Andreessen Horowitz recently revealed that its investment of US$250K in Instagram became $78 million. Thats a multiple of 312. Investing in early stage ventures is indeed very rewarding yet inherently risky. It thrives on multiple high risk bets out of which one or more would achieve high rewards.

But that certainly does not mean putting blind bets on anything that comes your way. Those who believe in “Spray and Pray” kind of investing are often losers in the long term.

Most VCs through their experience would have developed some sort of an internal braincloud (mental) checklist which gets ticked during the pitching sessions. Relying on mental checklists again is risky. Some or more of those check points might get sidelined if the idea falls into one of the soft spots of the more influential team members.

So how can venture capital funds systematically mitigate undue risks?

Here is a list of risks inherent in Venture investing along with practical risk mitigation strategies and if needed a ‘Jugaad’. Jugaad is a colloquial Indian term that means a creative idea, or a quick workaround to get through commercial, logistic or law issues.

1. Risk of the unknowns

Most people think a business is after all a business whether it is hi-tech or low-tech. If it makes money, why shouldn’t one be part of it? Some argue that if one understands the need of such a product/service, one qualifies to invest.

But most would forget that it takes a lot more for a venture to succeed than just a great idea. The devil is always in the details and in execution. If you come from an e-commerce background and are offered an opportunity to invest in an orthopedic surgical device, think twice.

How would you figure out what is the right amount of field trials you need to carry out before pitching it to potential acquirers? What makes more sense – licensing the technology to an existing player or go solo?

Mitigation: Invest ONLY in areas where Fund Managers have some domain knowledge.

Jugaad: If you are excited to support an idea where the investment team does not have relevant expertise, the fund management should think about appointing an advisor who knows that domain and is willing to work closely with one of the investment team members.

2. Risk of working remotely

This is something I have learnt from my own and my partner’s experience. I am a firm believer in technology and remote working when it comes to Shared Service Environments in large multinational companies where job descriptions are clearly laid out and roles are well defined.

However, it just doesn’t work in a startup environment with the founding team sitting in a different time zone. Having a development center alone in a different time zone can create headaches and delays.

Mitigation: Invest LOCAL.

Jugaad: Appoint local advisors as representatives and enhance corporate governance measures by inviting -local independent directors to the board.

3. Risk of founder’s fatigue

Starting up is hard enough. Doing it alone makes it even harder. What would you do if the key founder throws in the towel? It is indeed very difficult for a startup to find a CEO material to pick up and run the company.

Mitigation: Invest in TEAMs not Individuals. Also, test individuals in the team by offering them less salaries than their expectations. This would be a small test for them to prove that salary is not their motivation and they understand the big common goal.

Jugaad: If the founder has a prior track record, that can be viewed favorably.

4. Risk of running out of cash

Most startups before getting proper funding are in bootstrapping mode. Spending is conservative and revenue prediction is optimistic. Who hasn’t seen those hockey sticks and the great magic of excel?

But as soon as they get investor funding, startups tend to shift modes. They think more like a real company with real overheads.There is nothing wrong with that except the fact that monthly burns suddenly shoot up to such an extent that there is not enough time left to pivot. If the idea spreads virally, it works. Otherwise, founders are happy to treat this as a learning opportunity on the scholarship provided by VCs.

Mitigation: Assess how much cash is required as per the most reasonable forecast. Multiply outflows by 1.5 and inflows by 0.5. Scott Anthony says: “It always takes longer and it always costs more.” Fund the company with at least 20% more than the number you arrive at. An early stage company needs at least 18 months runway.

Jugaad: Syndicate with someone who can do follow on investments. You are going to need that money whether the company does well or not.

5. Risk of post marital blues

It is very common to have disagreements whether it is among co-founders or between founders and investors. Being humans, conflicts are inevitable. Most of the time people manage to settle these issues with a little give and take. But there are instances where there are gridlocks and relationships become so sour that the parties can’t even stand each other.

Mitigation: Investment lead should be identified and allocated to the investment opportunity even before the first pitch. This person, through the course of due diligence, must pose some difficult questions in front of the team and observe the team’s reaction. If the team shows any signs of arrogance or denial, this must be looked into greater detail.

Jugaad: None. Stay away if you see such early signs.

I sincerely believe that there really is a science to nurturing successful startups, and that it has to do with methodically knocking down risks to get to the rewards.

