"If you do believe that fundamentally, the world trends towards just massive amounts of capital and founder friendly terms, then you just add massive amount of capital and founder friendly terms to a tier one brand, and you don't need anything else to compete. The level of thinking needed is not very high to execute successful VC strategies. You literally just need a tier one brand with a high AUM, and then get in front of folks fast enough... Then they realize, actually, let's go downstream and capture more of the ecosystem. We can hire all the super smart people or hustlers, because they don't want to work for us, but we'll be LPs in them. So then you're just a money ecosystem funnel to IPO. And your moat is your tier one brand and even though that's not a super defensible mode, you just need to make sure that every other brand dies first." - Chia Jeng Yang
Chia is a Principal at Saison Capital, a leading FinTech-focused venture capital fund, who has done especially well in emerging markets like Southeast Asia and India. Their direct investments include Grab, Southeast Asia's largest startup and super-app, as well as ShopBack, Southeast Asia's largest shopping and cashback rewards platform. Their limited partner investments include some of the top- performing funds in Southeast Asia, like East Ventures and Beenext, as well as global funds like Quona Capital and Antler.
He runs good-admissions, a Harvard Business School admissions advice platform where all proceeds go to charity. He also angel invests in marketplace and consumer startups in emerging markets like Indonesia, Bangladesh, and Egypt. His educational background includes a law undergraduate degree from Cambridge and will be doing his Harvard MBA in the future. He likes indie music, hiking and writes about venture capital at his website, which can be found at www.chiajy.com.
This episode is produced by
Jeremy Au (00:00:00):
Welcome to Brave, be inspired by the best leaders of Southeast Asia tech. Build the future, learn from our past and stay human in between. I'm Jeremy Au, a VC, founder and father, join us for transcripts, analysis and community at www.jeremyau.com. So Chia, want to introduce yourself about how you're a terrible human being.
Chia Jeng Yang (00:00:34):
Yeah, I know, for sure. I think friendship definitely is pushing it, so let's keep it at that. Sorry if my microphone is a bit like noisy, but I am on the walk. Cool, so quick intro of myself, ex-operator now currently a VC. I look after early stage across Southeast Asia, India, and I do LP investments, which is investing into VC funds in the US.
Jeremy Au (00:00:58):Awesome, Jeng. You know, I think one fun fact that people don't know is that Chia used to be a firefighter in Singapore. So share some fun firefighting stories that you have.
Chia Jeng Yang (00:01:09):Yeah, you lose kind of weight, so my profile pic is like 30 kilos after that fun experience. Yeah, so at one point, I look quite attractive, no more.
Jeremy Au (00:01:19):Now you just look like a normal VC with your vest in a profile picture with San Francisco in the background, so just like every VC?
Chia Jeng Yang (00:01:28):I mean, that's how you get the inflow to be honest. People look at your DP and they go from there.
Jeremy Au (00:01:36):It's like I want to invest as LP into this fund, because he's wearing a vest and is from San Francisco.
Chia Jeng Yang (00:01:43):Yeah, absolutely. Right, wait, so before you go, how controversial do you want this to go? Because I'd love to push it.
Jeremy Au (00:01:50):You'd love to push it? Okay, you can say all the controversial stuff and then I'll be in a nice guy who says like, oh, why did he self-immolate himself on this one?
Chia Jeng Yang (00:02:00):No one wants to do a controversial thing with me, that's so sad.
Jeremy Au (00:02:03):Well, we'll make it spicy. It's a nice spicy. It's like the [Laoganma 00:02:09] spicy. Is like not too spicy because of MSGs, some juicy stuff, but not actually spicy. Yeah.
Chia Jeng Yang (00:02:19):
Okay, cool. All right. I have a question for you because it actually came up an hour ago, I was talking to a friend of mine at Sequoia. And my question to you, is this, you're a founder, Jeremy, and you've raised from US VCs, great US VCs. I think you're working in a great fund right now in Southeast Asia. The question that we couldn't come up with an answer to is do you think that Southeast Asian VCs are more founder friendly than foreign VCs?
Jeremy Au (00:02:48): Ooh-la-la! Spicy.
