On June 11th, we invited a panel of investors and startup founders in HK & China to share their experiences and lessons learned throughout their entrepreneurial and investment journeys. Below is a collection of the discussion highlights, and a full recording of the webinar can be found here (the panel discussion starts around 11:40).
What deals are investors looking for? Is PropTech a megatrend?
“We look for business models that will be easily scalable, and can be applied to different countries and markets.”—— Joe Chan
VCs tend to favour business models that can scale up easily and expand internationally. Yet PropTech or real estate technology in general is harder due to the nature of B2B models being much stagnated compared with B2C. On the other hand, property owners who already have large, stable revenue and cash flows tend to be reluctant to adopt new technology for a change. That said, COVID has been an accelerating catalyst forcing people to change behaviours and enterprises to think about business transformation, especially around digital innovation and cutting-edge technologies. For instance, voice recognition technology such as Xiaomi Home and Amazon Alexa instead of the traditional remote controls is becoming an emerging trend for smart homes and hotels.
“The real estate businesses is more than real estate development, and PropTech can be applied to a broad scope of areas from property management to retail operations.”——Dr. Frances Du
One tends to overlook retail technology as PropTech, yet in fact many real estate developers own retail outlets and shopping malls. From the Investor perspective, companies working in retail technology space tend to be favoured due to a relatively more scalable nature. The applications of AI and cloud technology in O2O (online-to-offline) retail use cases demonstrate how technologies can help enhance retail productivity and marketing analytics. Considering the retail owners as part of the PropTech adopters, investors like Frances do consider PropTech as an important driver to shift the real estate sector from offline to online.
What are some tips & tactics for startup fundraising?
“We tend to take small steps but use more frequent rounds.” ——Harris Sun
Harris, the founder of the Series A AI building inspection company RaSpect, uses a “multiple-small-wins” tactic to break the fundraising process into several rounds instead of raising a much larger lump-sum in one round. He mentioned that RasSpect asks for only an amount to support operations through the end of that fiscal year and with this approach RaSpect could raise money in a shorter period rather than the conventional 18-24 months, and then use their achievements and performance as track record to strike for a higher valuation in the following rounds.
“The whole idea is really to get product-market fit.” —— Amar Dhillion
Amar, founder of HOMI Smart Home, emphasized the importance of proving the products and solutions satisfiies a strong market demand that customers are willing to pay for. HOMI started off with a B2C model, which Amar mentioned is challenging at the beginning but also brings the benefit that the HOMI team has accumulated rich experience working closely with individual customers and understanding their needs before they meet institutional buyers for expanding into B2B2C or investors. Incidentally, they have worked at countless properties scattered throughout Hong Kong throughout the B2C experience, which allows investors and corporates to easily check out their products and services. Amar also mentioned that transparency and honesty is really important when working with strategic investors. It’s not a zero-sum game and hence one should not hide any potential risks from smart investors. Great investors in fact will brainstorm and help startup founders to work out solutions together.
“The key is creating FOMO (fear of missing out)…you have to make an investor want you.” ——Phil Yuen
Phil, a serial entrepreneur and Y-Combinator alumnus, shared that they just raised 10 million USD in three weeks through back-to-back Zoom calls. Apart from solid fundamentals and proven revenue models, Phil emphasized another secret recipe that helped them to attract 600 interested prospective investors after the YC demo is FOMO – making people fear of missing the deal.
Working with big corporations to do POC (proof of concept) is useful?
From the Startups’ perspective, Phil mentioned that PropTech companies are usually more collaborative compared to, for example, software companies. Real estate technology solution providers tend to not have direct competition with each other and hence are more willing share knowledge and work on projects together.
Harris welcomes POC as well, he mentioned that it could be a successful reference case for branded customers and as an excellent entry point. Talking about how to convince the corporation to adopt the products, Harris suggested that giving the product away free at first would help lower the procurement difficulty for the corporation, and startups can then request for scaling up with a contract after a successful POC.
Amar also added that timing to approach is important, and in most cases approaching a developer before the construction phase would be better as it will be difficult for developers to retract any decisions once the building work commences.
From the Investors' side, Frances mentioned the key pain point for marrying startups with the corporation - "they speak 2 different languages”. She emphasized that startups need to understand the intrinsic difference between the two parties and learn to be more patient. It takes time for old big companies to make a decision and to adopt new technologies, as agreed by both Phil and Amar. The panelists also agreed that the negotiation process is worthwhile to be patient since a successful POC relationship with a well-established corporation helps to shape the product and solutions, which would ultimately help the startup’s future customer acquisition and bottom line.
How do Investors negotiate with Startups on valuation?
“What I want to strive for is a balance.” —— Joe Chan
“We are not playing a zero-sum game.” According to Joe, neither too high nor too low of a valuation is good for investors. Investors aim to achieve a balance within a relatively low valuation range, while definitely not too low, which undercuts startups’ morale and lowers their incentive to work hard. Joe’s approach is to show understanding of the startups’ business and providing value before even making an investment. Investors want a win-win situation and aligned interests with the startups. Joe also mentioned that at Mindworks they had never owned more than 15% of a startup, because “we are investing in people who are smarter than us, if I am smart enough I will just do it myself, right?”
“For good deals, we always fight for getting in.” ——Dr. Frances Du
As per Phil’s successful example of attracting more than 600 investors, Frances mentioned that prominent startups who are doing very well have stronger bargaining power than ever before, and in those cases VCs would need to fight for a piece of the pie. Frances added that at J Ventures they are facing furious competition with some large VCs in the past couple of months and the question is no longer about a higher or lower valuation but how to get in the game. It’s probably good news for startups, the current market is theirs and what VCs can do is show their value and build their strategic value beyond financial investment.
Guest Speaker List:
- Joe Chan – Partner at Mindworks Ventures
- Dr. Frances Du – Founding Partner at Jiangmen Ventures
- Phil Yuen – Investor & CEO, Aurabeat Technology Limited
- Harris Sun - Founder & CEO, Raspect
- Amar Dhillion – Founder & CEO, HOMI Smart Home
- Akina Ho (Moderator) – Head of Digital Transformation & Innovation, Great Eagle
- Vivian Chan (Host) – Chairman, Hong Kong PropTech Association