Published on 02/28/2018 | Strategy
What does a VC look for when they evaluate a product’s viability? Is there a difference between a hardware and software startup? How do you build the right team to develop a coherent IoT solution that differentiates and delivers real outcomes?
Understand from Chirayu Wadke of SeedPlus on what makes a startup scale, and why Ofo and Mobike succeeded despite the failure of other bike sharing companies. Plus, we hear his thoughts on starting a VC fund, and the landscape of tech VC in South East Asia. Learn more at http://seedplus.com
Chirayu is a partner at SeedPlus. He help commercialize early-stage ideas across startups and fast-moving technology companies. He focus on investments in devices, IoT, network infrastructure, operating systems, industry 4.0, transportation, smart city amongst other areas. He works closely with the management teams of portfolio companies on product market fit, business development and hiring.
SeedPlus is a seed stage VC firm aiming to invest in and partner with the best and brightest to build global disruptive start-ups. SeedPlus is backed by Jungle Ventures, Cisco, Accel Partners, IFC, Fidelity, Ratan Tata, Tata Communications Limited and the Singapore Government.
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Welcome back to the industrial IoT spotlight. I'm joined today by Chirayu Wadke who is a partner with SeedPlus and Jungle Ventures. SeedPlus invests in deep technology startups out of Asia. They're based in Singapore and Chirayu focuses on devices, IoT network, infrastructure, operating systems, Industry 4.0, basically everything that we like to take into the industrial IoT spotlight.
Chirayu, before we kick off and talk more about SeedPlus and Jungle Ventures, and then around VC investment in general, give us a quick overview of your background where you're coming from, how did you end up with the SeedPlus and why are we talking about this topic with you today.
Thanks for having me on the podcast; I really appreciate it. I've had the opportunity to listen to some of your past work and it's been very fascinating to hear views of the different entities in the ecosystem. My background here is that I never thought I would be investing in Asia. It happened when I was at Google doing some stuff around hardware, launching some of the at-home router products and some IoT products that they had. I had some folks out of Asia who I knew for a very long time, who thought I could be more helpful in this part of the world, because of what's going on here and ask me to sort of come and help them set this up an early stage venture fund that focused on deep technology based out of Singapore and focused on Asia. So that's really how it came about. I had the opportunity to look at the numbers coming out of Asia as a part of my job at Google -- it's fascinating to see how things are significantly moving forward in a shorter timeframe than you can imagine. So that's what attracted me back to Asia, and the opportunity to leapfrog was definitely there, because the existing infrastructure doesn't exist so you need to create something that is completely new and fresh, and that was quite exciting.
What’s the ecosystem like in Singapore? The government has a very strong smart city initiative but some of the feedback I've gotten from people is that it can be very government driven. So it's a professional and well executed, but that it is essentially oriented differently from the West. What’s your experience of the development of the ecosystem in Singapore, and more generally in Southeast Asia?
Infrastructure is more central, government-driven, and top-down, but a lot of the bottom up stuff is going on too. So an example would be some of the biking companies coming out of China I'm sure that you think a lot of them are going down and the economics don't work. But the reality is, if you look at IoT networks and smart cities these are possibly the most complete networks out there because every bike is enabled. So we're seeing use cases bottoms up that did not exist before, and the government does not come down heavily on it. In fact they're enabling it and ensuring that bottoms up innovations are on par with top-down innovation. From the perspective of what’s best for citizens or users, things have significantly moved on from a government-mandated top-down policy-based approach, to open innovations and a balanced approach.
We are working for a client which is a multinational, we recently introduced them to a Singaporean company. During the project, we saw that there are actually quite a few interesting companies coming out of Singapore and it's a great testing ground because it's a contained relatively mature market. It's not huge but companies are less price sensitive and relatively willing to experiment with new technologies. So I think it’s an interesting place to be based. Chirayu, let's start with the money -- where does your funding come from?
We have been backed by some of Asia's and the world’s top institutions. We only have institutional backing -- if you look at our LPs, it’s World Bank, Fidelity, Cisco, the Singapore Government, Accel Partners, Jungle Ventures is one of the biggest backers as you may imagine. We also have some backing from Tara Telecommunications Ltd.. So it's a mix of local VCs, international venture capital funds, financial institutions, and corporations that are interested in deep technology. So in this fund, we haven't really gone ahead and taken money from individuals.