Chia Jeng Yang (00:02:51):
Yeah, perhaps specifically US VCs, probably I think that is the benchmark. And then we realized we couldn't actually answer that question because in the US, your story is benchmark your super pro-rata rights are super common. There's a ton of sharkish term sheets out there that exist. And actually in Southeast Asia, I think, maybe I got it wrong, but the prevailing notion and narrative was that Southeast Asia VCs are more old school, therefore more sharkish, but is that really true? So we couldn't actually come to a conclusion on that which you guys are about.
Jeremy Au (00:03:29):
Yeah, I mean, and obviously, I have some experience, I have conflict for interest obviously, representing a Southeast Asian VC. But I think I want to talk about it, you know, let's talk about simple fact, which is a US global VC in Southeast Asia is actually a local VC within America. And so when I was a founder VCing from Bessemer and NextView, just one of the top seed funds and obviously top series A funds. In America, I wasn't operating with foreign VCs, in that sense, I was operating with American VC servicing the American market. And so yes, they are global VCs in that sense, best may have invest globally and to some extent the other VCs do as well. But they are local for themselves, so that's an interesting dynamic that you didn't think we realized until we had this conversation. Everyone else looks at my funders as global VCs, but when I was working with them, they were local VCs.
And actually, to be more specific, when I was working in America, in Boston, and then later expanding to New York, we were very specific about which VCs could add value at the city level. And so we are founding of Harvard Business School and MBA program, we were Boston, how we found it with the top three seed VCs is like NextView, Founders Collective and BoxGroup. Those are the tree on the Eastern sea coast and those are like they only do seed deals very reputable strong pipelines into series A obviously. And we wouldn't even really talking to the West coast seed specialists, because one thing we've realized was that, if you're based in Boston and you're working with a partner from a great VC, or whatever it is, the partner should be based in the same city as you are as HQ, because you're going to get so much help from them. You going to get engineer referrals.
And I think, you know, I always sing praises on NextView ventures right they were in Boston. They gave me my leadership team and they helped me to close other people that I was pushing to close, but without them, I don't think we're close at all. And it was only possible because they were in Boston with me and they had a deep Boston network, because they had grown up in Boston, because their partners and their team was from Boston. And so even when I was in America/Boston, I was choosing to optimize for local VC and I did not take initially like San Francisco VC money, I took the best East Coast seed money that was local. And I think that was a tremendous amount of value, yeah.
Chia Jeng Yang (00:06:20):
Okay. But I think you're conflating, or purposely avoiding the question, because question is around founder friendly? Because value add is a piece of being founder friendly, but you can add a ton of value, but it will still be a shot.
Jeremy Au (00:06:32):
Well, I would... Well, I don't know about how you play a game Chia? I don't really see so because I think is really about the ROI. Every time we make a decision as a founder to invest in something, or hire someone we're always thinking about what's the cost versus what's the return. And so I think there's some VCs where they're more expensive, but he adds so much value that you'd be stupid not to take the money. And they're other people where they're super founder friendly maybe in terms of control, or valuation, but you also know that they're doing that, because they're not very value add. So I think you're right to say, if we define sharkish as the valuation, or the ownership percentage, or control rates that are looking for the price, in other sense, then that's true. I think they're higher price VCs and a lower price VCs. And on the other end, I'm just saying it's a different Xs altogether is the high value add and low value add.
And so on average obviously, you're going to have a rough correlation on over the medium to long-term, higher value add firms get to have higher ownership percentages, or higher prices, because of their small demand for their capital. And on average, there are lower value add they have to fight with lower prices. And then if you have high prices and low value add, over time, everybody realizes that this is a dumb term sheet to take based on versus other term sheets. And on the other side obviously, there's a few folks in every generation of VC, where everybody knows that adding a ton of value in excess of the price and that could be because the VC is trying to build a name for themselves, or they're new, or they have a lot of money, or they have a really high functioning team. And so I think that cluster of extremely high value add versus their price is kind of like all the founders want them. Anyway, so I think that's the... But of course it's not to some extent, there's some reversion to their mean here. So Chia, what do you think?
Chia Jeng Yang (00:08:50):
Okay, I will share, I mean, actually there's something I don't have a firm view on, but maybe just to rephrase the question to make it easier. On a personal perspective level, like you as a founder, would you have taken money from someone that could have added a lot of value, but maybe it's somebody who could abandon you when things are going bad? Would you take that risk on a personal level? So I don't have any funds in mind or whatever, but it's the trade off between value add versus someone who can support you all the way, what's that balance?
