Investment in B2B vertical is much harder in many ways, but it is also more attractive in some other ways, according to Murli Ravi, Co-founder of Tin Men Capital, a new Singapore-based VC fund focussing on B2B startups in Southeast Asia.
In an interview with e27, Ravi also opined that it is much harder for investors to influence the success of B2C startups beyond providing capital and advice. Unlike B2C startups, B2B startups need more than just capital, advice and connections.
“B2C and B2B need different types of support from investors as they are very different kinds of businesses. We have worked as investors and operators with both B2C and B2B companies from the earliest stages through to exit, spanning over our respective careers starting from the mid-90s. This gives us a practical perspective,” Ravi told this publication soon after making the first close of Tin Men Fund I.
“Unlike B2C startups, B2B startups need more than just capital, advice and connections. In the early stages, B2B startups benefit from revenue-enhancing portfolio acceleration. Not only can B2B startups begin to monetise their products early in their evolution, it is also possible to measure the profitability of each customer deployment with real account-level data (something that is almost impossible to do for early-stage B2C startups). Moreover, once a B2B client is secured, cash flows are highly predictable and long-term in nature,” he shared.
Tin Men was launched in March this year by Ravi (previously Head of South Asia Investments at JAFCO Asia Pacific), Jeremy Tan (formerly at Morgan Stanley and Puma Energy), and Benjamin Tan (a seasoned serial entrepreneur and angel investor). Last week, the fund with a corpus of US$100 million announced the first close and also investments in two startups, namely Overdrive IOT and Globaltix.
The fund will mainly invest in companies that target Southeast Asia as a market. It mainly targets pre-Series A startups, and expects to invest in approximately 14 to 18 companies in total. The cheque size will range from a few hundred thousand dollars to up to US$2 million. The VC fund will also lead all follow-on financing rounds until the point of exit for investee companies, as well as manage the entire financing and exit process for the mutual benefit of entrepreneurs and Tin Men.
Ravi also share that Tin Men has built a regional revenue-generation alliance network with customers, channel partners and government agencies spanning the major countries in the region and will continue to widen and deepen this presence. These counter-parties seek to benefit from early access to our stable of industrial tech companies.
“We ourselves conduct sales calls with these and other parties and secure deals on behalf of founders – going beyond just giving advice and usually doing these even before being granted any shareholding. Once companies have progressed beyond the stage of signing up initial customers, we help them set up their own channel partnerships, build and train their internal sales teams, implement marketing initiatives, and put in place systems for performance tracking, operational efficiency and governance,” he elaborated.
Sharing more insights on the B2C investment model, Ravi explained that no B2C startup founder expects their investors to go and sign up the company’s first million users. “Also, B2C startups tend to have a much longer search for a viable revenue model (let alone profitability) and face huge amounts of competition from both established players and fellow startups. The ones that succeed in fashioning a business model can consume a lot of capital along the way and require even greater amounts of capital to scale up and fight the competition.”
Moreover, these successful companies tend to be a very small minority compared to the universe of companies. This means that the B2C space tends to be much more unpredictable and the rewards for success are highly concentrated among only a few entrepreneurs. It also means that it is rational for B2C-focused VCs to take a portfolio approach and invest in a large number of companies, rather than making concentrated commitments, both in terms of capital invested and in terms of effort expended per company, he added.
Most VCs justifiably and logically take this portfolio approach precisely because building operational capabilities within their firms to support B2B companies is a difficult and specialised endeavour, Ravi observed. From a top-down perspective too, there is a tremendous opportunity for B2B startups.
“Southeast Asia is seeing both rapid urbanisation of main cities as well as a leapfrog mentality by traditional businesses, who are realising that they need to quickly embrace technology to up their game. Swelling cities mean that there are both challenges and opportunities for governments and businesses to leverage smart technology to manage all facets of city life more productively. Some examples include smart city services management solutions, transport solutions, and facilities/real-estate management,” Ravi said.
“This also means that other businesses are faced with the challenge of adopting higher levels of automation in order to improve productivity, as we can see in sectors such as manufacturing, agriculture and construction. This gives rise to opportunities to deploy technology for better optimisation. For example, smart agriculture solutions can help improve farm management and yield, Internet of Things (IoT) solutions for heavy industries enable tracking of processes, and asset utilisation and preventive maintenance solutions are applicable across the board,” he noted.