Photo: Images_of_Money

About the author

Piyush Chaplot works with Innosight Ventures as VP-Finance & Investments. His current role is to source, evaluate, structure, monitor, and manage early stage investments in Singapore. He serves on the Board of www.chope.com.sg and also acts as part time CFO for some of the other investee companies. Additionally, he manages the finance and compliance functions within the Innosight Ventures group. He has more than 10 years of experience in financial and risk management roles in India, Indonesia, Australia, UAE and Singapore. Piyush is a member of the Institute of Chartered Accountants of India, CPA Australia and CPA Singapore. He holds a Masters of Commerce degree from M.D.S. University in Ajmer, India. He is also a Certified Internal Auditor (CIA).

Malaysia's digital economy is similar to Singapore and Brunei.

Recently, I was invited to speak on entrepreneurship and consumer Internet trends in a private event hosted by Penn Olson during Startups in Asia, which happened from 2nd to 4th February.

In this article, I will highlight additional perspectives to shed greater light on the ideas presented during my talk, which gave the audience a better grasp on the consumer internet space in Southeast Asia.

Two clusters of economies in Southeast Asia, based on mobile and Internet penetration rates

Glancing at the mobile and internet penetration rates in ASEAN countries, we see two prevailing trends (see slide 4 of the presentation provided below).

But before that, it’s important to note that the internet penetration rate is constructed based on the number of broadband internet subscribers divided by the total population, while the mobile penetration rate is calculated using the number of mobile subscribers (mobile phones are not distinguished as either featured/WAP phones or smartphones). As a result, mobile penetration rates are usually more than 100 percent, which just means that most users own more than one phone.

Taking into consideration the ratio of mobile and internet penetration rates, we see two clusters forming: The digital economies of Singapore, Brunei and Malaysia share very similar behaviour where smartphone ownership is becoming significant in the cities, while the Philippines, Indonesia, Thailand and Vietnam represent emerging digital economies where smartphone penetration are relatively low but the consumers uses social media with low mobile rates without knowing that they are accessing the Internet.

Looking at Cambodia, which may represent a potential digital economy of 53 million people, one can conjecture that it is heading in a similar direction as Vietnam or Thailand. As for Myanmar, the infrastructure must be built first before a digital economy can arise.

Missing elements in the Southeast Asia Ecosystem

I have indicated in my talk that there are at least three missing elements (and they may be more). Let’s start from the first issue: the lack of series A funding in the region of US$0.5M to US$2M. The reason why most investors avoid this funding range is because it’s a risky stage where a company can grow into a proper and sustainable entity or go south if they cannot find sustainable revenue streams.

As a result, most companies which can potentially grow will not be considered by investors. However, seed funding is readily available because the quantum of investment is low. To get a better chance of obtaining funding in this range I talked about, the company has to leapfrog and generate significant revenues quickly, otherwise it is very tough to move forward.

The second issue is the dearth of talent to scale the company. If we match founders from Southeast Asia to Silicon Valley, the difference is not that wide apart. The real difference is in the management team with people who are formerly from big companies that can help to scale the company. We read often from tech blogs about the movement of people from one big tech company to another, but this phenomenon is very rare in Southeast Asia. The reason is that most start-ups cannot afford the lifestyle of these executives and the opportunity of exits are very minimal.

The last issue relates to most VCs in Southeast Asia: A lot of them are former financiers and not really business operators by experience. We cannot fault them for their backgrounds, but it does have an impact on how they assess companies.

To be blunt, a former banker constructs a company’s valuation by profit and loss. If Facebook was started in Southeast Asia, they can never survive. The reason is that they did not generate any revenue or profit until their pre-IPO investment round. Of course, Facebook was a bit bet and the odds of finding companies like it are really small.

But I am seeing good signs in Singapore where we have people like Meng Weng Wong (co-founder of JFDI Asia) and Batara Eto from East Ventures who are former entrepreneurs running venture incubators and are investors as well.

Photo: WhizKris

If you can't smile after signing a deal, chances are that you've been screwed over. Photo: Candie_N

Here’s a situation which some entrepreneurs would go through. They decide to take in an investor or join an incubator program. In front of them, an investor asks for “x” % of equity. The entrepreneurs then speak to different people in the community to get some advice. The opinions will be diverse. They turn to US tech blogs, which give them a totally different picture. All this adds up to a lot of frustration.

Any entrepreneur has to deal with this potential scenario and negotiate in good faith with investors. To help you, here’s a checklist of things to do before getting an investment deal.

Sit down with your co-founders to decide the value of your company.

