Should startups begin with an exit in mind?

There are different ways of looking at this question. When founders present their companies and have a fully fleshed-out exit strategy, it might spook investors.

At the early stage of your startup, it’s nearly impossible to construct an exit strategy. At a time when you’re still figuring out product-market fit, user retention, product roadmap and other vital parts of the business, considering an exit strategy is premature.

Also Read: Become the entrepreneur you dream to be in 11 sessions

Investors want founders to focus on building their business and adding value with the least distraction possible. The saying goes that any strong company can fundraise (or exit). An exit event is an important milestone for a company. It doesn’t necessarily mean a departure for the founder.  

When and how to exit

The timing and exit strategy are crucial to maximising the returns of the VC firms and founders.

In reality, there’s no definitively optimal time to exit. As the future business circumstances are not set in stone and are extremely difficult to plan out, an exit is more a matter of the reasons to exit and in which circumstances the startup is ready to do so.

The first myth is that startups’ original exit plans come to fruition. There are too many unforeseen situations to predict what an exit will look like five or seven years later.

Also Read: GFC-backed Klikdaily plans to launch IPO in 3 years

The reality of when to exit needs to be supported by how to exit. Founders and shareholders can explore several avenues, but what is more important is to make sure incentives align across all parties.

The technicalities of an exit will differ from case to case, but there are a few similarities.

The most important one is getting the house in order. It doesn’t matter whether you’re preparing for an exit or a late-stage fundraising round — on both occasions, you want to make sure the company’s house is in order. 

(1) Are all the financial reports up-to-date and audited? (Acquirers want to review audited numbers. In the case the numbers are unaudited, the company needs to present clear arguments on why that is the case). 

(2) Are all the company procedures in place and documented? 

(3) What is the financial forecast based on historical financial results? 

(4) What is the outlook for the company, product and market roadmap? 

(5) What are the exit scenarios for all founders, staff and shareholders? In case of an earn-out, are incentives aligned?  

IPOs and Southeast Asia

The holy grail of exits is an IPO, but in Southeast Asia (SEA), acquisitions make up the vast majority of exits. The rise of unicorns explains this.

SEA’s unicorns yield buying power, which has increased the opportunity for smaller startups to be acquired by them.

As many as 28 acquisitions have been made by SEA’s unicorns from 2015 to 2020. This number will increase over the next few years as more capital is coming to the region. 

Also Read: 5 things entrepreneurs need to know about running a business in the new normal

On top of the obvious rise of unicorns in SEA, the most overlooked yet pivotal circumstances that make exits possible are the startup support from stock exchanges and the first SEA funds currently reaching their vintage.

Both the US and local stock exchanges have programmes that establish SEA startups’ impetus to list on the respective exchanges.

For instance, NASDAQ has established a collaborative listings agreement with SGX to help startups eventually list on the former. With the success of Sea Group IPO, it’s clear that US Stock Exchanges offer an exit route.

And what about the local and regional exchanges? Up until now, local exchanges haven’t played a big part in tech IPOs. We do see an opportunity for SEA-based startups to consider Hong Kong and, in some cases, Japan for an IPO. These markets have growing liquidity for tech IPOs. 

An important driver for future exits is Southeast Asian VC funds approaching their maturity. With most major funds incepted in the early 2010s, funds across SEA are looking to generate a return on their investments before closing their first funds.

Also Read: What does Peter Thiel-backed Bridgetown’s IPO mean for SEA’s startup ecosystem?

By nature, they will make an effort to either locate acquirers for portfolio companies or, if appropriate, initiate secondary transactions. No matter how favourable the circumstances to exit are, many startups aren’t ready.

The number of companies in SEA valued over US$100 million is growing each year. We’re bullish on the exit landscape maturing at a fast pace.

Besides regional unicorns, more international companies are looking to increase their SEA exposure through funding and later on acquisitions. 

