Smart Capital: Why Finding the Right Strategic Investor is Critical for Growing Beyond the Seed Stage

(From left to right) Emmanuelle Norchet, Peter Huynh, Shannon Kalayanamitr, Michael Blakey and 馬梅朵

• The panel discussion provided insights on strategic investment from both the perspective of the investors as well as the start-ups
• The advantages and detriments of a strategic investment were discussed and further guidance was given on how to choose the right investor

May 23, 2019: 馬梅朵, Co-Founder of BlackStorm Consulting was privileged to be invited as the moderator for the panel discussion on “Smart capital: Why finding the right strategic investor is critical for growing beyond the seed Stage”. It was held on May 23, 2019 at the Echelon Asia Summit 2019, which was organised by e27. Michael Blakey, Managing Partner of Cocoon Capital, Shannon Kalayanamitr, Venture Partner of Gobi Partners, Peter Huynh, Co-Founder & Partner of Qualgro Partners, and Emmanuelle Norchet, Associate Director, Venture Investments of Golden Equator Capital discussed on the importance of getting the right strategic investor and provided guidance on how to choose the right one. Common mistakes in pitching was also brought up and the panellist gave their views on what investors look for when investing in a start-up.

Delving further into the details of the panel discussion, here are some of the interesting questions that were being discussed.

Q: What is a strategic investor to you?

There are few types of strategic investors according to the panel:

1. A corporate investor that can use competencies and assets to help the business in post investments, who can be also an acquirer of the business
2. Any investor who can provide value to a company beside money

Q: Why is it important to choose the right investor for long term growth and what are the pitfalls if you pick the wrong one from the very beginning?

Michael highlighted that corporate investments can cause more problems for its worth for many reasons. The other panellists agreed that wrong investment will inevitably affect the business down the road. Getting investors who have misaligned objectives off the cap table may be challenging eventually.

“The sad truth is that a lot of seed funds focus on the ‘superstar’ of the fund and the other start-ups do not get that much support,” said Michael.

Some tips that the panel shared when choosing investors:

1. Do a two-way reference check by asking investors for case studies and getting advice from companies that are under the portfolio of the investors
2. Have upfront transparent discussions with the investors to ensure alignment of objectives before the investment

Q: What are the challenges you faced when looking out for start-ups that can provide strategic value?

The panellists all agreed that investors do not specifically look out for strategic value in a start-up. Most of them value the people driving the company. They look out for ambitious founders and their incredible team and ensure that there is an alignment to their mandate and synergies to their current portfolio.

Q: What are common mistakes made by entrepreneur when pitching?

The most common mistakes shared by the group are:

1. Pitching the wrong information
2. Not answering the fundamental issues and being too unfocused
3. Being confused about the future with the present, thus overcommitting
4. Having a long pitch with many slides

Q: What is your view on highly valued start-ups that are not profitable at all?

The panel agreed that they do not expect start-ups in their early stages to be profitable. Rather, what is more important is for founders to be able to identify the path to profitability. Peter elaborated further that it is the steady state in the future. Founders should do the unit economics to scale to determine what is their path to profitability. Adding on, Shannon asserted that founders need to know what metrics have to be met. By doing so, founders will be able to optimise their company by pulling the correct levers.

Q: We all agree that a strategic investor should bring more “value”, over and above cash, but how does a young start-up team compare these options objectively?

Emmanuelle provided three things to look out for and to compare:

1. The synergy that can be foreseen with the other portfolio companies;
2. The contacts or experiences that the investor can provide in the space that the company is in; and
3. Whether the investor have the money to follow on in future rounds.

Peter stressed the fact that due diligence must be done, especially for corporate investors. Founders must look at not only the advantages that the investor will bring, but also potential detriments.

Michael shared the importance of speed to a start-up and that angel investors and venture capitals can invest relatively quickly while for corporates there is a process that has to be followed which might hinder the start-up. He also highlighted the fact that corporates are not used to investing in small amounts of money and would bring legal documents and terms of big deals. This makes the deals complex right at the beginning so founders have to be aware of what terms are being asked that comes along with the money.

Shannon felt that each start-up will have different needs. Founders should set parameters and weigh the importance of each parameters to determine the best investor for their company.

Overall, the panel was an informative panel that provided a thorough and more holistic view of strategic investors. Founders of start-ups should make use of the information  discussed to provide choose the best fit investor and offer a more targeted pitch to clinch the funding of investors.

Video on the whole discussion can be found at https://youtu.be/FdzEh_pY06c.

About BlackStorm Consulting

BlackStorm Consulting (http://blackstormco.asia/) is a regional growth consulting firm specialises in innovative scaling and technology deployment strategy in Southeast Asia. We help organisations scale through our extensive knowledge in venture building, business transformation and crisis management as well as our wide network of industrial connections. We encourage innovation by maintaining an ecosystem for our stakeholders to communicate and collaborate. Our clients and connections are internationally present and range from small and medium sized businesses, corporate, to government agencies.