As every significant historical moment has its own powerplays, a shift in business models, and societal adaptation to a new norm, the same applies to the COVID-19 new world order.

Much has been said that technology companies are the true winners, but the question is: who are the winners and losers in the new world order driven by COVID-19?

Video conferencing platforms

Digitalisation begins to fit itself into the new rhythm of daily life as governments implore their citizens to work from home and reduce physical contact. Video conferencing platforms have instinctively become the all-encompassing go-to-service, no longer centred on webinars or chats only.

It does appear that platforms like Skype, Google Hangouts, and Zoom may emerge as the true winners, given the “new normal” that almost all governments and CXOs’ are purporting now, especially in regards to how businesses will be conducted in the long term.

The flip side: These platforms are not built for highly confidential or sensitive environments. Amidst its newfound fame, Zoom has come under heavy scrutiny over how it handles breaches in privacy due to the prevalence of “Zoombombing“.

We then see the very same video conferencing organisations scrambling to create temporary patches to tackle malware and improve security before they are subjected to headlines again (in a different light this time around).

Verdict: Short-term winners

Food delivery platforms

The popularity of food delivery is not fading anytime soon, notably with more people being self-quarantined. Aware of consumer sentiments, increasing F&B outlets have begun to offer delivery services online.

In response to a surge in unprecedented demand and supply, as well as health risks, food delivery companies like Uber Eats and Deliveroo, among others, have launched contactless “leave at your door service” to help drivers and customers adhere to social distancing guidelines.

The flip side: The Platform-to-Consumer Delivery business model involves operating risks with high costs for delivery and supply logistics. Moreover, such platforms are easily abused.

In the West, GrubHub, DoorDash, Postmates, and Uber Eats were sued for allegedly violating the US antitrust law by imposing “exorbitant” fees to process delivery orders.

Also read: Understanding the economics of food delivery platforms

Eating out is also beyond consummation, but a way humans socially interact with each other. So, unless these companies change their business models, the business boom they are enjoying maybe fleeting as restaurants and consumers alike shun these services as dine-in businesses re-open.

Verdict: Undecided

E-commerce

Market research company Nielsen has identified six key consumer behaviour thresholds tied to the COVID-19 pandemic. With people adjusting their purchasing habits, the e-commerce order volume has increased by nearly 50 per cent since the end of April, according to logistics vendor Narvar.

Compared to March 2019, transaction volumes have increased by 97 per cent for home products and furnishings, 97 per cent increase in online gaming, 136 per cent for DIY products, 163 per cent for garden essentials, 26.6 per cent for electronics and 18.6 per cent for telco.

The flip side: Online retailers who once pride themselves on efficiency are now buckling under pressure to keep up with the crush of coronavirus-related orders. Amazon is stuck between hiring additional workers and granting workers paid-time off if they feel unwell.

The inability to strike an ideal balance between demands for physical goods and employees’ emotional wellbeing is not a problem to be ignored as it can affect a company’s growth. The behavioural change as a result of COVID-19 on offline to online shopping cannot be ignored as consumers begin to experience the convenience that e-commerce brings into their lives.

E-commerce players must start to acknowledge that they are no longer the alternative but the main player in consumer shopping and this goes to making sure they build an enduring business and organization to support their alleviated status.

Verdict: Winners

Medtech startups

Real innovation always comes about as a result of the urgent need to solve a crisis this is especially so for the health care industry. Public healthcare systems around the world are leaning on providers of digital health technologies, particularly telehealth solutions to tackle the coronavirus pandemic.

Ping An Good Doctor, one of the largest telehealth companies in China, reported a 10x increase in newly registered users after the emergence of COVID-19.

In Seattle, TransformativeMed — a company focusing on electronic health record (HER) usability — offered its COVID-19/Core Work Manager (CORES) app to Seattle-area hospitals and medical centres free of charge.

In light of the current situation, Raj Prabhu, CEO of Mercom Capital Group, highlights that we should anticipate funding trends to shift among digital health technologies.