Jeremy Au (00:09:28):
I mean, it's hard to tell, if he hands off the money. I mean, because that's almost like a philosophical question, because most founders, myself included, it's very, very hard to tell in advance of the transaction whether this person has a history of sticking by founders-
Chia Jeng Yang (00:09:46):
Okay, they have their reputation not of doing that. So either way, but you know upfront that there's a bias towards one way, or the other. How do you value like someone sticking by you for an example?
Jeremy Au (00:10:01):
...Yeah, this is actually a really good question. It's part of the value add equation. It's because the transaction, or the price is there, the moment the term sheet is done, then there is some level, you have millions of dollars in your bank, and that's the transaction. Well Jeng, Chia, I think you're asking another question which is like, are you looking for a transactional, or relational VC? Does it make sense? I think that's actually...
Chia Jeng Yang (00:10:28): Yeah.
Jeremy Au (00:10:28):
eah, you know what I mean, because the transactional VC, is basically, this is a one time transaction and everything else after that is up to you and I versus a relational one that's looking to do that. And of course, it's kind of a fake trade off, right Chia. Because the truth is, every VC is both transactional and relational. Their KPI is transaction, but they are also human beings. Okay, anyway, so that's me on the, you know, I always need us to think about a framework for my training. Personally, I would always take the relational primarily because I think when you have no money, the money feels life changing. But I think at the end of the day, it's really about the business and the value. So I think people mistake the start-up for the funds raise and I think that's the biggest problem I... When I hang out with founders, everyone's like, wow, Jeremy, you raised X amount of money and I'm like, whoa, I'm more proud about the team, I'm more proud of revenue, I'm more proud of the customers, does it make sense?
And only a relational VC can really build that out with you and be there in good times, obviously, but in bad times I mean, it's guaranteed there's going to be bad times. And so if you took the money for the money, but you didn't take it for the relationship, the trust, I think you can end up in some really sticky problems. And I think people undervalue how much that is a negative risk in terms of start-up survivability, I would say, honestly. But also I think they undervalue its impact on the actual operating value, you can call it, of the start-up itself. What do you think, Chia? I mean, obviously, as VC who has been in the game for longer, you've hung out VCs who've explicitly told you like, we focus more on transactions versus those are more focused on the relational component. So how do you see the difference in their approaches?
Chia Jeng Yang (00:12:23):
Yeah, so maybe to contextualize why I asked the question, I'll give my input on this side, because when we think about global VC in that sense I think global here normally means like US focused. Some people may think that they have to view that they're more of relationship, some people will have to view, they're more transactional and so it actually has an interesting kind of implication for that. Especially if you have VCs who are perhaps like dipping their toes a little bit and then sometimes they're more relational, and sometimes they're way more transactional. But I find like, no one believes that they are of the same level as local VCs, so with this kind of one of the differentiators areas.
But to answer your question, I don't think anyone will ever claim that they're transactional, I don't think that they think that's a bad brand, that's a bad messaging. And so you never hear that, but then in practice when you talk to founders and you do back channeling, you hear all about it. I am actually really conflicted. I don't know. I've seen situations where founders are going in, eyes wide open and they are telling me, look, X, Y, Z is like this, but that's who that person is and they can add very specific value, and I need that value and so let's just do it. And then I've seen it the other way around, which is, you know, I really like this person and even though it might make less sense, let's take their money and let's work together. So it's really a little bit of both, I personally don't have a framework on it just yet, but I'm just trying to figure it out.
Jeremy Au (00:14:04):
Yeah, I think you say something, well, also Chia, I want to point out that this is how we know your Laoganma spiciness because if we didn't name names. So I think the question that we have here is, I think there's a lot of sophisticated founders who are okay of a transactional relationship, because they're sophisticated and they understand what it is about and that's what they want. I think when you know, what's the label on the can, then it's more obvious and more straightforward. I think the sticky part happens is when a founder tends to trend towards being wanting to be relational on average, doesn't realize that entering a more transactional relationship. I think the corollary of that is that, there's still a transaction that happens with the financing in happening because we're focusing on the business. I think when everyone's very honest and about it upfront, and everybody knows what they're walking in then, no, that's good, it's great. But I think when there's a mismatch, or misunderstanding about, was like, oh, I thought I was okay with transactional, but it turns out I actually need more relational approach. Oh, I thought this was relational, but actually, it's transactional. I think that's when sticky things really happen for our founders.
