As an entrepreneur and angel investor, I have invested in more than 24 companies, including PropertyGuru, Tickled Media, and ReferralCandy. Today, I am the Managing Partner and co-founder of Cocoon Capital.
Thank you to all those who attended this month’s AMA with e27 and Cocoon Capital. Due to time constraints, we were not able to address all the questions. Here are my views on the additional questions asked during the webinar:
What are the requirements and criteria for companies to prove their worth and business investment attractiveness further, especially in this current era?
The most important criterion is still the strength of the founding team. Where cash is now king, founders should ensure that the expectations of what they are able to raise, and at what valuations are aligned with the current market.
Additionally, a clearly identified problem, a well-defined go-to-market strategy, and a big enough market opportunity are three areas that are clearly required. Furthermore, if founders have shown flexibility in onboarding clients to build up their future pipeline and revenue potential, it would make them stand out.
What trends will we see with VCs saving dry capital for existing portfolio companies and struggling with capital calls from LPs, and corporations cutting down on cash outflow?
We see four key trends: Firstly, investment rounds are becoming smaller as VCs reserve funds for their current portfolio companies. Secondly, we believe deals will take longer to complete due to the inability to travel and meet founders. Lower risk appetite will also result in longer due-diligence processes.
Thirdly, we see a fall in valuations across the board. Lastly, we believe investors will put a higher emphasis on reaching profitability within a defined time frame. Previously, startups could raise money to buy the market share for the future, but we think investors will be much more focused on the present and how to create positive cash flow.
Singapore is such a small market. Is it viable to conquer the home market first to prove your company before you expand regionally and globally?
For most businesses, it would make sense to prove product-market-fit in their own markets first and expand to other markets after based on where the best opportunities lie, whether regional or global. As Singapore is a developed market, the next logical market is often on the global level, rather than regional.
For companies that focus on events and travel experiences (which is pretty much non-existent now), how will you advise them in this period? Pivot out of their core, double down for the future, or maybe to hibernate?
Instead of focusing on revenue generation, think about where your sector will be in the next few months. When businesses and countries begin to open up again it will be a new world. Identify core problems to solve and keep building your product to match your vision of how that new world will look.
We typically advise companies against hibernation as it will be difficult to regain any traction or rebuild the team. However, if that is the only option due to the lack of funds, then companies may go into hibernation.
While stressful, founders can also possibly take on other jobs to make sure their business can keep running and pay salaries to key staff.
Also Read: In conversation with Will Klippgen and Michael Blakey of Cocoon Capital
We expect this crisis to move into one of the worst recessions the world has experienced. How would the monetary and fiscal policy changes affect the risk appetite for the investors?
As long as there is uncertainty in the market, investors will take a more cautious approach to invest, bringing us back to our point around longer due diligence processes and smaller rounds.
Many large venture capital funds have closed billions of dollars over the last few years meaning there is still ample capital to deploy. But they will be more selective and take longer to do deals. Also do note that most of the capital is tied up in Series A and later stage funds.
What are the three most common denominators between the companies you have already invested in?
They are all mostly B2B, tech-enabled companies that are able to scale regionally or globally in markets where they have a good chance to build significant barriers to entry.
How would you assess early-stage startups now at this juncture given the pandemic and the budget worries?
We will assess startups the same way we normally do. We would, however, place more emphasis on capital conservation and prudence in spending. We are spending more time on doing due diligence on each investment and we need to see that
What are the requirements for companies to apply for funding with Cocoon Capital?
We welcome all seed-stage, enterprise and deep tech companies to apply to Cocoon Capital for investment. Companies may apply for funding at cocooncap.com/apply.
Also Read: News Roundup: FoodRazor snags US$900K seed funding led by Cocoon Capital
Is there a singular most important trait that Cocoon is looking for when hiring new team members for the fund?
Not really, but we require a passion for entrepreneurship and for solving meaningful problems.
Is there an age limit on founders/co-founders applying for investment with Cocoon Capital?
None. We are open to all ages, and we are also actively encouraging women to apply to us. We also encourage founders to create both age and gender diversity in their teams!
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