A lot of entrepreneurs are stuck with this problem. They evade the question subconsciously because it’s one of the hardest questions for any entrepreneur to answer. How do you assign a valuation to your company? Nobody, including you and your co-founders, can decide that value so you need to have an honest and no-feelings-hurt type of discussion with your co-founders.

If you don’t have that value in your mind, don’t sign anything because chances are, no matter what you are going to do, you will regret it.

Here’s how you can do some math for you and your team: First, read and understand how dilution affects you and your startup. Then work out all the scenarios that are associated with rounds of funding that your company will need in order to be sustainable. It is an indicator to have an estimate on how much your ownership of the company (together with your co-founders) will be diluted at the end point before exit.

Yes, a lot of you want to build empires but reality is a bitch. What it comes down to is that you need to assign a value. This article teaches you how investors thinks of their shareholding differently from you and the market capitalization will help you work out the value of your company. Note that you have to do this calculation if you want money from others. Don’t expect others to calculate your valuation for you. If you can’t even do this, you should not be asking for money.

Work out a percentage equity for the investor where you will a) close the deal, b) accept the deal without feeling that you are suckered or c) walk away from the deal

Never walk into a negotiation with one value for your company and only one set amount of equity you’re willing to give away. Let’s do some math here: Say, you get $50K from an investor for 10% of your company. According to your investor, the value of your company is $500K.

For you and your co-founders, you want to give only 5%, i.e you think the company is worth $1M. Now, it is likely that both the investors and you are going to meet halfway (and halfway is not 7.5%). The halfway point is when both your co-founders, your investors, and you are happy.

A potential major roadblock would be that one of the stakeholders in the negotiations feel that they have been short-changed and it is inevitable that there will be tension and conflict in a few months when things go south. To minimize that, make a spreadsheet with a range of equity you are willing to concede to the investor to one decimal point, starting from 5 to 10% (on the x-axis) and associate the valuation of the company. Then carve out & highlight three regions: (a) the region you close the deal and you are happy, (b) the midway point where your team and you don’t feel suckered, and (c) the region that you will walk away.

Decide on the ROI you are setting for your investor

If your investors ask for more equity, the checklist that you want to have is what they can do for you. What are acceptable ROIs? First rule of thumb: do not give anything away if there is no money transaction i.e. if your investor values silly things like introducing you to big corporations as equity exchange, tell him or her to fly kite.

There must be money transaction and the next steps in how he or she will help you. A key difference between Singapore and US is the following: some investors in the US provide real value like setting up your next round of funding, helping you to scale the company with proper hires and closing deals with other companies. In Singapore, as very few investors are entrepreneurs in their past lives, you might be dealing with many investors who are previously bankers, i.e. they are totally clueless and bring no value.

Here’s a takeaway that summarizes what this article is all about: Negotiate in good faith, know your value and close a deal with investors that makes your whole team of founders happy. People will always come and offer you something. If what they offer doesn’t mean anything to you, just walk away.

In a future article, I will address what early-stage investors should look out for in deciding whether to fund a startup.

Professor Dr. Wong Poh Kam here provides an overview of role of Venture Capital and Angel Investors in teh-startups scene in Singapore. It has been republished here with permission. A more detailed version of this will be published in the Annual SVCA Directory 2011/12

High-technology entrepreneurship has been identified as an important driver of Singapore’s knowledge-based economy, and increased policy attention has been given to encouraging the formation and nurturing of high-tech start-ups, especially those with significant intellectual property (IP). To this end, in 2010 the National Research Foundation (NRF) engaged me, as director of the NUS Entrepreneurship Centre, to conduct a study of high-tech start-ups in Singapore. While the survey covers many aspects of the high tech start-up dynamics, including characteristics of the founders, their sources of technology and funding, growth strategies, performance and challenges, this blog highlights some salient findings on only one aspect of the survey: the performance of start-ups that have received funding from venture capitalists or angel investors versus those that did not.

The survey focused on young ventures that started-up or began operations no earlier than 2004 (i.e. companies that were at most five years old in 2009), and that fall within sectors classified as high-technology using a definition adopted by the United States Bureau of Labour Statistics (BLS), which includes all sectors with proportion of employment in R&D exceeding the average for all sectors. Based on this definition, nine manufacturing sectors and three service sectors categorized at the 2-digit Singapore Standard Industry Classification (SSIC) level are included as high-tech sectors in Singapore.