Chia Jeng Yang (00:15:17):
Roger, okay, now that makes sense. Maybe just to switch gears another topic I wanted to bounce off you was also, and this is something I don't have a firm view on yet. So I've been talking to a bunch of funds that are trying to make their first check into the EU and to Southeast Asia, and super interesting perspective where they're coming from a lot of these are US funds, or global funds. And they are taking the approach that, oh, we see what's going on in other regions and even though, perhaps we have a small team etcetera, we want to see similar business models and invest in those because we've seen the end state.
Now, with this not that I reject the proposal outright, but my contention is that 10 years ago, the path for development for tech was roughly the same. ECOM 101, look pretty much the same everywhere in the world. Now you fast forward to 2020, Southeast Asia looks super different from India, which looks super different from China, which looks super different from the US, which looks super different from Europe. And my kind of problem with this whole method of investing is obviously, there's very important lessons to get from each region, but the degree of localization because of how tech is developed in their own natural way in these regions is so important, that is just really, really hard to try to copy wholesale. And I came from Rocket Internet, I do see the value of that, but I also see huge amounts of flaws for that model. I'm curious someone who's looked into US, investing in the US and now investing in Southeast Asia like, what do you think of that?
Jeremy Au (00:17:08):
Yeah. Well, two thoughts come into my brain and it ties under two conversations. I think first one is, if a teammate in Southeast Asia, or any region has a potential time limit for their time in this country, or the region, personally, it creates and shortens the theory game for them to build a relational component review. And what I mean by that is, the biggest reason why most people good faith back, I mean, it's classic game theory. The more games that you're played, the more good faith you act. And then if the game is going to end next year, I'm sorry, in the next round, then everybody ends up cheating on each other in the game theory exercise. And I think that happens a lot in the overall landscape and anything, it's like, if you are VC, or founder, you're committed to this geography for, I don't know, the rest of your life, then your reputation matters very, very much. And so obviously, as a personal person you are, as a device is in good faith, in terms of morals and values, but there's also a strong reputational incentive for you to act as a good faith actor, because you have that 50 year game in front of you as a founder, as a VC, as an operator.
And it's easy to do due diligence on that, it's easy to do reference checks and vice versa. So I think that's actually tying both parts to it together which is like... And I think the reason why it segues nicely in the second point is, you having a conversation about when a team is entering the region, it's still TBD, how committed they are to the region, does it make sense? And everybody is knows that, and I mean, everybody is wise, everybody is fair about it, everybody is upfront about it. And so of course, I think what most people who are entering the region will enter their checks, as their checks are going to be better priced, or a better deal for founders on the price. Because founders are saying, okay, you're new to the region, so the only way you're not going to get in is if the transaction is better, if that makes sense.
Because I personally expect less from the relationship. You don't have local value add, local network, I don't know how committed you are to the region. And I think that's where the sophisticated founders are kind of like saying, okay, they're coming to a region that there's going to be better checks in that sense, but not necessarily relationship. So that's on one side, and of course the race on the other side and if you're new to the region is, how do you show that you're committed to the region, how do you show that even though you don't have the network now, how do we build it out rapidly and stick around. And I think that's the big question. Yeah. What do you think, Chia?
Chia Jeng Yang (00:19:55):
Okay, your point is more on commitment rather than how useful... Okay, so I think what was coming from it, from a point of how useful is cross geography knowledge transfers in the context of extreme, increasingly complicated local nuances, which didn't really exist to the same degree like 10 years ago, for example.
Jeremy Au (00:20:25):
Are you saying that because you as a VC think they're making a terrible investment decision? Or are you saying that as a founder, who is saying to over believes their narrative that they do to understand the region? So I guess what's your beef of this conversation, or belief? Yeah.
Chia Jeng Yang (00:20:42):
Yeah. So I don't have a firm view yet, I do have some thoughts, but there's, I think two issues. The first issue is that, again, if you go back 10 years ago, ECOM 1.0 will looks exactly the same, almost everywhere in the world. People talk about localization and local nuances, but frankly, it's still very small, but it was still big enough to screw around with some big players like Rocket Internet. Now, if you fast forward to 2020, the world in different regions like India, China, blah, blah, blah, they all looks so, so different. You can't even compare it anymore. And the existing infrastructure they're building on top, it's just super different.
