Asia low on experienced tech VCs

Venture capitalists with business experience and willingness to fund early-stage tech startups in Asia are few, but entrepreneurs need to be proactive, responsible and grow their businesses anyway.
Written by Jamie Yap, Contributor

The Asian startup scene is hampered by the small pool of venture capitalists armed with both the experience and willingness to invest in budding tech companies. However, this is not an excuse for entrepreneurs and they should remain proactive to grow their businesses.

Guyi Shen, CEO of price comparison service Save22.com, pointed out that most venture capitalists in this region have a finance background, making their money from more traditional businesses, or have experience only in well-established tech startup markets such as United States' Silicon Valley.

The lack of practical startup operating experience among many of these investors, as well as being less inclined to pump money into risky, early-stage tech startups, represent one of biggest issues companies face in Asia, he added.

Shen reckoned that Asia's tech startup scene is generally some 10 years behind that of the U.S. This lag in development meant that venture capitalists in Asia have a tougher job in evaluating a startup's prospects, given that many of the region's entrepreneurs do no not have a long track record of successes.

Many businesses are also not experienced or savvy enough to prepare balance sheets and financial reports--materials investors gravitate toward to justify their funding for these companies, he added.

As such, VCs have to rely on non-financial information such as the perceived quality of the people in the startup's management team or the estimated traction of the business to determine their investment decisions, Shen noted.

"Look at the big success stories like Facebook and Twitter, for example. If Facebook started in Singapore, would someone have put money in it when it had no revenue [at the beginning]? Would people invest money in this type of startups? The track record is no," he stated.

Money tap tightens
Marcus Tan, co-founder and director of online security startup Clault, agreed. He said "new money" investors--defined as those who have mastered the business skills and have strong networks and have successfully run or exited a tech startup--are rare and difficult to find in Asia.

By contrast, "old money" investors constitute the majority of wealth available for investing. However, they typically do not go for startups touting emerging technologies, preferring instead to bet on traditional business ventures such as bonds, commodities, properties and retails, Tan noted.

When they do receive funding from the old money group, entrepreneurs might have to deal with differing business goals and this might lead to tension between the company and its investors, he added. Family and friends are alternative sources of financial resources for up-and-coming companies.

Compounding the lack of experienced investors in Asia is the currently weak global economy, making it a buyer's market. Venture capitalists firms are now shifting from early-stage investments to later-stage ones in order to manage risk, and this makes it even more difficult for tech startups in Asia to raise funds to expand their businesses, the executive said.

Be proactive, don't blame VCs
Despite these stumbling blocks, both startup executives agreed that entrepreneurs should not blame VCs if their businesses falter too.

Shen said: "Ultimately, getting things done or failures are 100 percent the entrepreneur's responsibility. Blaming someone else for our own failures is a losing mentality."

He added that VCs tend to spend the majority of their limited time helping the more successful startups in their portfolios. So, if an entrepreneur is feeling neglected, it just means the business is not as doing as well as others, he said.

Since startups are the ones taking money from VCs, it is their responsibility to deliver success to investors, Tan pointed out. "Startup founders should lose sleep rather than celebrate when they receive funding," he said.

Kal Takru, co-founder of Singapore-based startup iTwin, said while it is beneficial for a young company to tap the industry experience of its VCs, the management team must determine the business growth rather than rely on the promises given by investors.

"The average founder is easily as smart as the average investor, just vastly less experience. If something does not make sense, one has to figure it out. It's not about distrusting the other party, but doing homework on one of the most important contracts one will sign in life," Takru stated.

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