The Startup Investors' Perspective [Ye Sheng-Director of Farquhar Capital]

Angel investing opportunities may be present in any industry. As long as there are startups in need of funding and matched with criteria from willing investors.

In this blogpost, we have Ye Sheng to share with us about his perspective as the Director of Farquhar Capital, an early stage venture capital firm focusing on Seed to Series A startups in the Foodtech, Industry 4.0 and Digital Media sectors across Southeast Asia. Ye Sheng was also the instructor who conducted the 7 weeks of training modules for NUS angel venture startup analysts.

1) Hello Ye Sheng, can you start by sharing more about yourself and how you got into this industry?

I guess for me how it all started is that I've always been interested in innovation and entrepreneurship since my University days. I was actually studying in NTU and was interested in being an entrepreneur, starting up and doing something of my own and having a sense of achievement. For me, I did my own startup during my university days and I started a couple of side businesses such as ranging from supper delivery to starting a tuition agency to selling clothing and apparel online. These ventures failed but through these failures that was where I got a sense of achievement and ownership, it’s through these list of failures is where I got a sense of ownership in a sense that i’m able to get my hands down and dirty and to know and execute something along the way, something I would say is not something you can replicate or learn in a standard corporate job.

As to how i got into venture/angel investing, I was also introduced to the industry during my university days. For some background, my father was an ex-tech entrepreneur, he became a VC and eventually started a venture fund. I was actually informally exposed to all of the various meetings and inner workings of the fund and i was sitting through with some of the general partners of the fund, the very old and one of the long standing vc funds out there in the market right now, and it’s through the interaction with the partners and through the investee companies and founders which was where i learnt more about the angel investing ropes, and I also participated in a few angel investing/co-investing deals with them. But that was more of an informal setting, so after I graduated, I actually took up a few corporate jobs, that was where I could learn a little bit more of the processes. That was where I could get out of there into the working world and understand the working world and life.

But I was never totally settled, I was more interested in the innovation and entrepreneurship space and startup investing, that was when in 2017 where i decided to do a complete industry switch, to actually find nus enterprise which was where i officially picked up the ropes of startup and venture investing. Subsequently, sometime in 2019 I decided to leave and start Farquhar capital, which is actually a seed to series A early stage venture capital fund, investing into three verticals- industry 4.0, food tech and digital media across southeast asia. So that’s pretty much where i am at right now.

2) What are some of the reasons to why you only invest in these 3 specific industries?

It’s actually pretty standard, because for digital media we would call it more of a catch all which covers really all the necessary verticals or aspects of the media, it could be in terms of e-commerce or entertainment or ride-hailing apps and is pretty much a catch all, something we did not actually want to leave out.

Whereas for industry 4.0, there is a new trend moving towards automation, efficiency and productivity, which can be generated through the sub verticals of AI, IOT, and robotics. Which is also another trend that the world is moving towards as we try to make work easier for labour, for manpower, and ready to effectively generate productivity gains. For food tech, the population is actually increasing and it’s expected to reach 9 billion by the end of 2030 or 2050 so we are looking at themes such as alternative proteins, supply chains and food security and a sustainable lifestyle and better consumption experience.

3) With your vast experience in the VC industry, let’s zoom down to the next few questions on how investors source for startups. At the starting phase, what tools do early stage investors use to source, screen and vet startups?

I would say at least for me it really depends on how exactly you want to go about sourcing for the early stage startups. You could either do it through cold emails or cold approaches, or linkedin, or startups cold approaching you. So it depends on how you market or brand yourself as someone approachable, be it for investment opportunities or collaboration opportunities. The other aspect downplayed due to the covid pandemic right now, is attending events and conferences, be it echelon e27, tech and asia, or really just demo days, example Entrepreneur First and Antler. That’s where you get to meet founders and see them pitch their ideas, launching and pioneering their groundbreaking ideas and technology, you get to learn a little bit more about what they’re doing and probe their technology, you get to probe in a more intimate way and decide or not whether these are the verticals that you’re interested in, is this something that you really want to invest into.

I guess these are the two common ways, be it through the cold approach/people cold approaching you, or to meet in person. My personal stance is physical interaction, although it’s becoming increasingly harder due to social distancing and covid, but we’ll have to try our best to adapt to this new norm.

4) For Farquar’s capital, how many investors and startups actually come to you and what are the successful matches?

I would say for us per month it really depends, we do have various schemes and we’re also one of the accredited mentor partners and we are able to dish out enterprise singapore’s startsg founder grant, which is actually for the pre-seed and early stage startups which want to kick start their business and gun for the 30,000 to 50,000 seed/pre-seed money grant to kick start their business.