The flip side: Analysts have pushed forth that not every digital health company will thrive in the post-pandemic world. StartUp Health suggests that “health innovation investments are favouring entrepreneurs whose solutions either have a direct impact on a pandemic response or have a place of relevance in a changed world”.

Medtech startups such as InnAccel, which developed an automated and closed system for clearance of highly infectious oral secretions, might be the true winners as they have an added advantage with their flexibility to adapt their business models quickly against black swan events, offering a unique value proposition that can withstand periods of uncertainty.

Verdict: Winners

Travel industry

It is indisputable that no other industry has fallen as far and as fast as the travel industry. The World Travel and Tourism Council reveals that recovery could take up to 10 months. As a ripple effect of the three-month loss in global travel, the lodging sector is severely affected too.

Jumbo hotels in Nevada and Las Vegas have lost their vibrancy. Travel booking startups like Klook will be laying off staff, placing employees on temporary leave, and implementing a company-wide reduced workweek.

Airbnb, the once-heralded disrupter scheduled to go public in 2020, is laying off 25 per cent of its workforce and witnessing a collapse in bookings with hosts pulling out to find cheaper long-term tenants. The tourism industry’s financial strategy built on the foundation of a trouble-free future of open borders and high tourism demand has thus failed them.

Also read: Compassionate layoff — Airbnb shows the way

The flip side: Before the pandemic, the total contribution of travel and tourism to the global economy in 2019 was a whopping US$9.25 trillion, registering a CAGR of 5.6 per cent from 2019-2026.

The need for business travel and social travel will not diminish even as technologies for virtual interactions increase in popularity or attainability. In a business sense, face-to-face interaction builds relationships and enhances credibility and trust.

From the perspective of any consumer, nothing can take away the novelty of experiencing a new city by themselves. The travel sector may see challenging times this period, but it would not be long before they reignite in the most explosive fashion post-pandemic.

Verdict: Losers

So, do we know who the true champions are?

There is no straightforward answer or crystal ball to predict who the ultimate winners and losers are. Rather, the pandemic has taught us three important lessons in order to achieve self-enablement and self-sufficiency in a dynamically changing world.

• Flexibility to reinvent business models centred around network effects

Given the unpredictable environment that affects the industries or markets we once look at, we must be able to determine the next business model to rely on or replace with in order to stay relevant amongst new realities.

• Having sufficient capital and comprehensive back-up strategies

It is crucial to keep a steady runway, which allows us to take advantage of any opportunity for recovery and upturn the soonest it happens. We should never rest on our laurels.

• Innovation and adaptation

The rubric for measuring or defining a new norm in the post-pandemic world is still being fine-tuned. Yet, it is safe to say that we are still living in a competitive landscape driven by disruptive business models. Circumstances that benefit us at a particular moment can also bring about our untimely end.

We should adopt a growth mindset and constantly innovate. In doing so, we develop the adaptability and resilience to face challenges as opportunities, valuing the processes and learnings that emerge from it.

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Now that we have reached the end of a long bull run in the financial markets, valuations are coming down, logic and common sense are returning to the streets and hence it’s a great time to reflect on the good, the bad, and the ugly of venture capital.

I wanted to have a brief look at the history of venture capital and ask: What values have been historically important for a venture capitalist (‘VC’) to achieve success?

I will discuss the following lessons learned after doing research and try to reach conclusions that could potentially be used in 2020 and beyond:

1. Entrepreneur first, venture capitalist second
2. Betting on big ideas and solutions have proven to create impact and wealth at the same time
3. Successful venture capitalists are hands-on and not just money managers
4. Successful venture capitalists used to back seed companies and focus more on funding innovation rather than building a bigger fund

Entrepreneur first, venture capitalist second

VCs are nothing without talented entrepreneurs. They would have been left empty-handed if it wasn’t for talented founders such as Jeff Bezos, Mark Zuckerberg, Steve Jobs, Bill Gates etc. (it’s actually a very long list!)

Think about it: what are the chances that a founder finds another VC to back him (sooner or later) versus the VC finding another talented founder? A founder can always find money, but finding talent is a different story.

