It is misleading to say that Venture Capital firms are in the investment business. In reality, they are in the business of Human Resources.

Successful venture capitalists aren’t necessarily those who find and fund the most innovative ideas, but the ones who know how to spot founders capable of building a company that will eventually be acquired or go public. 

VC investments first came into being in the 1960s, when the US government spent more on R&D than the rest of the world. While that fire hose of cash flowed, the first VCs found many winners to bankroll.

Since then, VCs have backed software companies that grew fast and generate large amounts of money.

Since the golden era of the 2000s, the number of VC firms in the US has risen from 946 to 1,328 in 2019, and the amount of capital managed went from US$170 billion to US$444 billion in 2019. The stellar IPOs in the past years have led to US$121 billion in “dry powder” for the VCs in 2019. 

However, the talent spotters have now been marked with a unique challenge of channelling this dry powder in the next generation of unicorns.  New investments have drastically slowed down. VCs have found fewer and fewer ideas that fit their preferred pattern. 

In the past, software companies were attractive to investors because they were disruptive. Disruptive, often by replacing people in industries those software firms come to dominate—for example, travel agents, whose work is now done by flight booking websites.

Also Read: How two-year-old GudangAda managed to keep VCs interest ‘intact’ despite COVID-19

The search for deals is now more focused on employment generation, inclusivity, innovation, and cures.  And there is a dearth of deal supply in this space. 

In hope of scoring that elusive home run again, many VCs have taken a more innovative approach and started their in-house “accelerators”.  Traditionally, accelerators help entrepreneurs take their idea and turn them into an investment-worthy business.

A set curriculum, hands-on support, networking opportunity, access to capital, and mentors – make a very attractive proposition for the founders looking for a jump start. This infrastructure was the bedrock for attracting the next wave of unicorns. 

Y Combinator is a shining example of this model, with an impressive alumni list of Airbnb, Stripe, Instacart, etc. Y Combinator quickly pivoted to then be an investor (with an offering of US$150,000 in exchange for seven per cent).

The success of Y Combinator is what has motivated many VCs to innovate their business model and introduce an accelerator arm.  At present, there are 170 accelerators programmes in the USA, and numbers are expected to grow 10 times, according to Barclays Fintech Accelerator, Rise.

Does this lead to an added challenge of how will each VC-backed accelerator differentiate itself from others? How narrow or broad the focus will have to be to spot the next idea? How robust infrastructure will have to be created to support these startups to reach the next billion-dollar valuation?

The accelerator is a promising path going forward for many VCs. However, there is a need for speed in the market, given the surplus of US$121 billion dry powder in the market. With that in mind, a more suitable approach will be a combination of VC investment, Accelerator, and an Incubator (building companies from scratch).

While the first two are highly publicised and noted models, the last one is less heard of and well-executed only by a few. 

Also Read: TechCrunch founder’s VC firm leads US$3.7M in ex-Golden Gate employee’s blockchain startup Persistence

One of the most famous incubators across the world is Rocket Internet (RI). Infamous for their copy cat models of successful Western startups in emerging markets. While RI had a good run for several years with marquee exits such as Lazada, Zalora, Jabong, FoodPanda, and Jumia, the lack of innovation is what led to its eventual exit from Southeast Asia. However, RI had identified this issue much earlier and had pivoted to be a hybrid model of VC and incubator, investing in pioneering startups such as Hello Fresh and Hello Delivery while continuing to build companies from scratch. 

To the core of the RI model lies the strong fundamental thought of creating one instead of finding the unicorns. And that is what is needed for most VCs to bring that next billion-dollar idea into the being.

With the combined power of the capital, network, and talented investment partners (most with startup experience), accelerator equivalent resources and the possible creation of shared services (of human resource and technology) to be leveraged on– VCs will be positioned strongly to either give birth or find the home run they have been chasing relentlessly, for a while now!

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The startup market in Southeast Asia (SEA) is expected to grow so rapidly that in the next three years, the investment in startups in the region is expected to reach US$70 billion. By 2024, SEA is presumed to produce at least 12 new businesses with a total market value of at least US$1 billion each.

But the success rate of startups globally is still low – 90 per cent of startups fail. Have you wondered why innovative ideas fail to turn into successful businesses?

Steve Blank, the founder of the Lean Start-up movement said, “Startups are not miniature versions of established large companies”. While large companies execute known and proven business models, startups are in search of business models.

Most startups fail because they do not find the right business model, they could not find the product/market fit, and could not find enough paying customers.

