When Khailee Ng, Managing Partner, 500 Startups, was 15 years old, he learnt how to build websites using hand-coded HTML and notepad. At that time, he used to look at newspaper advertisements for companies that didn’t have a website and try to build websites for them. Later, he studied business, and after graduating decided to choose working for a startup over a management consulting firm.
Initially, he worked for MindValley.com during the ‘Web2.0’ days. The company grew very quickly and was churning out US$10 million in business annually when he left two years later. He then turned his focus on the rise of internet in Asia and built a couple of companies including news company called SAYS.com and a group buying company called Groupsmore. SAYS.com was sold to Catcha Group to create the publicly-listed REV Asia and Groupsmore was acquired by Groupon.
Ng was first invited to 500 Startups as its first entrepreneur-in-residence in the accelerator’s Batch 5, which had 65 per cent international founders and needed international mentors. During this time, he realised his passion for helping other founders grow their companies. He then went on to set up a 500 Startups fund focussed on Southeast Asia. Now, he has joined 500 Startups globally as a Managing Partner with a goal to help set up more funds in more countries and regions.
500 Startups’ vision is to provide any entrepreneur with the same opportunity and access that a founder in Silicon Valley has, and more. It is working on building a global network with the best venture partners, investors, and peer network of fellow founders. It has already helped 850 companies in 40 countries so far, closing in on 1,000 companies in five years. How about supporting and funding 1,000 companies in five months instead? That’s 500 Startups’ next challenge. Hendry Pratama, Business Producer SEA at Dream Incubator (DI) engages Ng in a conversation to know more about his plans…
Pratama: What is your top priority in 500 Startups?
Ng: My key focus is still Southeast Asia fund for few reasons. Firstly, I have a duty to the partners and founders of the fund. Secondly, Southeast Asia is a booming market with many opportunities and we are in a unique position to capitalise on these opportunities. So Southeast Asia comes first, only then I spend my time contributing to the strategy behind 500 Startups as a global organisation to support more regional vehicles.
Pratama: If we have to breakdown country-wise, which one will you be focussing on?
Ng: The companies could come from anywhere and can serve any of Southeast Asian markets. Although I recognise country-specific potential, I focus on businesses which can grow very big and very fast. How I define this is between the first check I write and the next round they raise. I want to see a minimum of three to five times of growth. If they are capable of that, I want to invest in them.
Country specifically, I have found good value and high growth opportunities in Thailand. Hence, my portfolio today is about 30-odd per cent Thailand. I have got a fair amount of Singapore companies. I have also got equal mix of Filipino, Malaysian, Indonesian, and few Vietnamese companies. Moving forward, I want to do more Indonesian deals as well.
Pratama: That means you are looking not at geographical boundaries, but maybe at a specific industry…
Ng: Yes. I am agnostic about space and country in Southeast Asia, but very religious about the returns profile of a specific business I invest in. For me, what drives returns is not just the space or country or market size, but a combination of these things as well as the valuation at which you get into the business, the exit dynamics of it, and the propensity of that particular product to grow exponentially. That is how I choose companies.
Pratama: What are the market trends that are interesting to you?
Ng: Trend is a very useful shortcut to think and talk about things, but I am not in the business of taking shortcuts with other people’s money. I have to approach investing with a degree of care and nuance.
When I think about trends, I think about what are the high-value areas to find startups to invest in. One good value opportunity today is the transition of SME to high-growth tech startup. In every country in the world, GDP is primary built by SMEs. I believe that with rapid adoption of technology today, a lot of these SMEs can grow super fast. I have invested in a few SMEs who have adopted modern ‘tech’ thinking and applied it to their business.
Another thing I think about is the evolution of the space I invest in. For marketplaces and e-commerce, new emerging markets open with strong horizontal foundation (e.g. a marketplace that sells everything) and then vertical pieces (marketplace that specialises in a kind of niche) get built on top of this horizontal foundation. After the vertical pieces, the next level is the service layer (or other evolution of value). What brings something from a horizontal to a vertical to a service layer is increasing value and the ability to deliver the value at scale.
I look at each of the market in Southeast Asia with some of this in mind and decide on which stage of evolution of the space to invest in. I am also very sensitive to timing of the evolution in each of the markets I am investing in.
