• What are investors looking for in startups?

Klippgen and Blakey emphasised that it is the quality of the founding team more than anything else. The model and product will always change but how founders approach VCs tells a lot about them.

In addition, they look if the market is big enough and look for the quality and originality of the product to see if the idea is sound enough as a potential customer before investing.

Blakey said he rarely looks at pitch presentations. If a founder takes the effort to get an introduction, a reference, etc. improves their chances of success. How to approach a VC is a critical thing and if a founder takes effort to do that well, half the battle is won.

• Is there anything positive about this crisis?

Klippgen reiterated that startups should be able to solve a problem cheaper and faster. So a recession or any kind of financial problem (like this crisis) is, in fact, an opportunity. With the added layer of social distancing, this crisis will force everyone to move online and come up with more efficient business models.

Most brands become more successful after a crisis, they said. Since fundraising is tighter and money is difficult to raise, founders value it a lot more and use it more effectively.

• What about expansion and overseas markets?

SEA or APAC is not the worst-hit markets, so the general advice is to capture your home market first. It is probably wiser to wait till mid-2021 to make a push to be global. And be open-minded about where to go as you depending on where you gain traction.

• What kind of startups is Cocoon looking for?

At Cocoon, they are focussed on great teams. “We are not so much after the sector. Very rarely startups have the right product-market fit,” said Blakey. They are looking majorly at logistics, fintech, health tech, deep tech, and medtech.

• How should VCs manage their portfolios?

For a VC, communication is crucial. Essentially saying what they require and what they are willing to offer. Don’t over promise what you are going to deliver as a VC. Founders get very frustrated sometimes as the connections promised may not come through. They want to know exactly what they are getting when it comes to working with VCs.

• Are we going to see more M&A now?

Cross-border M&A will likely go down. Companies are dealing with local issues and need to reserve capital for running the business. But in-country or in-region M&As may take on a different form, said Klippgen, although not too popular. He also noted that M&A activities are relatively still low in SEA.

• Is it better for startups to hibernate right now?

In a crisis, companies will raise fewer funds although they should raise more. Basically, they have to save and develop more slowly. We generally ask companies to raise for 18 months but now we think it’s good to buffer for 24 months.

Don’t go completely into hibernation, find innovative ways to manage cash flow. Eg: one startup is renting its tech team to another one to continue their payroll.

“We have advised our portfolio firms to survive until Q2 2021. If there is no way to do, you may hibernate for a bit. The main objective is to not run out of cash. If you are a smaller team, this is a good time to compensate key people with equity.”

Use this time to raise small amounts of money if you can identify interesting pivots or opportunities. And try not to seek shelter in VCs to extend your runway, those requests will most likely be turned down.

Quote of the day

Failure and entrepreneurship are strongly interlinked.

– Michael Blakey

Food for thought

• For a company that focuses on events and travel experiences, what is the way forward?
• How would the monetary and fiscal policy changes affect the risk appetite for the investors?

Resource

Watch the full recording below.

Stay tuned for their thoughts on several other interesting questions raised in the webinar.

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