Product/market fit

Don Valentine of Sequoia Capital said, “Target big markets — If you don’t attack a big market, it’s highly unlikely that you’re going to build a big company.”

“When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.”

“If you address a market that really wants your product — if the dogs are eating the dog food — then you can screw up almost everything in the company and you will succeed. Conversely, if you’re really good at execution but the dogs don’t want to eat the dog food, you have no chance of winning,” according to Andy Rachleff, CEO of Wealthfront.

Also Read: OKR is a startup lifesaver. Here is how to craft them

Finding the product/market fit is the first task of any startup that is aiming for success, or even to survive.

Finding product/market fit with OKRs

Finding the product/market fit is famously considered as an exercise in serendipity by many, but it doesn’t have to be. A startup can define hypotheses and test them through iterative business execution.

The following key principles of OKRs will be relevant for finding the product/market fit:

Let us consider the example of a startup that aims to find a profitable business model for selling organic nutritional supplements.

Objectives or Stretch Goals: Objectives should be ambitious and should map to the hypotheses that the team would like to test. The first hypothesis to test should be the Value hypothesis – is there an attractive market for organic nutritional supplements in the major metros of SEA?

The team may want to choose one locality in Jakarta to test out their hypothesis. They may want to use different hypotheses for testing out other factors such as price, delivery model, and marketing communication.

Key results: Key results are metrics used to measure the achievement of an objective. In the above example, key results could be:

In six weeks:

• Selling to 2,000 customers in one locality
• Achieving a repeat order rate of 60 per cent
• A conversion rate of at least 25 per cent
• At least 200 customers ready to refer other customers
• The Average Order value of at least US$50

Benefits of using OKRs

• Focus: Startups have limited resources. Hence it is important that everyone in a startup fixate their efforts on achieving the chosen objective. By clearly defining the OKRs and the time frame to achieve them, everyone absolutely knows what they need to do on a particular week or day.
• Transparency: When OKRs are used along with a good tool, everyone is clear about their team’s goals, the goals of other teams, the company’s objectives and the achievement status of all the OKRs. This keeps everyone on the same page, inspires people to achieve like the leaders in the scoreboard. In great teams, resources are also reallocated, with additional help extended to the teams that are falling behind.
• Early identification of problems: One of the biggest benefits of using OKRs is the “surfacing up of problems” early. The weekly reviews ensure the uncovering of problems as every team needs to report their progress as well as confidence level in achieving their key result. In the case of early stage startups, reviews can be done even twice a week or daily until they find the product/market fit.
• Alignment: OKRs ensure that everyone is aligned towards the overarching goals. In our example, while the sales team is focused on the key result of “selling to 2000 customers in six weeks, the Customer Success team is focused on achieving repeat order rate of above 60 per cent.”

Also Read: Global pandemics, trade wars: why OKRs are more vital than ever before

Tips for making OKRs work for startups:

• Three objectives or less: As resources are limited, it will be a good idea to focus on just one or two objectives until the product/market fit is established. The upper limit should be three.
• Plan shorter cycles: Aim for one- or two-week cycles to test hypotheses. Quarterly cycles are good after product/market fit is established.
• Learning: Startups should plan to obsessively learn during this phase. Having internal tools that can be used to record client interviews, have hashtagged conversations so that the field lessons are quickly disseminated across sales, customer success, product and marketing teams.
• Data before ego: Not everyone can be an Elon Musk or a Steve Jobs; having a great intuition about the market and designing products without market research is difficult for an overwhelming majority. Founders should put their ego aside and respect the ‘market” while testing their hypotheses and be ready to pivot early while they still have the funding left.

OKRs, in our view, can be a great tool for startups of any size provided they are used diligently applying the core principles stated here.

Teams need to have an open culture valuing transparency, should be ready to go out to the market and test their hypotheses and rapidly recalibrate their offerings till they find the product/market fit.

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Denmark-based venture builder Rainmaking has launched an advisory network, called Ocean Ventures Alliance, which seeks to accelerate the growth of maritime startups in Southeast Asia.

The network will include an alliance of industry leaders, such as Chakib Abi Saab (CTO, Bahri), Jan Holm (MD, Maersk Drilling Singapore), Jakob Bergholdt (EVP, Toll Forwarding Group),  Jesper Thomsen (Former VP, Maersk Line) and more.

Also Read : These are the top three startups chosen by PIER71, offering the latest maritime tech solution

The goal is to help startups with technology development in areas, such as shipping, supply chain and decarbonisation, while providing them access to the maritime transport world.

