The fine wine art of tech investing

Many tech startups are founded on great ideas, by passionate people who see opportunities to effect change in the world.

But the hard truth is that the majority of startups — nine out of ten by some estimates — eventually fail.

So why do they fail? A lack of a market need for the product, running out of cash, and not having the right team for the project to succeed, for starters.

So what differentiates the minority of tech startups that do succeed, and how can we sniff out the success stories from the very beginning?

These are key questions for venture capitalists, who invest in fledgling companies in the hope of growing the next big thing.

But there is no fixed formula for identifying what that might be, said Mr Tan Yinglan, Venture Partner at Sequoia Capital, a firm that has invested in the likes of Apple, Google, Instagram and WhatsApp.

Q: Please tell us a bit about your background and how you first got involved in working with entrepreneurs and startups. I started the office for Sequoia Capital in Southeast Asia four years ago.

Before that I served in the Singapore Administrative Service, where I oversaw investments in high-growth ventures and venture funds for the National Framework for Innovation and Enterprise.

I also had a stint in China starting 3i Venturelab [a joint venture between private equity firm 3i and graduate business school INSEAD].

Q: What’s your day-to-day at Sequoia like?

At Sequoia, I have the privilege of rolling up my sleeves to work alongside exceptional founders of emerging market-leading companies such as Appier, Carousell, 99.co, Go-Jek and Tokopedia.

We want to build dent-making businesses which might change the world.;

(Editor: This brings to mind the famous Steve Jobs quote about making a dent in the universe.)

We work hard to provide support to our portfolio and are passionate about working on the next big thing.

Q: What is your general philosophy or approach to investing in tech?

Investing in technology is much like buying fine wine. The question is not so much “How good is this today?” but “How good will it be tomorrow?”

People ask me: “Yinglan, what’s hot?”

My answer, by definition, is: “I don’t know.” It’s in the mind of entrepreneurs what’s hot.

For example, the day before we met the founders of Carousell [the Singapore-based marketplace app], I would not have told you: “Let me tell you what’s really hot: I’m going to take pictures of things I want to sell and upload them to my phone.”

Or, the day before we met the founders of Go-Jek [an Indonesian transport and logistics startup], I would not have said that pressing a button to hail motorcycles in Indonesia was going to be hot.

What typically happens is that the founders tell us what is hot. It usually comes from a personal pain point that they are trying to solve, and the problem turns out to be a similar one for the next ten million people.

When you have an unstoppable founder set on tackling this problem, the company often becomes a special one.

Q: How do you gauge if a startup will eventually become a viable business, or if a technology is potentially disruptive and not just a copycat?

There are products that become startups, and then there are startups that try to build a product. Generally, those in the former category turn out to be more successful.

A great example is Go-Jek, which allows users to book motorcycles to ease passengers through Jakarta’s infamous traffic jams. They also deliver meals, groceries and cleaners to your house, and can even send a masseur. Go-Jek was not a copycat but a mutant.

Q: What’s your take on the current state of the venture capital industry in Singapore and Asia?

The scene in Southeast Asia is getting more vibrant. Ten years ago, most venture capitalists would gravitate to China, so the community in Singapore was quite sparse.

Over the last few years, we have seen an unprecedented uplift in entrepreneurship in Southeast Asia, alongside a confluence of digital and mobile penetration, an increasing number of high-quality entrepreneurs, and an influx of Japanese, Chinese, Indian and Russian investors.

Q: What area of technology do you think has the most potential to impact Singapore society over the next decade or so?

Globally, there is a lot of hype around artificial intelligence, virtual reality and augmented reality. But in Singapore, we still largely use paper parking coupons.

The adoption rate of electronic payments is still low, and many doctors still use pen and paper for patient records.

I don’t think there is a silver bullet; instead, focusing on simple fundamental infrastructure areas could yield more dividends for Singapore.