There’s a large group of people with ideas, but only a few that are talented enough to execute well (I recently wrote an article on what I call the ‘immigrant mentality’ of successful founders).

By going for the ‘market size or idea alone’ with a mediocre founder (of founding team) chances are, little return on invested capital will be generated.

I believe VC should absolutely be actively involved in a company, but the bottom line is that they are not in the driving seat (at least not in the early stages as there are enough examples where a founder was fired), so all their energy should go towards finding the right driver and back him/her as much as he can using all the resources at his disposal.

Betting on big ideas and solutions have proven to create impact and wealth concurrently

Here’s a couple of examples of companies that had no revenue and no business plan when they raised funds. But the talented founders had ideas with large potential.

Now I personally think that most startups in 2020 should have some traction / validation of the business idea before they raise external capital simply because it’s so much cheaper these days to generate traction than it was in 1970, but let’s look at the examples:

• Genentech: no business plan and no proof that their methods would work. Launched in 1976. Raised $250k from Kleiner Perkins. Valued at $48.8 billion in 2009. Created the blueprint for modern DNA technology.
• Intel: had a two-pager business plan full of typos in 1968. Started by 3 talented founders. Arthur Rock invested (together with a few others) $2.5 million. Roughly 75% of all computers have an Intel chip in 2011. Total market cap: $244 billion in 2020.

Also read: In conversation with Will Klippgen and Michael Blakey of Cocoon Capital

Sure, there are thousands of other companies that were successful and deliver returns. So it is close to impossible to create a complete list and so the above are extreme examples in away.

However, the bottom line here is that a VC should scroll to the ‘addressable market size’ in the pitch deck to find out if the problem is massive enough, directly after he has established that the founding team is great.

Successful venture capitalists are hands-on and not just money managers

In order to build a successful company, a founder will need to pull in all the resources he can find. This means that a VC should be selected on whether they can add value beyond providing capital.

A good historical example:

• Atari was founded in 1971. Had initial success with arcade video game ‘Pong’. Wanted to launch a home video game console in 1975 but was struggling to get it sold and raise funds. Sequoia funded Atari, but more importantly, they brought them their first customer to enter the (rapidly growing) consumer market for home video games.

I recently wrote an article here on how VCs should provide more beyond capital and should not just be fund managers. VC have resources such as network and knowledge that a company needs to succeed.

Where VCs are not providing the hands-on resources needed to grow a company successfully, this void is filled by angels, some family offices and venture builders who have limited resources.

Successful venture capitalists used to back seed companies

Historically speaking, as discussed before, many successful companies received funding from VC before they had any revenue or traction. The VC simply believed in the founder, the potential market, and was focussed on ‘funding innovation’.

Besides the examples provided above, there are limited data available on the past 50 years, but in 2010, approximately 15 per cent of US Series A invested startups were making revenue, which has now risen to almost 70 per cent. This, in turn, has corresponded with survival rates from Seed to Series A halving, to less than 4%.

Source: Pitchbook

The problem here is that talented founders with great ideas need to rely on angels, venture builders, and family offices for a long time where there are historically fewer resources available. This then leads to a fall in the survival rate of seed companies that make it to venture capital.

We have created a catch-22 for some founders: startups raising seed rounds feel the pressure by having to prove traction and product-market fit more vividly but at the same time they need resources to find that same traction and product-market fit.

This increase in investment standards by VC (partly) leads to fewer founders starting new companies:

Source: Crunchbase

I realise the numbers might not reflect the complete reality as one can claim that the fact that fewer founders start a company means that the ‘bad’ ones don’t even venture out and try. One could say that’s market efficiency.

However the problem with that is that it is likely not going to be limited to the ‘bad’ founders, but even the talented ones might avoid starting.

At the same time, it looks like VC as an industry is barely able to outperform the S&P 500 over the past decades.

Source: Pitchbook

According to the Kauffman Foundation:

‘Blame high fees, a skewed compensation model and inattentive trustees for the problem, Kauffman says. Venture capitalists may say they’re all about financing innovation, but nearly all of them follow the standard format of charging a management fee of 2% of assets plus 20% of any profits. That gives managers an incentive to build bigger funds, Kauffman says, even though industry research shows that funds over US$500 million tend to have dismal results.’