In each quarter, Rainmaking will also host a summit to gather C-level advisors and corporates from Ocean Ventures Alliance to discuss innovation opportunities in the maritime sector.

Furthermore, it will serve as a platform for startups to connect with corporates who can provide them with valuable insights to the industry.

“A common issue we see is that startups spend several months of effort developing their ideas and their first iteration of a product, only to find out they are disconnected from the needs of the industry when pitching to a maritime corporate partner,” said Chakib Abi Saab, CTO at Bahri.

“The Ocean Ventures Alliance is the perfect vehicle to remove this the issue because they bring advisory and corporate partners early on the conversations, resulting in startups dedicating their time innovating and re-engineering real industry challenges, which has proven to exponentially increase their chances for success,” Abi Saab added.

This news comes right after Rainmaking’s co-investment partnership with SEEDS Capital’s US$36M scheme for maritime startups.

The scheme is supported by ESG and the Maritime and Port Authority of Singapore (MPA) to drive the growth of the maritime sector through technology and innovation.

Also Read: Maritime tech startups to get US$36M investment from SEEDS Capital

According to Tan Beng Tee, MPA’s Assistant Chief Executive (Development), maritime technology startups play an even more important role in accelerating digitalisation and innovation efforts to prepare the maritime industry for a new normal post-COVID-19.

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Image Credit: Jonas Tebbe

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Fintech companies and banks might seem to always be at loggerheads—but do you really have to pick a side? Traditional banks are the go-to reliable financial institution for business owners and consumers.

Fintech companies, on the other hand, are seen as the young kids on the block. Although banks used to be wary of fintech companies, the financial sector seems to be loosening its reins on tradition. 

Why now?

Banks have long been the juggernauts of the financial services industry. Steadfast, trustworthy and regulated, their presence has pushed banking to become one of the biggest industries in the modern world. 

Big financial institutions struggle to keep up with changes in the marketplace. By spending billions a year to maintain legacy operating systems, the same business processes that once were the fundamentals of banking now leave little room for product innovation.  

Even before COVID-19, consumer patterns were already evolving alongside digital technology transformations. Fintech products such as contactless payments, peer-to-peer fund transfers and real-time service channels have started to disrupt the financial services scene. 

This is against the backdrop of an increasingly digitised generation. Around 82 per cent of Singaporeans own a smartphone, and around Southeast Asia, the number is even higher with most frequently using their devices to access search engines and social networks.

The frequency at which consumers engage with their devices has also turned fintech companies into enticing financial providers for the on-the-go customer. 

Also Read: Ecosystem Roundup: Startup funding in SEA continues decline in Q3; Digital banking heats up in Vietnam

COVID-19 is accelerating change, making the future happens faster. It’s safe to say that the pandemic disrupted many day-to-day processes—including financial services. As people were now relegated to their homes, financial institutions scrambled to find innovative digital solutions for their products.

A survey done by Ernst and Young highlights that 27 per cent of consumers agree that banks have to be more flexible in helping customers become better prepared in times of uncertainty and 65 per cent of businesses mentioned they are likely to try digital financial services within the next 12 months in a recent Deloitte survey.

So what’s fascinating about fintech?

Small and nimble, fintech platform has infiltrated the financial processes of many consumers. fintech platforms have joined the financial service foray by optimising financial services.

Using algorithms, applications and cloud-based tools, tasks such as using a financial tracker to monitor business expenses, managing investments, and crypto exchanges have been made easier for businesses and customers alike. 

Biggest pain points that fintech resolve

• Convenience: Track financial transactions with a tap —anywhere and anytime
• Accessibility: Access to loans, peer to peer transfers, and easy to digest banking options to those who have disabilities or have limited financial awareness. 
• Innovation: Being tech-backed and automation facing, fintech is on the hunt to provide quality solutions at lower costs. 

Fintechs seduce consumers with their functionality and accessibility, leveraging on big data and algorithms to streamline financial services. The innovation that fintech startups thrive on also allows their products to integrate into large digital ecosystems. 

The agility that this provides to companies makes it both convenient and cost-effective to do business. Companies such as Transferwise and Aspire target gaps left behind by banks, by offering products that slice through hefty processes required to start and perform business dealings.

Also Read: Banking the unbanked: Have cryptocurrency project achieved the most claimed utility of the blockchain?

By cutting down on the time taken to send a foreign transfer or open a business bank account, fintech startups also slash operating costs for companies. 

Banks bring with them great experience and expertise; fintech companies complement this by by bringing technology speed to layer innovative products to traditional financial service offerings. In a world where customers demand speed, simplicity, and customer-centric products, fintech ranks quite high for personalised products.

