During the first ever Sweden-Southeast Asia Business Summit held in Singapore (2016), when it was time to talk start-ups, Mr Dusan Stojanovic showed up in the panel of speakers on stage. Dusan represents the hard-to-get venture capital (VC) category of financing for growth businesses. Probably not too many in the audience knew who he was but within the fast-growing financial technology, or fintech, segment Dusan is a name to be reckoned with. And from what this Swedish angel investor told the audience it was clear that he had relevant things to tell. He shared his enthusiasm for Singapore and insights into things like ‘regulatory sandboxes’.
Not long after that, Sweden visited Singapore with a fintech delegation in connection to the City State’s inaugural Fintech Festival. There, Sweden’s Minister for Financial Markets, Per Bolund presented Sweden’s successful Fintech experience at the RegTech Forum. Also, Singaporean as well as Swedish fintech investment (including from established banks) keep on growing. Some recent indicators: SEB Venture Capital investing in the blockchain start-up Coinify; and the R3 consortium seeing Danske Bank, Nordea Bank, SEB, and also Singpore’s Temasek among its investors; to develop ground-breaking commercial applications of distributed ledger technology for the financial services industry. And there are already tremendously interesting fintech start-ups and solutions on the market, not least for leapfrogging and as enablers in overcoming the many obstacles to growth here within Asia. Have no doubt; in 2017 fintech is hot!
The three-exits-in-one-week angel investor
ScandAsia met up with Dusan in his home base Singapore, to learn more insights and to take the temperature on fintech and what is in store for 2017. And before we delve into the topics – in this part one – a brief introduction to Dusan Stojanovic is in place.
From studies at the University of Gothenburg he started off his career with GE Capital, which was probably the perfect school to learn all about financial services. Today he is the Director and Founder of True Global Ventures (TGV) – an international, early-stage vehicle formed in 2010 by the “world’s leading technology entrepreneurs-turned angel-investors”. Dusan is best known for his three exits in one week in 2012. This feat is unheard of in investment cycles. He was then awarded ‘Business Angel of the Year in Europe’ in 2013. (A business angel is an independent individual who provides capital for the development of a business.) Dusan’s personal investment track record includes: ProwebCE.com, Payson.se and Dibs.se, with in total nine exits (5 full exits, 4 partial exits) out of 18 investments.
He ropes in angel investors for cross-border investments through the TGV funds to invest mainly in fintech and digital media. Members must be entrepreneurs with at lest one exit and minimum two angel investments as track record. Each member must invest at least 85 000 USD annually.
“I’m the largest investor. I have wanted things to be like that; I should mainly risk my own capital and not others’. I think that’s a sound approach when investing in a company where one has a real stake on one’s own,” begins Dusan. “So when I ask a serial entrepreneur to invest money he also knows that I’m the largest investor in TGV. So, since I am I also have a veto in the investments being done, in case something should turn up that I would not believe in. I however do not have the right to invest in anything.”
Within TGV they try to focus on the cities that they consider are and will be leading fintech hubs.
“We invest only in B2B fintech, that we are best at, so good B2B customers and also good entrepreneurs are the two criteria in the cities we believe these can be found. From an Asian perspective that is Beijing, Hong Kong, Singapore; from an American: San Francisco and the Bay Area, and New York City.”
“We only invest in serial entrepreneurs that re-invest some of their exit money in a new adventure and it must be in one of our nine cities,” adds the Swede.
“I happen to live in Singapore but spend 250 days between these cities.”
Singapore and sandboxes
He explains that it was as a strategic decision to choose Singapore: ”I felt it had gone well in Europe and in Asia, and believed that the future would be Asia and that it could only happen here if I personally moved to Asia.
After trying out a few Asian metropolitans he picked Singapore as a good bridge to travel in and out of cities.
“I could not have foreseen when I took that decision in the spring of 2014 that Singapore itself would develop that much as it has since then within fintech! In particular when its government in 2015 decided to prioritise fintech as one of the most important parts of their economy and would stake so much and create different so called sandboxes where one can set up various fintech environments and start-ups that might not match any regulatory framework as of today but might do so tomorrow. And also invest up to 200 million SGD. So today I’m very happy that I picked Singapore among the cities I had contemplated.”
