“I knew I could never be the largest fund, but I could be the best performing fund,” proclaimed Dr. Finian Tan, Chairman of Vickers Venture Partners, in an interview with e27.
There is a certain humility in that statement, considering the VC has just raised US$230 million — possibly the largest non-government linked VC fund (that has been officially disclosed, at least); It had previously raised over US$186 million across four funds.
But that statement also underlines an investment philosophy that is focussed on scrupulous curation of potential investees, to ensure they are the right fit, and then working closely with them to help them grow and succeed.
Founded in 12 years ago, Vickers Venture Partners has witnessed the ebb and flow of the global startup ecosystem since its infancy. It typically makes early-stage investments, covering a wide range of verticals (that go beyond tech) including life sciences, financial services, telecommunications, and others.
Some of Vickers’ companies have made high profile exits — Dr. Tan himself was the first investor in Baidu (and that has obviously reaped manifold dividends). One of them, Singapore fintech company M-DAQ, exited via a trade sale.
e27 spoke with Dr. Tan to learn more about Vickers Venture Partners and his thoughts on new investment opportunities such as ICOs.
Here is the edited excerpt:
How do you evaluate the strength of a company and whether you think they will go the long distance?
The failure rate, if you do a poll of startups, it is probably 0.1 per cent success and 99.9 per cent failure. And that is not a right statistic to use.
They fail because of lack of money. Once you fund them — the failure rate drops. So you should look at well-funded companies, what is their failure rate? It is actually zero. If you fund them enough, they will actually get out of whatever rut that they are in.
But they could burn through it quickly right?
Absolutely, they could burn through a hell lot of money. So the question is: when do you stop funding them?
When you stop funding them, they die. If you keep funding them they keep on living.
How long did Amazon lose money? Actually, they only started making money less than five years ago. When did they first begin? In the 90s! Is it a good company? It’s a great company! It’s an unbelievable company, but they were losing money for two decades.
Many companies also don’t give dividends. When did Apple start giving dividends? I think in the last decade. Baidu isn’t giving dividends, Alibaba isn’t giving dividends. These are many facts that nobody pays attention to.
So the first point is: If you keep funding a company, that company goes on forward. Once you fund them, the failure rate drops. So if you have deep pockets, you can almost solve the company’s mistakes in the early days.
So back to your question on what do we look for, what do we invest in?
Firstly, we look at the space. It must be a space that we like very much. Is it very crowded? Or is it still new or a low hanging fruit? Is it a very sexy and high growth industry, or is it a sunset industry?
Number two, we look at the competitive edge. Because a rising tide attracts all sorts of competitors. Is it just a first mover, is it their execution, or is it some deep tech IP?
And number three, we look at the team itself, in fact. If you get your first two wrong, but you can the third right. You can reinvent.
I’m sure e27 is reinventing itself every month, every year because it keeps changing strategy. You’ve got to be nimble. You cannot be dogmatic and focus on just the one thing that you started with.
How do you help the companies you invest in to grow? What’s your philosophy? Are you more of a hands-on investor?
You know, there is a textbook answer to that: Every VC will say they add value to the company. Nobody will say I just take the money and leave it to the luck and that’s that, right? [laughs]
Every VC will say they help. The best people to ask are the companies themselves –whether the VC that invested in them was helpful and who was the most helpful.
And the best objective measure on that is a few examples that I give you:
I think we spend a lot of time helping our companies. And in many cases, we were not the largest VC or the smallest VC. But we were the only VC invited in the next round of their entrepreneurial endeavour.
So we must have added something or did something good.
And number two, in some cases, we were elected the chairman of the company even though we were not the largest investor. So these are good objective measures.
Why do we have to spend so much time doing that? When I started the firm, I knew that I could never be the largest fund, but I could possibly be the best performing fund. So how do you become the best performing fund? Find great people who are fully aligned [to join your team].
So I started with 100 per cent of the company, and in fund five, I owned 30 per cent. So I have to align them [partners], I have to give shares. This way, I can attract bright, super people to join the firm.
And if you worry too much about short-term money and short-term rewards, then you would save a lot of annual fees, stinge on the number of offices, stinge on the quality of people, stinge on the number of people, and try to earn some money from the annual fees right?
I decided since I wanted to be the best performing fund, I would do it the other way. Be generous and spend the money on a good number of quality people and offices, and get a great deal flow. And get paid by the carry (investment), which is later.
Some of the things that I started to do when I started the firm was, fundamentally, to become the best performing funds in the world. Across our funds, we are top 15 in the world.
What are the typical ticket sizes of each of your investments?
The most money we have ever put in a single investment without any follow-ons was US$30 million. And the smallest is US$100,000.
So we are quite open to any size. We don’t really care so much about how much we invest; the important thing is how much we get back. So if we put a lot, that’s the best.