Using social media as a platform to connect with potential customers also brands fintech companies and approachable, in contrast to the daunting persona of a financial institution.

Is collaboration on the cards for banks and fintech?

Most definitely—the new future of financial services doesn’t seem like it can do without either. 

The real threat to the banking industry isn’t fintech companies but Big Tech firms such as Google, Apple and Alibaba. These huge technology firms already have the clientele, an army of developers, and huge stakes in various complementary industries.

With a leg (or two) in e-commerce, cloud services, and advertising services, these tech giants come armed and ready with the ability to take their slice of the financial product pie. 

That’s precisely why it’s essential for collaboration between banks and fintech firms. In the wake of COVID-19, tech-fuelled transactions and contactless payments will more than ever be a staple in the backend of bank products.

Contactless payment apps such as GooglePay and ApplePay are already rising in ranks, alongside consumer banking products such as Paylah! in Singapore.

To stay ahead of the curve, banks must leverage the benefits of fintech collaboration. fintech startups bypass regulatory bank processes to connect directly with users—similar to the high penetration rates Big Tech firms possess. 

Also Read: Fintech and banks: collaboration or competition?

Redefining the future of finance

According to a study done by PwC, Banks are becoming the most active of all financial sectors in exploring partnership opportunities with fintech firms. This includes setting up venture funds to invest in fintech opportunities.

More than 70 per cent of banks predict that over 60 per cent of their clientele will be using mobile-based applications as part of their financial process within the next five years.

This makes digitally adept fintech firms the perfect partner in crime to take on the big guns. 

The future of finance does seem to be littered with technological advancement. As tech infiltrates almost every aspect of our daily lives, both fintech and banks will have to come up with novel solutions to tap into digital ecosystems.

This includes managing risks—data breaches, security, verification systems—that arise from new developments. 

Nevertheless …

The next step for financial services has to be partnerships. While banks can definitely benefit from the innovation and product development aspect of fintech startups, fintech companies can also leverage from the bank balance sheet and compliance expertise.

That being said, partnerships are no walk in the park for both fintech firms and banks. It’s only with shared values and goals this allied relationship can truly redefine the future path of finance.

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SparkLabs Taipei, a Taiwan-based accelerator programme, has announced the eight startups graduated from its fourth batch, in a demo-day event held in the capital city.

These startups came from diverse industries, from financial blockchains to smart logistics.

Edgar Chiu, Co-founder and Managing Partner of SparkLabs Taipei, said: “The global economy in 2020 has been greatly affected by the recent pandemic, and it has unexpectedly created a unique foothold for Taiwan’s entrepreneurs.”

“Some of the industries covered by the startups at DemoDay 4 include telehealth, e-commerce, and 5G infrastructure, which is aligned with the recent trends of the global technology industry. In fact, many major technology companies are currently seeking strategic partnerships and investments in these industries,” he added.

Also Read: From coffee maker to app-free chat solutions, meet the 8 startups from SparkLabs Taipei’s third batch

The startups are:

EMQ: A fintech platform that enables global businesses and individuals to access real-time, affordable and efficient cross-border payments. 

Pickupp: A data-driven, AI-enabled logistic platform to supporting merchants with flexible and cost-effective solutions. 

OakMega: A SaaS platform offering omni-channel instant messaging CRM solutions for businesses.

Kneron: A tech hardware firm providing Artificial Intelligence solutions.

Tresl: An e-commerce data analytics platform.

Aegis Custody: A blockchain financial services company specialising in providing secure and user-friendly solutions for enterprises.

TMYTEK: A 5G infrastructure provider.

PenguinSmart: A digital healthcare platform that enables individualised rehabilitation therapy.

Established in 2o18, SparkLabs Taipei assists Taiwanese startups in international expansion and foreign startups in entering the domestic market. It also partners with large enterprises and multinational companies to source technology talent and identify potential startup strategic investments and acquisitions. 

The programme has accelerated four cohorts since inception and invested in a total of 26 startups. SparkLabs Taipei alumni have attracted funding from investors, including Taiwan’s National Development Fund, Japan’s NEC Capital Solutions, and Hive Ventures.

Taiwan has managed to escape the brunt of the global pandemic and has reaped the economic benefits of it. Posting a positive economic growth in 2020, it has seen its startup ecosystem flourish as foreign companies increase their investments in Taiwan. Thereby, positioning itself as a growing hub for international capital, talent and digital technology.

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Image Credit: SparkLabs Taipei

 

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