A sandbox serves two purposes: 1) Allowing experiments to take place, even where it is not possible at the outset to anticipate every risk or meet every regulatory requirement. 2) Providing an environment where if an experiment fails, it fails safely and cheaply within controlled boundaries, without widespread adverse consequences.
Dusat expressed enthusiasm for this also at the aforementioned summit, where he mentioned that many countries in the region had recently launched such regulatory sandboxes.
“Basically, they are saying: as long as we know roughly what you guys are up to you are allowed to start and do things that are maybe not allowed normally. And that’s huge, because then you can get the talent no matter where it is in the world, who says: ‘I want to start here where I am allowed to do my business because I don’t want to go to prison’. So right now, I am overly optimistic,” he exclaimed.
Internationalising the start-ups
And into 2017 Singapore’s government is enhancing this even further, as it wants the country to position itself as a home for tech entrepreneurs. Those coming in – is the thinking – will complement local start-ups through cross-fertilisation of ideas, catalyse new partnerships and create good jobs.
The initiative involves rule changes to the EntrePass system (a work visa for entrepreneurs) by eliminating certain rules while broadening the type of companies that will be allowed to permanently enter Singapore.
Lowering the barrier-to-entry for Singapore is a step towards internationalising the start-up scene, but companies also need to collaborate with global counterparts who have no intention of moving to the city-state. For this reason Singapore is also starting the Global Innovation Alliance programme, to help foster conversations and provide opportunities abroad for Singaporean start-ups.
These changes are part of a complete overhaul of Singapore’s public support to the start-up scene and ecosystem, streamlining a host of start-up-related grants and schemes and boosting things for this scene to take off in a much larger way.
Its government has also realised – also pointed out by Dusan – the need for smart money and to have venture capitalists coming in to curate which start-ups really deserve funding.
He suggests Singapore invests in certain VC companies who would in turn invest.
“Here, compared to Sweden, there is too much funding. So actually validation of start-ups become too high from the beginning,” says the Swede. “What’s missing is that you don’t have enough angel money.”
“Here, it has partly been directly government money involved, and also an angel investor like myself can get nine times leverage with the help of state money. That of course means that I do not look as much at valuation, since I know I can get it back from the government.”
“In the next stage, where there are no government or soft money, it becomes very difficult to re-finance start-ups since one was given a too good deal in the beginning.”
The answer to this now comes with ‘Startup SG Equity’, as Singapore’s new concerted effort to support deep-tech companies, following the logic that they are usually heavy in R&D and take longer to go to the market.
Noteworthy is also the PwC report on ‘Singapore’s tech-enabled start-up ecosystem’ from 2015 which indeed stated that some stakeholders were concerned that the public funding mainly at the seed stage discouraged “fast failure” and damaged the return on investment (ROI) at later funding stages.
However, the research also showed that VC activity in Singapore had been on the rise and that Singapore-based VCs were actively investing in local tech-enabled start-ups.
Another of Dusan’s recommendations is that the government instead gives support via the Fintech Festival, “drawing 10 000 potential customers to Singapore during one week”, and makes low cost work and meeting spaces available, so that start-ups can afford it – Lattice 80 being one such space.
Hong Kong-Singapore combo solution
As for the funding gap, especially for series B, Dusan points to Hong Kong’s ecosystem as the solution.
“Hong Kong absolutely has money for Series B level. So what I usually tell entrepreneurs is: ‘Look for funding in Singapore but make sure to view that money as the last you will ever get into the start-up. So make sure you can monetize the business model based on that money. Forget fund-raising in Singapore; you will never get anything in Series B level and go to Hong Kong and look for the next investment there at a slightly later stage.’ It’s the complete opposite there, where the government does not [yet] give any funding at all for start-ups. So if you combine the weaknesses and the strengths between these eco systems in Southeast Asia you in fact get a very good ecosystem, by knowing where to turn at different stages.”