For us, if you want to talk about the pipeline and normal deals that are coming through, it can actually hit up to perhaps 10 a week, that’s actually quite a fair bit, if you multiply by 4 that becomes around 40 a month, so we have to sieve through which are the applications and determine which are the ones we can respond to, see which has the natural synergistic fit with farquhar and fvc and how we can actually value add to you guys. So we try our best to actually address most of the applications for at least the pre-seed stage, if you’re really talking about the later stages such as seed series A onwards, that is really through like what you mentioned our old contacts, internal referrals from people who we’re familiar with, ex portfolio companies or founders we’re accustomed to, spoken to us before and we’ve helped each other in one way or another, and they’re coming back to us because they see the certain value add we are able to deliver to them, hence they really want us to be part of their shareholders and investors and be on their cap table as a whole because they believe in the kind of value that we’re able to deliver to them.

5) You mentioned the traits you look out for to be a good fit for investors and startups, could you mention what really determines a ‘good fit’ based on investor and startup? Is it solely based on the investors’ portfolio? Or is it based on the typical investment portfolio that impacts it?

I guess the first step is always the chemistry with the founders, you need to form that natural relationship between startup founders and investors, the general analogy in the startup world when it comes to startup investing is that it’s always like dating, you need to meet the startup founders, find out what motivates them, better understand their drive and what exactly is the product that they’re building and the problem that they’re solving, and is there really a product market fit that they’re hoping to kind of fit into.

You also need to understand what’s their visions and goals moving forward, find out their personality and character, is it really a good fit for you, because you might want somebody who’s more of a slow and steady founder who has his fundamentals right, or you could have someone that’s a little more aggressive, getting things done and moving to grab market share. It really differs, at the end of the day it’s like how you meet a potential partner, it might be someone that’s really energetic, outgoing and spontaneous, it might fit your character, but if your character is more of a naturally reserved quiet kind, and you know that it might be completely contrasting from what you are as a person, then that’s where you don’t see a natural fit, so the chemistry is the first thing.

The second thing is the potential market size, and I think that we also want to see what’s the potential market that you’re really looking to address, and what’s the assumptions that you’re taking to really size and capture the market. We all know that this is really research that you have to actually do, but chances are you always know that startups may not be able to hit most of their targets which is really fair and understandable, but it’s a matter of how they’re willing to innovate and adapt and approach the market in a different way and who knows, you might be able to capture a greater market share. So it depends on the innovativeness of the founder, which is tied together with the first part which is about the team itself, of course the market potential is something we really look at.

The third portion is the solution or the value that you’re delivering, you also need to know what exactly does the product do and what are the compelling benefits that the product is able to deliver, it is about the value that the product has and its unique selling point, your secret sauce, what makes you stand out from the competition out there in the market? Which isn’t something you can really easily define but if you try your best through iteration and execution, then after a while you’d be able to figure out what’s your secret sauce if you’ve not thought of it in your initial stages.

6) In the initial phase, where there are so many investors and startups coming to you, perhaps a percentage of it there wouldn't be really a match, for these would you put them to the side or would you try your best to see whether there’s a compromising point whereby they can compromise each other on certain levels of expectations?

For me my stance is that if i have the chance or opportunity, if I have the chance, opportunity or bandwidth to meet up with the founders, I’d be more than happy to meet up with them if i do my initial screening and find out there’s a natural fit. If it fits one of our three verticals, that’s where I would say it’s worth meeting them in person. And if they’ve done their homework and illustrated in their pitch deck what exactly is the problem and solution that they’re delivering, I think we can actually initiate a first meeting with them to understand.

My stand is that once we meet up with these founders, we also have to measure our own allocation and bandwidth whether is this the right time to invest, maybe the startup might be a little bit too early to invest, so we’d have to decline them early and say that maybe it’s too early for us, but let’s stay in touch and we’d be better able to understand and follow up with you, and it’s a little more visible with regards to your traction and your growth in the coming few months.

My personal stance is that i don’t like to lead people on, if i feel that actually right now is not something that might not be a good fit for us in terms of we might be busy with something else, i would be upfront and say that i’m not able to commit at this point of time because who knows what might happen in the future.

7) Thank you for sharing! For the last question, what makes you interested in NUS Angel Ventures that makes you interested in coming on board and help us as an instructor and training?

For me, it’s more of a personal sentiment, because it’s a chance to give back to my alma mater because I did my master’s in NUS and i see a certain synergy and fit, I also worked with nus enterprise so i have the natural affiliation with nus and of course when NAV started up i thought, this is really a chance to give back to the students and the incoming entrepreneurs and investors and sharing and passing on this knowledge of what I know to the next generation of budding entrepreneurs and investors. Personally i’m also learning new things everyday myself, so i see it as a 2 way process where i’m able to learn from the members and be part of the passion and energetic drive, and I felt that NAV is really a good initiative, the traction has really been impressive despite being in its nascent stage so really good job to you guys.

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Thank you, Ye Sheng, for taking time off to have this interview with us!

We are grateful to have you as an advisor of NUS Angel Ventures.

If anyone of you have any other follow up questions, do email your questions to nusangelventures@gmail.com

Watch the full video interview here: https://lnkd.in/gup7csk

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