And so now, when you come with this value prop of, hey, I can see what's going on in other parts of the world and I can implement it here, that does two things. Number one, it encourages copycat clones, which may not necessarily be super successful and then it's just like they pile enough money being funneled into perhaps the wrong business models. And promoting the wrong narrative that this FinTech product was super successful in the US, therefore it must apply in Southeast Asia. So that's increasingly the narrative that I see which I wouldn't have had an issue with 10 years ago, but I'm not sure if it's necessarily applies now. And so that's kind of my question mark to the topic of global versus local VCs.
Jeremy Au (00:22:03):
Right, and I guess the question is, so first of all, I agree with you that if you invest by analogy, you're pretty sloppy. If X worked in Z, therefore X will work in A, and that the limit of it, I don't... And obviously, everybody, or nobody says that, but obviously, I've always say that doing due diligence and thinking deeply. But I think you're right to say that it's going to be there, but what's the beef there? Wouldn't that not be a problem, because in 10 years time, we're going to find out that this VC lost a shit load of money in Southeast Asia, because of this approach.
Chia Jeng Yang (00:22:39):That's like 10 years time, in the meantime, you have global capital flows, funding the wrong things.
Jeremy Au (00:22:47):
I see. So you are frustrated about, all you think is the side effect of that is that we are... This naive type of investing is pointing founders in the wrong direction to chase around products and is also causing, I guess, local, or more sophisticated VCs, more nuanced VCs, from being able to get a proper returns I guess.
Chia Jeng Yang (00:23:13):
I didn't say that, but yeah, I guess. I hadn't thought through it on that side of things. But yeah, I was just more kind of raising a general obstacle, where there are some funds that I think I've done really well. They come in from a different part of the world, they hire actually X local founders to be investors on their team, and so that gives them a lot of the local context necessary etcetera. I think my issue is like, but in reality, that's not what most funds do, in reality, it's one person, two main shop, setting up and then pumping more with AUM that dwarfs local funds, and then committing accordingly. So that's my big question mark over the topic of local versus more regional/global VCs, like the impact on the ecosystem per say.
Jeremy Au (00:24:14):
Well, as speaking from a founder perspective is not bad at all. I mean, sure, I think, as a founder, it's okay to have more capital in because you want to have more people taking bets. And as a founder, if you separate your personal career trajectory and experience from the company success. So okay, I mean, there's two scenarios, your company was never going to work and you just got naive money and therefore you got funded. And then you had a great time for one and a half years, and then you crashed and burned, I mean, whatever. Or maybe you have two stacks of those kind of capitals, so you crash and burn after three years. Well, that's terrible, obviously, for I'll say, employees, especially as for some employees who do the transition.
But from the founder perspective, it may not necessarily be bad, because now they get opportunity to learn how to build a start-up using this capital. And now they can take those lessons and use it to build the second start-up and employees can use experience to join another start-up. I mean, technology market is so tight that is not much of a transition to some extent. So that's the founder perspective is it may not necessarily be bad per say for that. And I think the other argument I would say is maybe all the local VCs are too cynical. Like they're too tightfisted and you know, Scrooge McDuck here, because they have no vision and so on. No vision, you know, investing by analogy is a far superior investment tool and so-
Chia Jeng Yang (00:25:44):I think I need to write a medium article about Jeremy dissing local VCs.
Jeremy Au (00:25:48):
...No. I mean, I'm just saying maybe poetry works, like invest by analogy. And now, certain founders get to build businesses that nobody else saw. What's wrong with a VC being contrarian, I guess, to some extent and saying they think it's going to work. I mean, the person who bears the pain of that at the end of the day, it would be the LPs who invested in funds that are less sophisticated in their investing by analogy approach, right?
Chia Jeng Yang (00:26:18):Yeah, yeah. Now, I think that's a fair point. Now, I think it's fair point.