Preferring to be more like a co-entrepreneur, TGV usually enters as investor when the company has its first customer – prior to series A. “But it may be later, and we have entered about 20 per cent of our investments at a later stage, where one might have established a strong business in one country but still haven’t internationalized. And in that situation we can certainly invest, and it can also be A or B round investment. Of the 18 investments we have done so far, including 9 exits, I can say that final exit is usually within ten years. And the goal is more than ever before to build companies that have more than 100 million USD in revenue – and not based on valuation.”
“We look at the ambition of how much revenue one would like to have. And how important is the ambition to grow into a global business? Very important! There are unicorns that are not global companies and only being on the U.S market, but our ambition is really to become global with our companies invested in. We try to control that as much as we can along the journey through the 1000 contacts we have within financial services, and our goal is to continue to give them customers as much as we can.”
“It’s absolutely O.K to start with a local scenario and only have one customer in say Stockholm or Singapore,” he adds, “but the entrepreneur should have the ambition that it should work globally.”
It is also on the global scale where TGV has its niche (hence the name); being first at assisting B2B fintech start-ups with this approach and at a very early stage, and offering collaboration between the different brands within the investment portfolio – something Dusan says they can handle thanks to being very focused only on B2B fintech.
Fastest way to market
Staking on internationalization comes gradually, where their blockchain (a type of distributed ledger or decentralized database that keeps records of digital transactions) company Bluzelle is a telling example. Its suite of products accelerates financial inclusion by brings new customers to financial services companies.
“We do not have all the answers from the start. We tested Bluzelle – a company that we moved into Singapore – in all the cities and had 135 meetings. We concluded where things were taking off the most. It might not develop at the same pace in all places, so after those meetings we have a better idea where we can expand the fastest. And one might then spend even more power in that area.”
“You look at the product you have and where can it fastest get operational on a market and if there is need to tweak the business or its commercial model. And then you get a bit smarter from that and you tweak and alter a little bit more,” adds Dusan.
SharesPost is another TGV company (since 2010) now reaching Asian shores that helps private company shareholders understand the value of their holdings and their liquidity options. When it’s time to sell, SharesPost helps shareholders discreetly find the right buyer and close their sale.
“Sharespost was my first US investment in the Bay Area in 2010. The company provides liquidity in late stage VC backed companies. Private companies started to stay private longer and longer in the US. Today it’s a global trend which is also true for Asia and increasingly also in Europe. Facebook was one example where Sharespost created liquidity,” says Dusan.
Today there are 371 VC backed tech companies on the platform with more than 2.4 billion dollars of inventory (typically with revenues anywhere from 25 million USD up to 3 billion USD.
“Sharespost is growing with more than 200% organically and just about to break even. Institutional investors are more and more attracted to the platform, reason being that Sharespost has strong content not only in terms of curated news and waterfalls but also research reports for companies like AirBnB, Uber, Pinterest. Soon reports will come also on companies like Didi and Spotify.”
The company is based in San Francisco and sees the Asian market as a very promising market, explains Dusan. “It already has liquidity in quite a few known Asian VC backed tech companies, recently got investors from Asia and is planning to expand into Asia.”
From a Swedish angle one of the companies is Spotify which is a strong brand not only in Europe but also in the US and increasingly so in Asia.
“What does Sharespost actually do? Since many of these companies have been private for at least 10 years, in some cases even longer, there are former employees, existing employee, angels, early stage VC who would at least like to get partial liquidity. Buyers are mainly institutional investors. Sharespost makes money both from the seller and from the buyer.”
Ending part one with a prediction Dusan says that production stands for the game-changer in 2017: “This means integrating and going live with many of these services instead of just experimenting and not taking it seriously enough. It will be the year when people must really do things. Everyone is incredibly tired of Proof of Concept (PoC), because it does not mean anything; one just tests something to show to the management and shareholders that one has done PoC. 2016 was that year, for blockchain and AI etc.”
The pressure is on the established stakeholders (like established banks now being scared and prompted to act; more on this in part two) also because of services like Ant Financial, which is an artificial intelligence company in itself, and that is first and foremost within blockchain, and has developed its financial services from scratch, states Dusan.