(Timo Fukar, an investment intern at Golden Gate Ventures, also contributed to this piece)

—

Photo by DDPon Unsplash

Editor’s note: e27 aims to foster thought leadership by publishing contributions from the community. Become a thought leader in the community and share your opinions or ideas and earn a byline by submitting a post.

Join our e27 Telegram group, or like the e27 Facebook page

The post Should you start a business with exit in mind? appeared first on e27.

Singapore’s leading seed-stage VC firm KK Fund has announced a partnership with the Singapore arm of Industrial Growth Platform (IGPI), one of Japan’s largest management consultancy firms.

The partnership is aimed at facilitating the creation of new businesses by large corporations in Southeast Asia by combining the consultancy firm’s expertise in corporate transformation (CX) with the VC firm’s knowledge in growing startups.

As part of this, KK Fund and IGPI will co-launch an accelerator programme, SEA Point, for multinational companies (MNCs) to collaborate with regional startups and conglomerates on creating businesses.

Also Read: The secret is out: The missing piece that will boost your corporate innovation strategy

“There are many accelerator programmes for startups in Southeast Asia, but there are none for bigger companies who want to invest in new businesses or create their own startups for vertical integration purposes, especially in new markets,” said Koichi Saito, General Partner of KK Fund. 

“With SEA Point, we are able to reinvent the idea of the startup ecosystem from being top-down to being more collaborative on multiple levels,” he added.

Southeast Asia, home to some of the world’s fastest-growing economies, is an immense emerging market that has attracted significant investment in the last decade. The region has over 70 million small and medium-sized enterprises and 30 per cent of the world’s top startup ecosystems.

With the Southeast Asian Internet economy expected to hit US$300 billion by 2025, the region is a focal point for international business expansion and provides many cross-industry opportunities for collaboration and growth – specifically in terms of social infrastructure development and SME consolidation.

“We are increasingly seeing enterprises becoming active partners in and even establishing small companies of their own to service new markets — particularly in Southeast Asia, which is a very competitive market. Some may create their own branches while others may look for local partners to set up a joint venture,” said Koki Sakata, CEO of IGPI Singapore.

“Their approach to creating new businesses must be different from typical small, agile startup teams, which is why we are pleased to collaborate with KK Fund in supporting these large corporations and create a more diversified ecosystem,” he remarked.

Also Read: PolicyStreet raises US$1.8M from KK Fund, Spiral Ventures to grow its millennial-centred insurance platform

Since its establishment in 2015, KK Fund has invested in over 20 mobility and internet-related firms in Southeast Asia across a wide range of industries, such as fintech, logistics and healthcare. The names include Infofed, a Thailand e-sports community hub; Med247, a Vietnam-based O2O platform addressing post healthcare treatment; and Policy Street, a Malaysian insurtech startup.

In Q1 2020, the firm collaborated with public and private ecosystem players to launch its Meet Your Match initiative across seven Southeast Asian countries, which saw over 130 investors virtually meeting promising startups in each country. 

—

Photo by Headway on Unsplash

The post KK Fund joins hands with Japan’s IGPI to support creation of new businesses by MNCs in SEA appeared first on e27.

Intro

My experience with my brother in Panama was amazing, until my concussion that is. After being fired from my job in China, I was shocked and confused. I had spent 10 months working my ass off to develop the HR management system, teacher training programme, and curated a massive library of thousands of pieces of educational content our teachers could quickly access from a local network I set up. And my thanks for making the private school a better place to work and study was getting the boot without a second thought. The sad part was, the owner (my boss) was an American like myself. So much for Americans sticking together. But I digress, let’s get to the lesson I learned.

The lesson

When the accident happened, I blacked out. During that precious minute, I could have been run over by a car that wasn’t paying attention. I could have broken bones, been paralysed, brain damaged, or even dead.