Jeremy Au (00:26:24):
So I think the question is who wins. I mean, instead of like, yeah, it kind of sucks and everything, but who wins, who loses? You have too much capital in the market that's coming in flows, who wins local founders, locals technology employees, follow on cap. Like VCs that are able to use that to get follow on funding, those people win. Founders will get to build a business that they never would have been able to build if the capital market was tighter. Moonshot ideas that could have never been made it also get to get funded, who are losers, right? Losers would be LPs in funds that do this approach by incompetent, or a mature way, so those are the true losers. Obviously, losers who may be employees of incumbent companies that got attacked, or disrupted that otherwise would not have been attacked, or disrupted because of this capital inflow. Yeah, at least there's a partial as I'm sure there's a longer list of winners and losers.
Chia Jeng Yang (00:27:23):Yeah. Okay, now I think that makes sense. No, I think it makes sense.
Jeremy Au (00:27:28):
Loser would be like a local rational VC that's fighting against great term sheets, but there's a competition argument and so then local VCs have to fight better priced, not better price, again, it's not... Price is a function of value, but higher valuation term sheets, local VCs were to compete against that. So global VCs will enter using higher valuation term sheets, because the market price of that, of their value added is lower, whereas local VCs will have to compete more on value add to show that even though they have a lower valuation, they have better value add, so as a better price. Yeah.
Chia Jeng Yang (00:28:15):Yeah. Okay, I think maybe this is just like... So I think what you say is completely rational and makes
sense. I think I'm just philosophically opposed to the end conclusion which is by the logical extension of their logic is you just need to pour money in, full stop. No need to think about it, just spray and spray massive amounts of capital and you will get an outcome.
Jeremy Au (00:28:39):And this is why I love, this is better. Why not? Pour more money in, you know, is the future right?
Chia Jeng Yang (00:28:45):You said economics at Berkeley, that's what they teach you there, right?
Jeremy Au (00:28:48):
No, no, the economics of Berkeley is very much on the labor union side, and a microeconomics. So I do have a contrarian point of view personally as well and we can do that for the future, I'm pro regulator. I mean, I think, but you could argue that the future has been undervalued in terms of investments into it.
Chia Jeng Yang (00:29:08):
You're talking about now where the interest rates is like minus 0.25, or something like that. I don't think, no, but that's a semi serious point, like more capital is needed is the answer? That's, you know, the logical extension of the argument is very strange, I've never been able to grapple with that.
Jeremy Au (00:29:31):
Well, that's a fair point which is what we're seeing here is because interest rates are so low globally, as long as... So in some ways, if venture capital, which is all about finding technology companies to grow and change and build a future, as long as they outperform a negative interest rate, then that's implicit subsidy. Which is also explaining why so much capital inflow is going into venture capital and private equity, which is therefore going to start-ups, which is therefore going into the technology and founder talent crunch across the world. So there's a lagging effect of yesterday interest rates. And I think we'll see more and more capital entering the technology world which is great for people who are building the future, because now your implicit IRR rate, the hurdle rate, I guess, is much lower than it had to be for building investments. And that's terrible for incumbent companies that had to deal with a more rational, internal cost of capital.
Chia Jeng Yang (00:30:33):Yeah, yeah. I'm still philosophically annoyed by the people.
Jeremy Au (00:30:37):
You're annoyed that you're not the master of all the LPs telling them how much to allocate to VCs. So you'll be like a Soviet command economy, you're like this economy can only take this amount of capital and this economy can only pick up this amount of capital.
Chia Jeng Yang (00:30:56):No, to be clear the logical extension of the logic is mass unthinking capital should be pushed into the tech sector, which is just a little bit strange.
Jeremy Au (00:31:08):
Well, I mean, I think that's a strong man argument, because we all know that LPs are very sophisticated, we know the GPs are very sophisticated. We know that founders are sophisticated and so everybody is sophisticated in aggregate. So it's kind of the arguing gets the market economy where the invisible had caught price is going to find out like, yeah, better VCs, better founders and better LPs will channel capital to the most productive user capital over time, and we should let it all sort out. I think where I could agree with you. I mean, it's I do believe that regulators and governments should step in to mitigate the worst case, especially if the job transitions unintended side consequences and source of fault, so I totally agree about that. I don't know. I guess, maybe I agree with your philosophical angst there, but I'm not sure what your practical solution is going to be.
Chia Jeng Yang (00:32:04):Yeah, no, fair. Okay, cool. I think we actually went super off topic.
