An investor’s insight / Five questions to ask before investing in Southeast Asia’s startups

By: Markus Gnirck - Posted on: September 1, 2017 | Business

Companies need more than a healthy current account to thrive in Southeast Asia. Investors should ask these five key questions before jumping on board

High smartphone penetration is inspiring tech entrepreneurs in Southeast Asia. Photo: Supplied

During my time as a managing director at Tryb Capital, a tech-focused investment firm, I have met a lot of entrepreneurs trying to raise capital. As an investor, one is expected to ask the obvious questions: What is your cash flow? What is your business model? What is your current cash burn rate? These are all reasonable questions, but they are not the only ones you should be asking. Here are some of the other essentials:

Do you have the number of a regulator in your phone contacts?
Fintech entrepreneurs must have a close relationship with their regulator. Ideally, they should also have strong connections with numerous other government institutions. Get them to show you that they talk to regulators and other government institutions on a regular basis – get them to show you WhatsApp messages that prove they have built relationships with these institutions. It is not enough to have just said “Hi” once at a meeting. Keeping abreast of the latest regulatory changes and finding a champion internally to help push you through their system is key.

Do you have a Financial Times subscription?
Everyone selling financial technology needs to be aware of the global financial markets. They need to know how a higher federal reserve interest rate impacts Asian financial services. Every fintech entrepreneur needs to have a close affinity with and deep insights into the macro- and micro-economic movements that influence their business. It is more important to read the Financial Times than TechCrunch.

How many smart outfits are in your wardrobe?
If one is selling to financial institutions, one is required to dress like someone working at such an institution. You can’t do business-to-business sales dressed in hipster t-shirts and shorts. Financial institutions are accustomed to a certain sales process and they will not change their approach for a five-man shop that is running out of cash. Everyone who knows me from two years ago will smile reading this: I learned this lesson the hard way.

Which large conglomerate or family is backing you?
Southeast Asia is a region where large swaths of the economy are still run by large family conglomerates. It can be anything from real estate and chicken farms to logistics, media and financial services. It is crucial for every emerging business to have some kind of backing from an influential group. It can help a company to scale faster, distribute products through more channels and secure strategic funding.

Who are your close mentors?
I will never invest in a CEO or founder that thinks they know it all. It is not only essential to have a mentor for the sake of your business, but for your life in general: you need someone to give you advice and to offer you candid feedback. They can be a member of your family, a co-founder, a shareholder or a professional acquaintance. No matter who they are, they help to keep a CEO humble and focused when times are good, and strong and resilient when times are bad.

This article was published in the August​ edition of Southeast Asia Globe magazine. For full access, subscribe here