get their message across, the business started to take off.

One day, someone approached Ho at one of the company’s neighbourhood events. “Someone came up to me and said, ‘This is my name card. Give me yours. Somebody will contact you tomorrow.’

“The next day, Tan Cheow Han, associate director at M&A Securities Sdn Bhd, contacted us and asked whether we would be interested in participating in the LEAP Market as he liked our product.”

M&A Securities is an approved adviser of Bursa for start-ups looking to raise funds via the LEAP Market.

They decided to do so as it would help them to build the company’a reputation and branding, which would give them more credibility when approaching potential clients, especially the larger corporates.

Sales of the JaGaApp have doubled every year since it was launched in 2013. Although the growth has been due to a low base effect, 128 residences used the app in 2017 and about 250 last year. “Next year, we are aiming at 400 to 500 residences,” says Ho.  

The company listed on Bursa’s LEAP Market in November 2017. It was the second company to get on the platform.  

Embarking on an aggressive expansion plan     

It has not been rosy for the company though. It is the only one on the platform to see its share price trade below the initial public offering (IPO) price. The shares were trading at 28 sen apiece on Jan 31 while its IPO price was 35 sen per share.

According to its financial statement, the company suffered losses of RM1.5 million  and RM1.11 million in 2017 (from June 7 to Dec 31) and 1H2018 respectively. However, it recorded revenue of RM338,259 and RM802,000 during the respective periods. The company had cash and cash equivalents of RM3.9 million as at end-1H2018.

Ho says the company is expected to incur losses this year as it embarks on its expansion plan and focuses on long-term profitability. “My mandate is to expand our business and investors will continue to see losses this year. Profitability will come in later as a result of the company’s expansion. This is similiar to the expansion strategies of Grab and Uber. We are an early-stage outfit.”

However, one of the company’s primary goals is to make sure that it generates positive cash flow, or at least break even, before it runs out of money, he adds.

As part of the expansion plan, the company will be partnering other start-ups to bring their products and services to the people who live in the residential communities. This can create new revenue streams for the company, says Ho.

For instance, Red Ideas has partnered Parcel 365 to install 50 lockers in the residential communities where the company operates. This allows the residents to collect and deliver parcels from their homes. Parcel 365 is the business partner of Lorry365, which is an app-based logistics company that offers delivery services.   

The company will also partner GoCar — an on-demand car-sharing platform — to bring its services to the residential communities. “It is a fantastic start-up and it allows people to rent a car at shopping malls. However, the company finds it challenging as users have to go to the shopping malls to rent the cars instead of being able to pick up the cars where they live. This partnership will be a value-add to the start-up as well as the neighbourhoods in which we operate,” says Ho.

He says these partnerships help other start-ups to reach out to a broader audience while bringing in extra revenue for the company.

Meanwhile, Red Ideas is expanding into Thailand and Indonesia. “These two markets are slightly different from ours and we have to adjust accordingly. We are testing our app on a small scale in Indonesia before drawing up an expansion plan. We are getting positive feedback from Thailand even though no contracts have been signed yet. We hope something can be signed in the first half of this year,” says Ho.

He says the company is currently market leader in Malaysia. “While we do not have the exact numbers, I have observed that we are growing at 12 to 20 neighbourhoods per month while our competitors are growing at low single digit. When we reach out to potential customers, we have a 70% chance of getting the deal.”

Ho says this is partly due to the pricing of the company’s product. “I can tell you that we charge RM600 per control point a month. One control point means one guard house. It is cheaper than hiring a guard or a part-time cleaner.”

The company recently launched JaGaRonda, its second product. Unlike its predecessor, which is designed for apartment and condominium residents, the new mobile app caters to residents of landed properties, particularly those who live in gated and guarded communities.

The app has some of the features of its predecessor, including the notice board, emergency button and visitor registration, but some functions have been tweaked to meet the needs of those who live in landed properties.

The switch from investor and banker to entrepreneurs was not an easy one. Starting afresh in a different industry comes with many challenges. However, the duo do not regret making that decision.

“From the first day we met at Hwang DBS, we were never greedy or wanted to make a lot of money through the stock market and other investments. Our focus was more on learning new things. I think that is the good thing about us,” says Ho.

Reserve cash for bargain-hunting during an economic downturn

Ignatius Ho and David Foo, co-founders of Red Ideas Holdings Bhd, have learnt some valuable lessons from investing in the stock market over the years.

For Ho, it is to hold a certain amount of cash and enter the market to bargain-hunt during an economic downturn. For instance, he managed to snap up some yield stocks in Singapore during the 2008 global financial crisis, which provided him with good returns later on.

“The stocks included Capital Land Ltd and its subsidiary Ascott REIT (real estate investment trust). I remember Ascott’s share price going down to about 40 Singapore cents from about S$1.10. Even if you bought it at about 50 cents, you would still enjoy a double-digit yield,” he says.

However, Ho says investors need to look carefully at the fundamentals of these companies and take the risk as nobody can predict the market. “I remember when I was working with Hwang [DBS Investment Management Bhd], my boss asked us, ‘How would you describe a stock that has fallen by 90%?’ The answer could be that it had fallen by 80% and then halved.’

“It means that when you think a stock has fallen by 80%, let’s say to RM2 from RM10, and you enter the market thinking you bought it at a low, the price can go further down to RM1 and you would suffer a 50% loss.”

As for Foo, the most important thing is to look at the fundamentals of a company before investing. “A person could lose all of his money if he is betting on a company instead of investing,” he says.

For instance, Foo invested in Japan Airlines Co Ltd (JAL) in 2009 when its share price plunged as the company was suffering from a steep financial loss. “I said to Ho, ‘Must buy JAL’. I thought the Japanese were so proud of their national airline and was betting that its government would not let it go down. It was quite a hassle to open a foreign currency account back then. But I still did it — just to buy JAL.”

However, the share price kept falling and Foo suffered losses. According to online reports, JAL filed for bankruptcy protection on Jan 19, 2010, under the country’s Corporate Rehabilitation Law. The following month, the company was delisted from the Tokyo Stock Exchange. It was only in 2012 that JAL was relisted.

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