You’re covering the spectrum from local to global corporations, government. and an NGO. So it's quite an interesting range of investors who are who are interested in IoT in Southeast Asia. My understanding is you don't just cover IoT, IoT is your personal focus.
So we do everything that is deep tech, and everything that is product differentiation-led because historically, this has been an area of less focus in this part of the world. People have generally used what's off the shelves. Put that together with modern technology enabled players, I think we are moving towards a world of technology led players, where product differentiation is going to lead the way. We think that technology is core to any product differentiation. So our view of the world is that we think that's where the market's going, and we are investing in probably what we hope will become larger companies in the future on the back of technology differentiation.
We have a few themes and we've invested across those, so there's applied machine learning, I personally look at IoT and related areas. We've done enterprise tools including security and some SaaS tools. We like to see the future workforce being addressed because the changing nature the workforce means that applications become more relevant. We have got stuff around fintech, given that Singapore we cannot ignore that area. We've covered four of five themes across the fund, but there has to be some differentiation that's led by product, otherwise, we are less keen to look it. The penetration-led or marketing-led approach works, but we feel that it's probably not a place where we want to place bets.
Why is it so important to you? Why do you think this is, for you in particular, really important criteria for a company?
We've seen that the first wave of startups was on the basis of taking what's out there and just sort of putting it together and building up. But increasingly we're seeing companies and entrepreneurs who have a focus on building something that's differentiated, but they have found themselves either lacking a partner in the market, or not having a group of investors who understood what they were building and helping them build their ideas out, at a fundamental level -- both at the product strategy level as well as at the business level. It almost felt like there was a sort of white space that we could occupy by translating some of that technology into commercial outcome. I would say the market's been picked up since we started this, and there's been a lot of investors who have come forward and supported deep tech.
But I think we find ourselves in a unique spot where we're willing to bet on companies that we are convinced about. And bets there are larger in size too, investments that are 200 - 300 K USD, which tend to happen in the deep tech space but really don't deliver outcomes. In technology, you need to hire those engineers that don't come for very cheap, and you need to give them enough time and runway to bring something after pivoting a couple of times, which is inherent in technology business. That's why we felt that this was a need and a gap that we could fill with the approach that we have.
What is a typical investment book like for you?
A typical investment is anywhere between half a million to a million dollars USD. So we typically are the first institutional check in any company, at least that's what we like to do. We've done investments we've shared the investment without the funds, but that's not our typical investment, we rather own a rather large piece of the company. If you look at the four partners running SeedPlus, you would see that all of us have operating backgrounds, and that's by design. That’s because one of the hypotheses that we had is that we just don't want to go in and give money to anybody, we want to go in with conviction, go longer with the company, have a more concentrated set of investments, and use our operating experience from the past and offer it up to entrepreneurs to have them get to better outcomes. Hiring people from the operational side of the fence really helps in forwarding that agenda of being useful beyond just capital. A lot of people talk about being operationally useful to their companies but we've kind of gone ahead and hired people with exactly that background alone, and that contains your commitment to solving that challenge that a lot of the companies in Asia face. Because the ecosystem is a little more fresh and new, and there's not enough of a generational knowledge that has existed in the Valley for example.
I was looking at the profiles of some of the guys that you have on your team, and you've got people that have good experience building up go to market plans, entering new markets, and so forth. What do you think are the most valuable things that an operationally focused VC like SeedPlus is able to bring to the table? What are the real pain points or the potential valleys that you're able to to help your portfolio companies cross.
So I think there are two sets I think you can divide the world into two parts.
One is sort of functionally driven health. So if I were to sort of look at a company that's needs help with respect to technology scaling -- they don't accumulate technical debt along the way and make the right technology choices in terms of the kind of systems they're betting on for scale in the long term. And there’s also day to day product decisions that I would say you need to sort of get that narrow help. There's another piece of it, which is being immersed in the company that you're helping goes beyond a narrow function that we can provide, and really go to one of the four, or all of the above.
It could also be that the company raised money in the latest stage of the game. It also means helping the company perhaps to go through the M&A process, or they’re getting acquired and they looking for suitors or partnerships. It could be hiring and leadership development, and lastly would be just sort of operationally helping the company increase its revenues or top line. I think these are the four areas that I would imagine that startups would need most amount of help from any venture capital partner. I believe that that falls into a separate bucket of being immersed in the company and helping them strategically, whereas on the other side is this functional area that we also offer. Depending on the startup we have rotated between any of these approaches to helping the companies.
