Jeff Lin, Senior Principal: Startup Ecosystem – How it has Evolved and the New Challenges Faced

Jeff Lin

StartUp City Interview with iGlobe Senior Principal Jeff Lin:

1. How has the startup industry evolved over the years?

I work for iGlobe Partners, a cross-border venture capital firm that invests in both Southeast Asia and the U.S. markets. Since joining iGlobe in early 2014, I have observed some changes in the startup and VC communities in both U.S. and Southeast Asia. Such changes are reflected in the shifts in sector focus, geography coverage and business model.

The shift of hot sectors in VC market is a constant phenomenon that can be observed from time to time. We have witnessed a lot of efforts in startup community being shifted towards nascent areas as cross disciplinary deep tech, synbio/food tech, apart from Web3 which is now sizzling hot. We believe there are still abundant opportunities in digital transformation for many sectors in Southeast Asia, but we have also seen more and more attempts in commercializing deep tech in Singapore, ranging from space tech, new therapeutics to alternative proteins.

Southeast Asia have attracted a lot more attention from global investors since a few years ago. Some of the prominent VC firms which used to only invest in the U.S., including the likes of NEA and Point 72 Ventures, recently started to make direct investment in emerging markets in Southeast Asia, and in certain cases make pretty early bets, despite the fact that they often do not have local presence in the region. Examples of other global investor actively sourcing deals from Southeast Asia include London-based later-stage investors such as TCV and Hedosophia.

We have also witnessed that traditionally late-stage investors including major hedge funds and sovereign funds are increasingly active in early stage investments. Tiger Global and Coatue Management are such examples. The shift towards earlier stage for late-stage funds is driven by the quest for higher return multiples, in an era when public market valuation is actually lower than private market valuations, which further increased competition in the early-stage investment landscape and pushed some traditional early-stage investors to go even earlier to focus on Series Seed or Pre-Seed. Some even pursue the route of being a venture builder.

Venture builder companies are effectively another form of ‘early-stage fund’. Venture building is an attractive business model for those highly experienced serial entrepreneurs or resourceful former VC fund Partners who have the capability to ‘co-found’ a business or identify the next unicorn opportunity and assemble a team to start a company to capture such opportunity. By positioning itself as a co-founding partner, venture builder companies can obtain pretty high ownership upfront and often can still maintain significant ownership (e.g. 30 percent) when the company reaches Series B stage. Obtaining enough ownership in those ‘winner companies’ in the portfolio is very important for an investor to achieve exceptional performance. I have witnessed a few such successful venture builders in both the U.S. and Southeast Asia. These venture builders tend to be laser focused in order to best utilize their own expert networks and comparative advantages. Hiring and placement of right talents to incubated companies is a key focus for venture builders. I believe the essence of successful early-stage investment lies in information asymmetry. Those former VCs who have in-depth understanding of the sector and the strength and weakness of everyone in the community may have an advantage in assembling the right team to do the right business.

2. What are some of the advantages of the current technological evolution?

Different sectors have benefited to different extent from the advantages brought by current technological evolution.

Overall, many startups see their cost of starting a new business reduced thanks to all sorts of cloud-based services and outsourcing as an option. For instance, smaller game studios now can outsource their backend to ‘mobile backend as a service’ provider, which will take care of the entire development and maintenance of the backend, this is especially important as nowadays it is getting a lot harder for small startups to attract DevOps engineers. Another example is various collaboration tools and freelancer platformers have made it a lot easier for startups to leverage on offshore software developers or freelancers to complete part of the software development or UI/UX design.

In fundraising front, startups in the field of Web3 benefited greatly from the relatively more efficient means of fundraising through token sales and listing their tokens on crypto exchanges. Many of the crypto related projects never turned to VC for fundraising and this by itself is a proof that Web3 has disrupted the financing scene.

3. What according to you are some of the challenges plaguing the startup industry and how can they be effectively mitigated?

The common challenges for the entire startup community has always been getting the right talents. This year, despite the fact that the key stock markets globally had faced huge market correction, the feedback I got from many of our portfolio CEOs in the U.S. is still “the job market is still very tight”, especially in those segments where the needed expertise is in scarcity. I believe the challenges in hiring will be greatly subsided when signs of an economic recession becomes more evident but at that time, many startups will face funding issues and won’t be able to afford to spend on hiring. This is a constant challenge related to economic cycles. Big techs generally can benefit more from an economic downturn than startups. One analogy for this is real estate investment. When economy gets overheated, a lot of average people will normally find themselves priced out of the market. However, when recession comes in, this same group of people will very often find themselves out of jobs and don’t have the cash to invest even though they know the asset price is at all time low.

From the founder’s perspective, one way to address such challenges is to create an enjoyable environment that can attract suitable talents with the skills and capabilities urgently needed by the organization. A startup may not always be able to compete for every talent against Google or Facebook, but may be able to attract some really good ones who appreciate the opportunity to create bigger impact in a startup rather than a routine job at a bureaucratic organization which may pay extremely well. What startups can offer but ‘big techs’ can’t may include things such as opportunity to be a co-founder, bigger responsibility in managing a team, an opportunity for a software engineer to learn about product management, or much more generous stock option offerings.

4. Which are a few technological trends influencing the startup industry today? What are some of the best practices businesses should adopt today to steer ahead of competitors?

Web3 as the strongest technology trend definitely has huge influence on the startup industry today. I have a hunch that those Web2.0 startups, many of which are in the digital transformation of various traditional industries, and are obviously not Web3 native, will soon face the competition from their Web3 counterparts. Such competition can be for content creators, users, funding, advertising dollars and revenue etc.

Take the market for video content as one example, video platform such as Youtube and Netflix may eventually find their current revenue model can no longer sustain in the future.

(I can’t comment on what kind of best practices business should adopt to steer ahead of competitors – very few companies can consistently do this well.)

5. Do you have any advice for industry veterans or budding entrepreneurs from the startup industry?

At this very moment, my advice for friends in the startup community is to do the following to get prepared for a market downturn:

i) Ensure your company has a 24-month runway. Raise enough fund as soon as you can if you haven’t done so.

ii) If you do have a cash runway of 24 months, re-look at your business plan and see whether you can make further adjustments so as to stretch the runway even further. Always be prepared for the worst scenario.

iii) Continue to build your team and products. Economic downturn can be a good opportunity for you to attract some good talents who found themselves available again.

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