James Tan Quest Ventures

James Tan, Managing Partner of Quest Ventures

The lightning growth of Southeast Asian’s tech ecosystem has seen a rise in VCs looking to cash in on the opportunity. One of the prominent ones that pop up in tech funding press releases is Singapore-headquartered Quest Ventures.

Launched in 2011 by co-founders James Tan and Yunming Wang, Quest Ventures has been instrumental in helping young startups find their footings through seed investments. To date, it has participated in 18 fundraising rounds,. Noteworthy deals include a round in marketplace app Carousell back in 2013 — way before it became the multi-million-dollar-raising-and-company-acquiring-behemoth today — and another in property marketplace 99.co in 2014.

What is striking about Quest Ventures’ founders is that they launched Chinese e-commerce startup 55tuan together before starting the VC. The NASDAQ-listed daily deals platform, which is backed by prominent investors including Goldman Sachs, has seen its fair share of tribulations, having forced to conduct lay-offs in 2016, according to Tech in Asia.

Needless to say, the founders know first-hand how difficult it is to build and scale a startup sustainably. e27 spoke with Tan, who is currently based in China, to gather his thoughts of the state of Singapore’s tech ecosystem, and how it matches up to the US and China.

Here are the edited excerpts:

While Quest Ventures is an Asia-based fund focussing on Singapore, you also make some investments in US-based startups as well. Could you elaborate on the differences between Singapore and US entrepreneurs?

There is no difference in the drive between the entrepreneurs of the two countries (US and Singapore). The key difference is the market opportunity in these markets.

In general, the US, with a larger market, has more opportunities catering to more diverse groups of people with different needs and wants. This allows for more areas of growth that entrepreneurs can tap on. Hence, the general sentiment is that US entrepreneurs often have broader perspectives inspired by the exposure to a bigger market.

On the other hand, entrepreneurs in Singapore tend to look global, resulting in greater flexibility when adapting to various regulatory systems in the region. This also helps Singapore entrepreneurs to be more agile.

What are the shortcomings of entrepreneurs from these two markets, and what can they learn from each other?

Southeast Asia as a region is fragmented, with different regulations, payment systems, languages across varying levels of development. It is not easy to deploy one consistent solution across our region.

By comparison, the US is more homogeneous and the size of the market enables entrepreneurs to test and get significant scale there before they expand overseas.

Hence, there are many things that US and Singapore entrepreneurs can learn from each other.

Being based in China, I’m sure you are quite familiar with its ecosystem there. And some reports show that tech innovation there is on the uptick while other reports caution more scrutiny (due to increase in copycats, fakes, bloated revenue figures, etc). What are your observations?

The tech ecosystem in China is very active. I would venture that some unscrupulousness is normal in any large ecosystem and in fact, may be healthy towards developing the maturity of the ecosystem.

Many years ago, the Chinese ecosystem used to be a few months behind Silicon Valley where ideas that originate from Silicon Valley take a few months before they are implemented by Chinese entrepreneurs, in China.

Also Read: 12 companies pitched at Seamless Asia in Singapore, here is a breakdown

Just a few years back, this has changed dramatically with the prevalence of tech media such as 36Kr and TechNode in China, and e27 in Southeast Asia. This cycle has shortened to just a few days.

That said, the Chinese are no longer mere copycats of ideas from Silicon Valley. Many original and unique localisations have taken place in many products, and many of these products have outshone its US counterpart in functionality, usability and other factors.

Do you think the Chinese entrepreneurs are more hungry and bold than that of Singapore? And on that note, with an increase in big foreign tech companies entering Singapore (Amazon, Mobike), do you think local entrepreneurs will face a tougher challenge competing with them?

Yes, Chinese entrepreneurs are more hungry and bold than that of Singapore. The intense level of competition drives Chinese entrepreneurs to measure themselves using the highest yardsticks of excellence. The importance of differentiating themselves and lack of social safety nets also push these entrepreneurs to be less risk-averse.

Singapore entrepreneurs will face a tougher challenge differentiating themselves from big foreign tech companies which have triumphed in more competitive markets.

More importantly, with the already large demand they have in their home countries, they have economies of scale to diversify as compared to local entrepreneurs who may be crowded out by these large tech companies.

Do you think China will overtake Silicon Valley as a tech hub?

The latest Startup Genome report features Beijing and Shanghai for the first time. They are in the top 10 despite their first appearances, pushing Singapore to 12th.

Also read: Beijing and Shanghai are now among top startup hubs, but Singapore and Bangalore remain competitive, says Startup Ecosystem report

Silicon Valley is the tech ‘Mecca’ with a rich legacy, history of successes and a strong culture of openness. These factors that give Silicon Valley its charm value-adds to the ecosystem and maintains its reputation for having a thriving melting pot of ideas. Even as Silicon Valley retains its status as the top global tech hub, we are certain that the importance of China will continue to grow.

