There’s a lot to learn on fundraising from the VC POV. Last Friday, our principal Yongcheng Ong and seasoned VC and Oracle NetSuite BD Lead Chieh Suang Khor sat down for a conversation on VC Portfolio Management in the Tech Winter, moderated by Shi Hui Tan, as part of Insignia Ventures Academy’s Year End Gathering.
While the panel was primarily from an investor POV, Insignia Business Review took notes from the session and lists six learnings for founders on fundraising, from the insights they shared from combined decades of experience having operated as VCs across cycles and markets.
(1) Factor in fund and ecosystem maturity when fundraising.
Startups need to take these adjustments into consideration both when considering VC funding and throughout the relationship. While it is more obvious how support across company stages and company geographies would differ, what is less obvious is considering the impact of a maturing ecosystem and fund maturity as well. A maturing ecosystem means companies also need to raise the bar on the kind of support their investors / board members can provide. Meanwhile, fund maturity will impact involvement and the incentives and expectations in play to exit an investment.
As Chieh Suang shares, “10 years ago, as we see, we had to do a lot more handholding. But the quality of startup and the quality of people [working] in startups [has] kept improving. And so you do less and less of that.”
(2) Fundraising can extend runways but could also weigh down a company’s “take-off”.
This may not be a top of mind concern in the early days (given cap tables will be a lot simpler), but it is important for startups to have a view, or even better, capabilities on cap table management and what eventual investor exits will mean for ownership as the company matures (e.g., paying attention to liquidation preferences). Raising too much early on may hinder the company’s ability to raise down the line and in the worst case leave founders and investors without any meaningful gains.
Chieh Suang recalls from her past VC experiences over the past decade, “…the best outcomes I’ve seen…in the past were the ones who didn’t go all out and raise a lot of money. So they all got out even with a few hundred million…”
This reminds us of Dianping founder Zhang Tao’s story of how the company navigated the ’08 financial crisis.
(3) History rhymes, so it pays to work with partners who know their history, and be fluent in past cycles as well.
The best investors are able to pattern match learnings from past failures and success and translate them into meaningful insight for their portfolio companies. This means the entrepreneur also needs to be familiar with their “history” to take in these insights. In an industry that is obsessed with the “new”, the “future”, the “disruptive”, it may actually be more valuable to balance the hype by learning from the past, the traditional, the enduring.
Yongcheng points out from his experience, “One of the aspects that is under discussed is…what are the lessons that we learned from past mistakes…[because] a lot of investing is also momentum. Something comes up, then five, six, other companies come up and then we decide [who to back]…It’s not just what have we learned from the failures but also what have succeeded…it’s about identifying factors to win, and also identifying factors that might lead to potential disaster.”
(4) Do you have chemistry with your VC’s investment team?
This is especially for the one or two people you will be working with day in and day out. Does empathy go both ways? Are they the people you would call late at night and expect to answer? Investors can’t have all the answers, but entrepreneurship is a lonely journey. Shoring up trusted support systems can go a long way.
As Yongcheng shares, “…I often have founders coming to me to ask me, how do I decide which VC [to raise money from]? I would say, figure out your chemistry with the investment team. Cause that’s the one or two people that you’re going to see day in and out, right? If you don’t have chemistry, then probably they are not the best partner for you, right?”
(5) Discipline and accountability are the foundational terms of a healthy founder-investor relationship.
This goes from consistent reporting to natural openness from the founder on what the challenges are and the investor on how they can help. The idea is that these built up habits as a result of this investment partnership should lead to a healthier, sustainable company. It pays to have partners who can be honest with you and expect the best from you.
Yongcheng adds, “If portfolio management is done well, then the investment team and the portfolio team will be able to instill a financial discipline mindset…not every startup is successful…without that financial discipline in place and without the proper infrastructure in place, you can’t really achieve a lot in the long run.”
(6) Anything in excess is unhealthy.
It applies to a lot of things in life, as it does for VC portfolio management. From the founder / management perspective, it is important have clarity on the value specific investors or board members have and the ability to orchestrate these diverse views into more informed decision making.
“Too much of you [as a VC] is sometimes not a good thing. Don’t say you can do everything. Just do one thing; it might be like connecting them to the right next stage investor, fixing their pitch. You cannot do everything for them. So just pick one thing and do that properly for them.” – Chieh Suang
“As VC investors, we don’t pretend to be experts. We are not experts…at the end of the day, it will be the founders that will [make the decisions]. What we want to do is to really present the most and the best information to them so that they are able to have better informed decision making.” – Yongcheng
A lot of these takeaways are difficult to implement if the startup does not the luxury of choice or has already put themselves into a fundraising trap. So from the beginning, it is best to discern whether even VC fundraising aligns with the company’s vision and optimize for a trusted partnership.
If you’re interested in participating in Cohort 7 of our Venture Capital Accelerator or Cohort 2 of our StartCFO program, reach out to program lead Jiaway Koh to get the ball rolling or register your interest here (VC Accelerator) or here (StartCFO program)!
Paulo Joquiño is a writer and content producer for tech companies, and co-author of the book Navigating ASEANnovation. He is currently Editor of Insignia Business Review, the official publication of Insignia Ventures Partners, and senior content strategist for the venture capital firm, where he started right after graduation. As a university student, he took up multiple work opportunities in content and marketing for startups in Asia. These included interning as an associate at G3 Partners, a Seoul-based marketing agency for tech startups, running tech community engagements at coworking space and business community, ASPACE Philippines, and interning at workspace marketplace FlySpaces. He graduated with a BS Management Engineering at Ateneo de Manila University in 2019.