But, none of that happened. Even though it took me a year and a half, to quote, “fully recover.” I’ve never felt like the same person in that my personality changed. It was almost instantly noticeable, probably due to the hard-hit I sustained. Even my mom remarked on it as soon as I returned to the US a few days after the accident.

Despite all this, I feel like the accident made me a more patient, calm, considerate, and generous person. I was determined to make sure I didn’t waste my second chance at life. From that point in time moving forward, I was going to focus only on how to improve myself so I could do the thing I’ve wanted to do my whole life: help others find their passions.

Also Read: Podcast: Doing these 4 things will immediately make you happy

I feel like Panama completely challenged my understanding of life and the world, and made me become more focused and passionate about the things I love. My accident taught me that life is short, and even if we are enjoying our life, we could die at any time, so we must make sure we not only enjoy life, but plan for our future, and don’t forget to tell others we love them. I now tell friends I love them (if I do), and I am more much affectionate with people because we need love and support in our lives to be happy. I know it’s hard for some people to be so direct with their feelings, but I hope one day you’ll come to realise that love and emotions are a wonderful thing to be shared with others, not something to be hidden and kept to yourself.

Life is long and hard, and mostly unfair, but that doesn’t mean we can’t strive to be better humans and treat others with kindness because we don’t know what they are going through. Think about your parents or your grandparents. Call them, maybe they feel lonely because you’re not living with them anymore. Call that friend, don’t text, CALL! Call them, hear their voices, do a video call, meet them face to face if you can.

I know during this time with the virus, it’s hard to meet people, but do your best to rekindle those connections and allow people to feel your love, because what you’ll get back is their love, too. What I know of humanity is that we all crave to be loved and accepted. And remember, entrepreneurship is a marathon, not a sprint.

—

This article was first published on We Live To Build.

Image Credit: Michal Czyz on Unsplash

The post Podcast: What I learned from my accident in Panama appeared first on e27.

Global multi-stage VC firm Lightspeed Venture Partners has announced the launch of the third edition of Extreme Entrepreneurs (EE), a learning programme designed to train budding high potential founders hungry to build market-leading businesses.

Launched in 2018 with a mission to nurture industry-disrupting founders and companies, EE takes neither equity nor does it collect fees for the programme.

The sole selection criteria for the participants is whether the founders will benefit from, and make the most of, the programme.

Also Read: Lightspeed Venture Partners raises maiden India fund of US$135M

EE3.o will see two cohorts participate annually in the six-week-long programme. Expanding on previous editions, the new edition will involve startups across Southeast Asia and India and it will be fully remote.

As part of the programme, the founders can look forward to masterclasses with mentors for insights into building successful businesses. Past mentors include Max Levchin (co-founder of PayPal and Affirm), Alex Chung (co-founder of Giphy) and John Thompson (Chairman of Microsoft).

Additionally, they can anticipate honest but constructive business feedback from Lightspeed investors and clinics to hone their skills across areas such as marketing and product design.

Also Read: Lightspeed opens Singapore office to ramp up investments in SEA

“EE takes your blinkers off; it inspires founders to dream bigger and illuminates new ways of thinking, in addition to opening minds to new possibilities,” said Vaibhav Agrawal, Partner at Lightspeed.

“When founders ‘feel’ and ‘see’ differently, it automatically changes the trajectory of their businesses,  just like how Raghu, Jaya Kishore and Rashid – founders of Yellow Messenger who participated in EE2018 – have executed their business’s growth after joining the programme,” he added.

EE.3.0 will run live every Tuesday and allow founders to learn alongside running their startups. Applications for the programme, which will start in  January 2021, are now open. 

Entries for EE 3.0 are now live at https://ee.lsvp.com. 

—

Photo by Proxyclick Visitor Management System on Unsplash

The post Lightspeed launches Extreme Entrepreneurs 3.0 for high potential startups in SEA, India appeared first on e27.

Ant Group’s much-awaited stock market debut received a huge blow after the Chinese market regulators surprisingly suspended it at the last minute.