‘Only 16 of 94 funds provided a return of 5 per cent a year above small-cap stocks, and most of those were funds started before 1995.’

The important historical lesson remains: VCs need to bet as early as possible taking the risk to create impact and wealth before considering increasing investment standards, raising bigger funds and letting angels, family offices and venture builders be the gatekeeper as it might not be the best for future returns.

My opinion is partly fuelled by the fact that there’s going to be even less capital available in the seed rounds due to the COVID-19 crisis, while at the same time founders won’t stop and try to innovate.

So if a VC doesn’t invest earlier, his deal flow might dry up. I wrote about this before, however, at the time I purely looked at the COVID-19 crisis and its impact without looking at the historical perspective.

What values have been historically important for a venture capitalist to achieve success?

• Finding the right founder (or founding team) is critical
• Addressable market should be the second most important metric after the founder while evaluating a company
• A VC should carefully consider that they can add value beyond providing capital before making the investment decision
• The resources of a VC are needed as early as possible and they need to consider this before they are increasing their investment standards, focus on building a bigger fund or let ‘others’ be the gatekeeper

–

Register for our next webinar: Fireside chat with Paul Meyers and Jussi Salovaara

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Singapore’s cybersecurity startup Responsible Cyber acquires digital identity wallet Secucial

Responsible Cyber (RC), a Singaporean cybersecurity startup that manages software security for small and medium businesses, has acquired Secucial, a startup building a digital identity wallet.

The acquisition reportedly values Responsible Cyber at US$4.9 million.

With this deal, RC has roped in NUS Enterprise and Singtel Innov8 as its new shareholders.

NUS Enterprise and Singtel Innov8 are the co-founders of ICE71, which stands for Innovation Cybersecurity Ecosystem at BLOCK71, and is the region’s first cybersecurity entrepreneur hub.

Secucial was part of the first cohort that graduated from ICE71 Accelerate, a three-month accelerator programme designed to help early-stage cybersecurity startups achieve a product-market fit in a unique technical and demanding industry.

The startup is also part of the ICE71 Scale programme, which helps international and local cybersecurity startups seize opportunities and grow their businesses in Singapore and within the Asia Pacific.

With the COVID-19 pandemic gaining momentum, Responsible Cyber aims to arm small and medium business owners with comprehensive cybersecurity support through its platform.

Also Read: Imbalance between work and personal life is a cybersecurity issue

gojek joins forces with Deliveroo, Advo, Ebb & Flow to provide delivery jobs for drivers

gojek Singapore announced today it has signed agreements with several organisations, including Deliveroo, Advo, and Ebb & Flow Group, to provide delivery services and create additional earning opportunities for its driver-partners during COVID-19.

Under the partnership with Deliveroo, gojek driver-partners will take on roles which involve picking up meals from restaurants and delivering it to customers as ‘circuit breaker’ period increases the demand for eating at home.

The drivers will service districts around Central Singapore, comprising Bukit Merah, Queenstown, Toa Payoh, and Geylang.

The ride-hailing company is also collaborating with Singapore-based education financing startup Advo, to deliver more than 2,000 meals to vulnerable and financially-needy single-parent households in Singapore.

Named #FeedaFam, the initiative by Advo is supported by food and beverage (F&B) partner, Ebb & Flow, a homegrown technology-driven F&B company.

gojek driver-partners will pick up freshly-cooked dinners from Ebb & Flow’s cloud kitchen and deliver them to the beneficiaries identified through Advo’s partnership with charity organisation HCSA Community Services (Dayspring SPIN).

Razer Fintech launches digital hackathon targeting youth

Razer’s financial technology arm Razer Fintech is launching its first-ever digital hackathon in Singapore, scheduled from May 15, 2020 to May 17, 2020, as a form of support for youth and local startups during the COVID-19 crisis.