Pratama: I believe you also look into the time machine concept where something that is already successful in the US probably is going to be successful in Asia sometimes soon.
Ng: I like the time machine concept in general, but I am sensitive to the nuances of it. Time machine has to be analysed from two aspects; first is the problem set. You need a context for the problem set to exist in the relevant market. For example, when I invested in iMoney, a financial comparison site, I asked an expert why this model does not exist in Southeast Asia, and she told me in an emerging market which is tightly regulated, most financial institutions have to follow the same rules. Hence, there is no need to compare products, they are all the same.
Therefore, the problem set didn’t exist here before. But at present, all of Southeast Asian countries are beginning to deregulate their financial market and there will be mass confusion in financial products, so the timing for iMoney is perfect.
Another scenario is where there is existing problem set, but the solution set for Southeast Asia may need to be different from US and UK. Simple example, for e-commerce sites, people in Southeast Asia want cash on delivery, because they don’t want to use credit card yet. So is Southeast Asia ‘not ready’ for e-commerce because of credit cards payments? Yes it is ready! Just use a different solution set. You see this with logistics as well; a lot of e-commerce companies here have to build their own fleet to deliver. Hence, while problem sets exists, it sometimes requires a different solution set to cater to the market.
Pratama: What are your views on Japan in terms of conducting business?
Ng: My generation has been highly influenced by Japanese culture through Japanese video games and comics (I am 30 years old). Hence, Japan has some cultural advantage doing business with founders in my generation and region. Of course, Japan has succeeded in doing business with every culture in the world, some more than others, but the need to be continuously fluid and culturally embracing is even more important in the startup world. We all need to adapt and evolve with trends to be more globally connected. We all need to assimilate, adapt and build many bridges very fast.
A lot of Japanese investors have been very diligent in coming to Southeast Asia. Some have global/local partners. These are the steps to build bridges.
Pratama: What Japanese companies do you like? You once mentioned Uzabase?
Ng: Uzabase is a good company. I like it. It’s such a pity I didn’t start investing early enough. Also, I respect Recruita lot. In 2011, I went to visit Recruit and was very impressed with its story. I was told it was once in very deep debt and now is making around US$10 billion revenue. It has built a large entrepreneurial organisation with lot of intrapreneurial business managers.
When we look at corporates in other countries including Southeast Asia, many have just started investing in startups, but Japanese corporates are few steps ahead. I respect the progressiveness of the Japanese corporates such as Itochu and Dentsu. They are quiet and humble, but very progressive. Itochu and Dentsu are also investors in 500 Startups. When we worked with them, we realised that they understand where the future is headed and know how to get there. They work with international organisations like ourselves to build the bridge between Silicon Valley and Japan.
Pratama: What do you think of DI? What role you are expecting DI to play?
Ng: For a lot of corporates, the need for certainty is very high which cripples them from embracing future opportunities. However, DI is different; there is a fluidity to DI’s model. It leverages its consulting service, fixing big problems for big corporations, and also invests with them, and creates new businesses with them.
A while ago, business visionary Tom Peters wrote a book ‘Re-Imagine’ where he talked about the concept of a professional service firm, and DI closely resembles that vision. DI is evolving with the emergence of new opportunities. If there is a lot of new opportunity emerging, you want to be open (and not closed) and that’s what DI does. That kind of structure is impressive.
A lot of traditional management consulting companies are still grappling with the evolution. Management consulting as an industry is not as booming as it was 10 to 20 years ago. So they will need to find the next path and it’s impressive that DI is already on this path.
My outlook of life is very similar to DI’s. We believe that our structure of yesterday is not going to dictate the value of tomorrow. There should be a more fluid way of investing.
Additionally, DI is rewriting the rules of the management consultant. For us, we are also rewriting the rules of venture capital till we don’t look like venture capital anymore.
Traditional venture capital is like stock picking. You choose a few companies that do well and you hope they are going to do really well. Whereas we are more like stock index with strong filters. We diversify and spread the risk. We build support in a peer network for all of the startups in the network as opposed to relying on one or two venture partners with their limitations on knowledge and network. It’s very different. That is why I find that 500 Startups and DI have some shared worldview.