Are you covering hardware as well as software or you tend to focus more on software?
We don't really have a preference. All need to see even if it's hardware, is a proof point with which relates to some data that has been collected around adoption or around usage of the product in the market, and long range long term usage.
Even if it's a prototype on the hardware side, if it's an enterprise player would ideally have installed and run it for a few weeks or months in a customer setting, if it's on the consumer side you have a bunch of customers that you're testing for some period of time that have been using the product and giving you feedback. Hardware is harder to build, some of these data points may not come up that easily in the early stages and we don't have a preference for hardware or software but we definitely want to see some sort of go to market models in hardware that makes sense. I think what we struggle with is, people who want to build hardware for the sake of building hardware first without actually thinking about the commercial models of how to sell it. We find that companies land into a lot of trouble because of that because it's inherently more expensive to stand up hardware companies because of having an inventory and having a play on the marketing side, specifically on the consumer side, and on the enterprise side, the considerations and the requirements of all forms of these hardware startups are much higher. Are you selling the right thing? Who are your buyers? What would be environment in which the hardware product would be installed? I think all that matters, and I don't think people are thinking about all that. But you know honestly no no such preference of hardware was the software; we're open to both kinds of companies.
From an operational perspective, hardware is much more challenging because you have a lot of mistakes that you can accrue along the way unknowingly that are going to lead to the death of your company, when you figure out that new business engineered, you have the wrong suppliers, you've built out your supply chain in the wrong locations, or your your distributor base, is harder to change than it is with with software generally.
I think more than that. I would say my number one realization in this whole thing around hardware has been the quality of the teams. Selling hardware is not a business model; the usual go to market strategy, building the hardware, putting it out in the market, selling millions of them and then slapping software smartly on top of their hardware. What we realized is, the people who actually are building the hardware does not really have the ability to transition itself into a company that will slap a software based model on top of the billions of hardware that it wants to sell to market. Or we see the reverse where we see a bunch of people that have never shipped out hardware before. So I think the composition of the team is what we struggle with because either get a complete sort of a team that has never shipped hardware or wants to ship it and therefore makes all the rookie errors along the way as you mentioned and it accumulates over time, or we see a solid hardware team that builds hardware for the sake of it that is not able to transition that hardware into actually a business model on that really scales.
So these are the two angles that we've seen and therefore what we've done is we've said look if you want to build hardware you need to come with the business model first, so almost think of it as if I were to go back to a very rudimentary biking company example with these shared bytes. If I were to see an Ofo, or Mobike, or whatever that may be, if they would have started a hardware company they would say, I want to build the best bike that is and sell it in the market to a retail channel, but instead they went and said you know what I'll build a network of bikes and I'll offer it as a shared IoT enabler. So I think the business model itself is being questioned. I think if they go on and build this perfect bike and tried to sell it in retail, and hope at some point to be a million bikes, and then build a model on top, I don't think that scales. That's where most of the hardware startups are today to be honest they are not in that zone where they believe they can sell a million bullets, and they'll think of a business model on top. I've not seen an example that has worked in scale at that level.
Funny example actually one of the early employees of Mobike is a friend of mine, and I remember when they were first developing the concept for the company and he was kind of teasing it out. They were absolutely 100 percent focused on what's the business model. When they first put bikes on the street they were pretty terrible, they were going for a particular concept which is kind of this fixed spokes, very heavy duty, no air in the tires and so forth, and they cost a thousand dollars per bike. And they were uncomfortable to ride and everything, so the product actually was pretty terrible. But they got the business model right, and in the end, it's easier to fix a broken product especially when you have no capital behind it, if you have a good working business model that's scalable.
Absolutely absolutely. That's less understood on the hardware side, because you know people believe that if they build hardware, they have to do this test and learn process. So people want to throw out products fast and iterate fast, but I think some of those fall flat on their face when you think about hardware. Especially in the face of how Apple operates; I think people have started putting immense pressure on themselves to get it right the first step. Or they throw a really bad product out there, just to use the software hypotheses of agile frameworks, and they pollute the market to the point where they cannot go back with a better product. So I think the business model-led approach that you mentioned definitely de-risks some of these challenges that exist in the market.