These objectives are in line with the US$50 million COVID-19 Support Fund announced by Razer on April 9, 2020.

Also Read: Razer Fintech leads consortium for youth-targeted bank as part of digital banking license bid

The Razer Fintech Digital Hackathon will encourage Singapore tertiary students, young professionals, and the startup community to address critical financial challenges that have been exacerbated by COVID-19.

Winning participants will have the opportunity to implement and operationalise their original banking solutions within Razer Fintech’s financial services ecosystem or with its partners, through securing full-time employment, internships, investments, or commercial partnerships.

Participating teams will be encouraged to solve COVID-19 related financial challenges, utilising the fintech industry’s latest technologies and solutions. Teams will stand to win cash prizes of US$14,030 in total, and other prizes sponsored by Razer Fintech, Amazon Web Services (AWS), Mambu, Visa, PwC, FWD, and Perx Technologies and supported by Singapore Management University and the Singapore Fintech Association.

To participate in the Razer Fintech Digital Hackathon, teams of up to four can register through one of the following platforms by 6:00 pm SGT, May 13 2020:

• Sign up here.
• Email rf_hackathon@razer.com with the team member’s names, mobile numbers, and email addresses.

South Korea’s Smilegate invests in Vietnam’s sales and management platform Sapo

Vietnamese sales and management tech startup Sapo Technology has raised a Series A funding round led by the venture capital arm of Korean game developer Smilegate’s Smilegate Investment.

The round is also supported by Vietnam’s homegrown venture capital Teko Ventures, which already has a stake in the startup.

According to Nikkei Asia Review, Sapo CEO Tran Trong Tuyen confirmed that the investment is seven figures. The Series A funding is said to be used to strengthen Sapo’s footing in payment and business financing, and expand operations in other Southeast Asian markets, Tuyen said.

Established in 2008, Sapo — formerly known as DKT Technology — is a multichannel e-commerce management tool that merges the functions of its e-commerce website tool Bizweb and Sapo sales management software.

Sapo’s other products include Sapo GO, a tool for sellers on Facebook and online marketplaces, Sapo FNB for restaurants, Sapo Omnichannel, as well as delivery and payment units.

Flipkart-backed fitness tech startup Cure.Fit lets go of over 1,000 employees

Cure.Fit, health, fitness, and food startup have laid off 1,000 people in India.

According to Finance Rewind, the company had around 5,000 people in January this year.

Cure.Fit has multiple branches, such as Care.Fit, Eat.Fit, Cult.Fit and Mind.Fit which covers the businesses of health and diagnosis, food delivery and cafes, gym and fitness, and mental health and yoga, respectively.

The India-based company had reportedly forcefully sought resignations from 100 people on May 1. All the employees’ social media chat groups and work emails are shown to be inactive. However, they said the company agreed to pay salaries for 30 to 45 days.

The company’s official statement reads: “We have downsized our employee base across markets where we have shut operations and have initiated pay cuts across levels. The founders have taken a 100 per cent pay cut, the management team 50 per cent and the rest of the staff, depending on seniority, have a reduction of 20 to 30 per cent”.

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We’re now living in unprecedented times. Step by step, the circumstances surrounding the global health crisis are changing, transforming the way we work and live. Technology has taken centre stage in the success of many companies.

Financial institutions were not quick to warm up to the benefits of embedding technology into their compliance processes, but it is finally happening. Innovation is happening faster than ever before, in real-time.

KPMG reckons that, by the end of 2020, RegTech — compliance technology — will make up 34 per cent of all regulatory spending.

What’s more, it won’t peak there. Spending on compliance technology is predicted to grow by 48 per cent year on year for the next five years. It is clear, compliance departments are about to transform.

What opportunities can increased digitalisation unlock for them in the coming decade?

From reactive to proactive

In 2018, the average Tier 1 banks spent about 20 per cent of its operational budget on compliance and employed 500 compliance staff. But despite the investment and manpower, most banks still struggle with the workload.

When McKinsey benchmarked 24 leading banks — including several systemically important ones — across Europe, Asia, and North America, a majority said their foundational compliance capabilities and controls weren’t as mature as they’d like.