We put the most money into existing companies and follow-ons after we have become comfortable. And every new company that comes into the family of Vickers is early. So when we invest late stage is because we have already known them. We wouldn’t invest in a late stage deal outside, generally.
So we are an early stage investor in that sense and we also do follow-ons.
How does your investment strategy differ between each region or markets?
I would say I look at Southeast Asia as one region, I look at India as one region, I look at China as one region. And so is India. And I look at global tech.
Smart people are everywhere, you don’t need to be in the US to come up with great tech. You can be in Europe and come up with a great idea but if you focus on Denmark as a market I won’t invest — it’s too small.
It has to be global tech and you have to be focussing on the world and it can come from anywhere, but generally, it comes from the western world.
So you wouldn’t be looking at emerging markets like Indonesia?
I wouldn’t be looking for global tech emerging from Indonesia, generally. Unless, by chance, you get a very smart group of people whose idea can travel. But you would want to hit it in Indonesia first because it is a big enough market to try.
And if you are successful, it can be multi-billion dollar investment. I mean Indonesia already has a couple of unicorns already right?
What are your thoughts on ICO, would you invest in them?
Let’s break that down a little. I feel that the general man in the street is struggling to find good things to do with their money. If you are the general guy, you are putting it in a fixed deposit and you are looking for 1.8 per cent, 2.0 per cent return.
On the other hand, there are people like us [VCs] who have made 70 – 80 per cent per annum. So that’s a huge disparity between what people are looking for and what we are producing — and there’s no bridge.
Why? Because of regulations. Because of frauds and regulations trying to protect people, so they have no access.
But let’s say they are doing 10 per cent and I’m doing 5 per cent I can understand regulations costing them half the returns. But when I’m doing 70 to 80 per cent and they are looking at 1 or 2 per cent, something is seriously wrong.
So it needs to be improved. ICO is bridging that gap. Why? Because it is not regulated yet. But if you have no regulation, that’s the other extreme, you get bubbles, you get frauds. So we need to have some happy balance so that we heal our broken system, we need to find that good compromise.
So let’s look at ICO and break it down a little. ICO is a form of fundraising using cryptocurrency like bitcoin or ether, right?
Does that company know anything about whether bitcoin will go up or down? No, they are an expert in what they do. Maybe they are a tech company doing a certain widget, they make a motor for surfboards, they have no clue whether bitcoin is going up or down. In fact, the man on the street who keeps track of bitcoin will know more.
When you invest in an ICO, you are making two bets, you are making a bet that the company is going up and you are making a bet that bitcoin is going up. But that company has no clue about the bitcoin prices.
So why would you ask them (the company that is holding an ICO) to look after your bitcoin when they are not an expert in bitcoin? So I think an ICO is strange in that respect.
If, however, you are investing in an ICO, in a group that is very knowledgeable about cryptocurrency, then that’s a different matter. Let’s say it’s a cryptocurrency exchange, some logic, and even a fund manager that manages in cryptocurrency… then there’s some synergy.
But if you invest in an engine maker, something is wrong. Why would they raise in bitcoins? If an engine maker uses an ICO to raise funds, they should convert all their coins to US dollars so there’s no exposure to something that they are not involved in.
So would I do an ICO? I may. We are watching cryptocurrency and blockchain trends closely.
So are you actively investing in any blockchain companies?
We are looking. The world does not have many blockchain companies. There are many problems with blockchain — speed, mainly. You know today if you had a bitcoin and your company accepted bitcoin, you can’t buy it instantly. The whole system takes so long to approve, by that time you would have already paid with a credit card.
So there’s a problem, it has to go through all these checks. And because it has to go through all these things sequentially. It takes a lot of space; it takes a lot of bytes. And the more people in the space, the more inefficient it becomes.
So there are people who are trying to solve that problem and that is interesting to us — we would like to invest in those companies.
It’s a bit like, I’ll tell you what stage we are at: Let’s say we all had the internet, but we are all on a narrow band and everybody takes a damn long time to log on. So if you have a company like Akamai that speeds everything up, I want to invest in that guy. Because I know the internet will spread. I’m convinced blockchain will spread.
But these problems need to be ironed out, and as long as these problems exist. There are no very successful blockchain companies out there yet, other than the tools that allow blockchain to be done, like bitcoin And even if you say bitcoin is very successful, it is not being used — what can you use bitcoin to buy? It’s you selling to another bidder and you selling to another buyer who hoards it.
But that’s not the purpose of bitcoin. The purpose of bitcoin is not to hoard and hold until the price goes up. The purpose of bitcoin is to use it as a currency.
Blockchain is amazing: It can solve so many inefficient systems, it has the memory of a ledger, and it’s uncrackable. And every industry has this ledger system and everything stands to be disrupted as soon as you solve the bottleneck. I’m interested in the infrastructure; in the early days, it is the infrastructure that needs investing.
Image Credit: Vickers Venture Partners