What are the pitfalls of working in China’s tech ecosystem?

China’s tech ecosystem is closed to the outside world due to a confluence of factors such as language, social conventions, and government controls such as the infamous Great Firewall of China.

Like every large market, the natural tendency is for one to get very absorbed with it. The overwhelming emphasis placed on China as a large market may inevitably result in entrepreneurs overlooking the potential other markets may have.

Working in a Chinese startup is a brutally exhausting experience. Because every sector can have only one, two or three winners, every founder worth his/ her salt will be driving the company hard.

However, the steep learning curve formed by these challenges help speed up the learning process for entrepreneurs who become accustomed to high levels of competition that drives the commitment to innovation and quality as differentiating factors. This allows for those who have worked in China’s ecosystem to have an edge over others.

Your investments span across quite a few verticals from e-commerce, to AI, to digital transaction platforms. Which verticals do you think are experiencing a slow down in growth and why?

Our investments span across quite a few verticals from e-commerce, to AI, to digital transaction platforms, as you mentioned. Collectively, we classify them as digital commerce. We believe these continue to have tremendous opportunities for growth.

Also Read: Singapore ranks second globally for talent competitiveness: INSEAD report

One of the verticals we notice a slowdown in growth would be social networks in specific verticals. Another would be e-commerce enablers such as chatbots — we believe there is a deluge of chatbots, none of which tackle or solve and respond as intelligently as KeyReply.

Which verticals do you believe, currently, have the most opportunities for growth?

Just a few years ago in Southeast Asia, e-commerce, marketplaces, commerce enablers (collectively, “digital commerce” in our definition) were not taken seriously by policy makers and other investors. Our earlier thesis on digital commerce was given a boost by the Google/ Temasek report released last year, and now many investors are likewise looking at commerce.

Quest Ventures continues to believe that there are opportunities in digital commerce, and this evolves around a myriad of possibilities in technologies such as artificial intelligence, robotics, fraud detection, logistics, internet of things, and many more to list.

As a veteran VC, what are the common mistakes startups make when they pitch to you?

A common mistake that startups make when they pitch is tackling problems specific to a niche market. While solving such problems might be lucrative as a small business, starting in a niche market makes it difficult for startups to scale due to insufficient market demand. They will also be unable to achieve replicability because they cater to a unique group of people that may not exist in other cities.

What are the traits that you look for in a founder? And what are the traits that turn you off?

We work with a diverse group of founders in Quest Ventures and consistently, the founders who are great have a mix of street-smartness, a healthy dose of ruthlessness, and are very intelligent with respect to their sectors.

Do you think startups in Singapore are ready for later stage funding? If not, why?

Startups in Singapore are definitely ready for later stage funding, but they have limitations to overcome when pitching for later stage funding. One of the main impediments to securing such funding is the (lack of) market size.

Also Read: Singapore ranks second globally for talent competitiveness: INSEAD report

The variance in the levels of economic development among countries in Asia makes it difficult to assume that what works in Singapore will work in other Southeast Asian cities. Considering the rigidity in replicating their business models to other places, investors are more cautious as they consider the calculated risks of businesses likely failing in other countries.

Do you think many VCs here are too focussed on growth as opposed to revenue? What metrics should startups be evaluated by?

It depends on the stage of funding the VC focuses on. For example, early stage VCs such as ourselves prioritise growth over revenue because we understand that companies need the runway to establish and scale.

By prioritising growth, we encourage companies to lay a solid foundation to make the natural progression towards revenue-generating models. Later-stage VCs may choose to focus on different metrics, one of which may be revenue.

What are the mistakes you made when you were starting out as a VC?

One mistake would be not investing enough into the companies we invested in. While it was good that we were able to see the potential of commerce enablers and the successes that digital commerce will have, we could have invested much more to have greater stakes in the companies.

Final thoughts on Singapore’s tech ecosystem: Is the Singapore government “coddling” the startups too much with all the support? Do you agree or disagree with the observations expressed in this article?

The support by the Singapore government plays a pivotal role in facilitating investments for startups. With relatively higher costs of production and costs of living as compared to our Southeast Asia neighbours, it was necessary for the government to level the playing field somewhat.

Also Read: Singapore’s e-waste maybe causing hellish conditions elsewhere

That said, it is true that Singapore is not the most optimal location for test-bedding. The results of test-bedding here may not be representative of the market demand in larger internet communities.

We have always advocated to our companies that if they are interested in, say, China, they should go and launch in China from day one rather than wasting time testing in Singapore. While the tests in Singapore are taking place, competitors in China may have already surpassed them with products that are more suitable for their markets.


Image Credit: Quest Ventures

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