The group, which spun out of Alibaba in 2010, was anticipating a record US$34.5 billion debut on the Shanghai Stock Exchange (SSE) and the Stock Exchange of Hong Kong (SEHK).

The suspension came as a shock for many as Ant has long been seen as a champion of China’s economy.

Also Read: What Ant Group’s upcoming IPO means for the Southeast Asian startup ecosystem

As per several reports, the plug was pulled on the IPO due to regulatory changes in the fintech space and “possible failure to meet disclosure requirements” by Ant. Its founder Jack Ma’s public criticism last month of financial regulations as stifling innovation could also have acted as a trigger.

e27 spoke to several industry experts in Southeast Asia to know how they look at the overall episode. They all agree that this will send a wrong signal to the investor world out there.

“The suspension demonstrates the depth of complexity of investing in China,” according to Chia Jeng Yang, Principal at Singapore-based VC firm Saison Capital.

“While investors around the world have a lot to learn about the rich Chinese fintech (or techfin) ecosystem, understanding the regulatory and political undercurrents is still an important dimension to being part of the country’s fintech story. As a general lesson, being able to navigate through the developing regulatory frameworks remains an important cornerstone, especially for fintechs in emerging markets,” he says.

For Jasmine Ng, former CEO of Razer Fintech, the decision is a definite blow to investor confidence in Chinese-listed stocks.

“That a regulatory body can allow it to go this far before it pulls the plugs is a huge concern and plays a big impact on investor confidence. I believe moving forward, there needs to be greater transparency to processes before investor confidence can be fully reinstated,” she comments.

The move is unlikely to make an impact on the fintech sector in China, opines Dave Ng, General Partner of Singapore-based new VC firm Altara Ventures. “But what is more important is the potential perception on the Chinese capital market and exchanges instead.”

Also Read: Should you start a business with exit in mind?

When any company plans to go public, there is a lot of preparation and co-ordination required among the different stakeholders, including the management, regulators, relevant authorities, securities exchange and investors. It is a comprehensive process. Hence, when an IPO gets delayed, it will to a certain extent reflect upon the various parties involved.

“In a landmark IPO such as Ant Financials, you can imagine that a lot of work has been done and continues to happen in the backdrop. The temporary setback is such that market participants, especially the international community, will ask if China’s system is ready and comparable to the NYSE or NASDAQ, which I think it is,” he observes. “Even though the Ant IPO is delayed, it could likely take place by Q1 next year.”

“In the meantime, as the various parties work out the kink, it will actually make the eventual process and outcome stronger. That will be the bright spot to look forward to when the IPO does happen,” he concludes.

Ma wanted Ant to be seen as a technology company that closely works with financial institutions and he envisioned less regulations and more freedom under the Chinese laws for the group.

However, as the company grew exponentially, Chinese financial regulators began to feel that its business model of connecting lenders and borrowers should be closely monitored.

Also Read: Koh Boon Hwee-backed US$100M+ VC fund Altara Ventures to invest in 20-25 firms in SEA

“The whole perception of China’s fintech market won’t change because it has never been a free market to begin with,” says Sergei Filippov, Managing Partner, Morphosis Capital Partners. “Fintech is closely regulated and monitored in every leading country, including China. In all these countries, financial services companies want to be seen as technology firms to enjoy less regulatory oversight.”

He further adds that the IPO halting is a warning for high-level entrepreneurs that every private company should follow the rules of the game and it’s not businesses that set rules in China.

“Business and politics have always been deeply intertwined in China. Additionally, President Xi Jinping is extremely concerned about the safety and stability of China’s financial system, and loosening the control over the Ant lending platform would be seen as a direct risk,” Filippov concludes.

—

Image Credit: Alipay

The post ‘Ant Group’s IPO suspension demonstrates the depth of complexity of investing in China’ appeared first on e27.