The upshot is that compliance staff often expend most of their efforts on low-level tasks and don’t have time to strategise.

By automating daily routine repetitive tasks, Regtech can significantly cut the low-level workload. The time required for KYC checks, for instance — these typically take one to three months, much to consumers’ frustration — can be cut by 90 per cent: a staggering 5.4 million hours a year in time savings.

Nicholas Melas, an expert in risk and compliance who recently joined our team at ClauseMatch as Senior Implementations Manager, explains: “Automation frees up people. Suddenly, you no longer have to go through spreadsheets line by line, tick boxes, or push paper around. Decisions happen much quicker.”

But compliance technology isn’t just about speed. What’s more important is that, with less time required for low-level tasks, compliance staff can focus on analysis, strategy, and the development of better systems and controls. In other words, they can deliver more value.

Melas puts it this way:

“You need to make the right decisions with the right speed and care. Banks tend to treat all decisions in the same way, which is inefficient and time-intensive. Technology allows you to be more selective. You can filter issues by the level of risk they present and prioritise those that need in-depth consideration and discussion.”

Slashing overhead

If the compliance workload is growing to unsustainable levels, so are costs. Case in point, the General Data Protection Regulation (GDPR) has to date cost businesses US$1.1 billion to implement.

Industry-specific regulations have even higher implementation costs:

• The second Markets in Financial Instruments Directive (MiFID II) has cost over EUR2.5 billion (approximately US$2.78 billion)
• Dodd-Frank — the US’s signature Wall Street reform law — has cost US$36 billion
• Basel III rules — the set of international standards developed following the 2008 banking crisis — are expected to cost between EUR40 million to EUR120 million (about US$45 million to US$134 million) per bank

More to the point, costs don’t end once implementation is over. There are also ongoing monitoring requirements, admin, risk assessments, and regulatory updates to contend with.

Also read: Regulation tech has a lot of challenges but comes with big opportunities

Just as compliance technology can cut compliance departments’ workload, it can also slash these costs. A 2017 study found tech can cut anti-money laundering costs by 42 per cent, saving banks GBPUS2.7 billion (about $3.6 billion) a year. Similarly, when ClauseMatch developed a Proof of Value at Lloyds’ Lab, it found it could slash policy management costs by up to 30 per cent.

These savings free up funds for more investment and better returns for stakeholders. More importantly, they can be passed on to consumers in the form of better rates and more cost-effective products.

Framing the big picture

Technology isn’t just good at taking the sting out of repetitive, time-intensive tasks. AI and machine learning can parse huge amounts of data and connect the dots. In an increasingly complex and challenging environment — and with Brexit now all but certain — this can give banks an edge by providing them with an unprecedented level of visibility into the regulatory landscape.

This is exactly what fintech challengers have been doing. For example, Revolut, one of our clients, sees great potential for AI to scan the regulatory horizon for relevant changes to help assess risk.

Given the immense amount of laws and regulations this challenger bank has to contend with, this approach is of huge help when compliance teams are working across different jurisdictions. Especially now when everyone is working remotely. AI excels at seeing trends it would take people ages to spot.

However, AI isn’t a silver bullet, it’s a tool, not a solution to everything.

That said, in a world where most of your competitors are often too busy putting out fires to think ahead, AI-powered tools can give banks a significant competitive advantage.

Beyond 2020: how will tech transform compliance in a decade’s time?

By 2022, banks will have collectively invested US$76.3 billion in new technologies. For those that take the leap, the benefits will go beyond cost-savings and increased efficiency. More significantly, they’ll place themselves in a better position to unlock the opportunities the new decade will bring.

Technology can help reduce the manual burden, inform, and empower banks’ compliance departments. And the better banks are at compliance, the easier it’ll be to stand out.

Melas puts it this way:

“Technology can help compliance become an inherent part of everything a bank does, which is as it should be. When compliance is embedded into banks’ processes, they’ll be all the better positioned to deliver products that live up to regulators’ and customers’ expectations and work exactly as advertised.”

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