Jeremy Au (00:32:08):
No, I think it's good, right? Because I mean, you're talking about capital flow. And I think another thing is, me, I will just debate with you a little bit about this one like, also for most founders, I don't think they're fully aware, but lots of local VCs are taking capital from global LPs. So I think it's less like, if you're a global LP, you're going to say, should I fund a US VC to enter Southeast Asia, or should I put money into a Southeast Asia VC that understands local market has been there longer? So the capital flow is still happening is just that some of it is channeled into global VCs and some of it is channeled into local VCs as well. So it's not as if it only benefits US VCs entering Southeast Asia, it also benefits local VCs as well.
Chia Jeng Yang (00:32:53):
No, I think that's fair. Cool, maybe switching gears, I'd love to hear your thoughts on visional VC, obviously, super smart GPs and have done a great number of good investments. This whole global VC is coming into multiple regions. We've seen that in places like India, we've seen that in Europe. And it has to a certain extent helped to crowd out and change the investing dynamics of that region. So I'd be super curious on, or whether you have any thoughts on how that evolves, just as an example, like, super good friend who's like a European VC. And just complaining to me the other day about tier one VCs coming in from the US and doing VC investments, and calling out their space there, just because of how much capital is floating around. So I'm curious on your thoughts on that.
Jeremy Au (00:33:54):
Yeah. I mean, obviously as speaking in a personal capacity always in clubhouse. I don't know, I mean, I love the bounces review, I think isn't a loser in this scenario, like emerging VC managers that don't get a chance to make bets on high potential undiscovered founders. I mean, that's.... Because, the founders are going to get capital from someone on average in, you know, always, I hate using the word in average, but I think that's the only way to think about it structurally. So I guess the real loser when you see global VCs entering and I think this is not only happening in Southeast Asia it's happening in Europe and LATAM etcetera. Because I think established local VCs have an established value add and presence, and track record, etcetera. So I think there's always going to be a niche for local VCs, there's always going to be a niche for global capital, so is the competition. It's not like a slot, or channel, or lane. I like the word crowding out, I think it crowds out emerging fund managers that cannot tackle US capital flows of the zero interest policy. I don't know, what do you think, Chia? Because, you've worked with a lot of LPs as well, right?
Chia Jeng Yang (00:35:13):
Yeah, I actually think it's the reverse. So there's two questions, I think number one is, where future business models will come from. And I think the overwhelming consensus seems to indicate that future deal flow will come from the next generation. So folks who are two years out of their first tech job after university and those that are the young hungry people that are likely to build the next software company, next tech company, and so those are the ones that you invest in. And I did the unicorn age analysis, where it showed that even in Southeast Asia, the mode for unicorn founders, when you started the company was 24, so that's basically two years off university. And so what that has resulted and you see that a lot in the US, for example, it's like solo GP funds, super young folks, 22, 20, who are basically friends with all the folks they went to first year of university with, or are just super well networked and they can actually have a pretty successful first paying microfund. There's way too many examples in them, but they exist out there. And so that creates like, the pressure on existing VCs, who they get older and older, and older etcetera.
And the second thing I think was, I'm just going to quote The Ken here, but there's an interesting Ken article about Kalaari capital in India, where they were at least making a point that the Kalaari capital was like tier one and then recently, they've had a bunch of trouble, etcetera, etcetera. I won't comment on how true all that is, but the basic argument was they lost a little bit of their shine and that process only took five years. So the two points here are, future of VC a little bit and especially in the midst of all this tier one, global brands and the second is actually, how defensible is a VC brand. The answer might actually be not really. So I actually think emerging VCs will do really, really well and tier one global brands will do well, but there's that squeezing pressure. And we see in some very interesting methods to compete against them which I think can be successful. But my understanding and my framework is that, that's what exists.
So in the US, you see that super commonly, like Keith Rabois from Founders Fund, happily tells everyone that he's the most prolific LP investor into emerging managers. But really, because he's basically taking all these young, solo GPs, micro VC guys, and they're essentially almost working for him, but through their own shock. And I think that's an amazing strategy, I think that's a great strategy, but you then cut out and treasure everyone else in between.
Jeremy Au (00:38:35):
Okay, this is interesting. So you are saying that VC market will trend towards a barbell shape?