Based on over 300 responding firms covered by the survey, we estimated that less than 10% of high-tech start-ups in Singapore have received investment from VCs or business angel investors (VCA). The majority of high tech start-ups that did not receive VCA funding reported that they faced two hurdles when attempting to raise funding from VCA. Firstly, they reported that VCA investors tend to impose harsh terms or offer valuations that are too low. Secondly, they reported difficulties in attracting the interest of such investors.

While firms receiving VC/Angel (VCA) investment represent only a small share of tech start-ups in Singapore, the survey results show that VCA-funded firms outperform other start-ups on a number of key indicators.

a) High-tech start-ups that have received VCA investment tend to be more innovative and IP-intensive

Start-ups that have received VCA investment are more likely to conduct in-house R&D (83.3% vs 51.7% for other firms). Correspondingly, they have a higher propensity to develop their own core technologies (88.9% vs 70.5%). They are also more likely to have introduced significant product or process innovations over the preceding three years[1] (76.5% vs 62.5%) and have a greater tendency to possess Intellectual Property (IP) assets (52.9% own/have applied for IP assets vs 11.5% for other firms).

b) High-tech start-ups that have received VCA investment have higher employment growth…

Start-ups that have received VCA investment experienced much higher employment growth rates since their first year of founding (329.8% p.a.) as compared to other start-ups (175.0% p.a.).

c) High-tech start-ups that have received VCA investment had greater growth ambitions

High-tech start-ups receiving VCA investment have a higher propensity to expand their operations to overseas locations (52.9% have overseas-based operations, as compared to 27% of other firms). They also have more ambitious growth targets for the future. Almost three-quarters of VCA-funded firms project growth rates in excess of 20% per annum over the next three years (versus 61.3% of other start-ups).

In summary, our survey of young high tech firms in Singapore show that while less than one in ten of them received VCA investment, those that did get funded by VCA showed higher average employment growth, greater growth ambitions, and tend to be more innovative and IP-intensive. This difference is likely to be due to a combination of the selectivity of VCA investors who chose to invest in more scalable ventures, as well as possibly the value add provided by the VCA investors to the start-ups, enabling them to invest more in technological innovation and to accelerate their path to growth.

About the Author
Dr. Wong Poh Kam [LinkedIn] is a professor, angel investor and consultant. He holds positions at the NUS Business School, (by courtesy) at the NUS Engineering School and LKY School of Public Policy. He is also the Director of the NUS Entrepreneurship Centre. As an angel investor, Dr. Wong has invested in many high-tech firms and sits on the boards of many. His portfolio companies include Invantest, iWow and GlobalRoam. He has consulted widely for international agencies such as the World Bank and ADB, various government agencies in Singapore such as EDB, IDA and A*STAR, as well as many high tech firms in Asia.

Dr. Wong Poh Kam blogs at Connect The Dots@Singapore.

Image credit: visualpanic

The proportion of tech enterprises below five years old has gone up as a result.

Also, the survey found that 61% of all new enterprises in Singapore survived beyond three years, comparable to the US (59%) and several European countries (60%).

These results were revealed by Singapore’s Deputy Prime Minister Teo Chee Hean in a speech  on 13th October, at the annual Techventure conference held at the Marina Bay Sands.  The event gathers entrepreneurs and investors from all over the world to discuss the latest trends in technology.

The Deputy PM also mentioned that startups in Singapore face the problem of being unable to secure funding for expansion. In my opinion, this could indicate that the growth of the venture capital and angel investing industry has not kept pace with the sheer increase in volume of new tech enterprises.

At a separate press conference later in the day, NRF CEO Francis Yeoh highlighted the lack of funding as the major reason why the government has stepped in with funding schemes of its own.

The NRF Technology Incubation Scheme (TIS) for instance, works with selected startup incubators in Singapore to provide funding to promising enterprises. Incubators have autonomy to decide who gets funding, with the government co-investing up to 85% of the total amount.

Mr Yeoh said that the scheme for incorporating the best of both worlds — the government contributes the money, while private sector investors decide who’s the hottest ticket in town.

The government would consider lessening their involvement in the startup ecosystem here when more private investors step in. He maintains, however, the government will always have a part to play.

“Our role should be to facilitate. We should not be performing the role of the venture capitalist,” he says.

Besides funding issues, another problem that startups are facing at the moment is securing top talent. Some entrepreneurs have complained that the arrival of global companies like Google and Facebook to Singapore means that small enterprises struggle to find top engineers.

While attracting foreign workers to the country is a solution to the talent crunch, the general population in Singapore have grown increasingly resistant to the idea, accusing them of stealing jobs and places at universities. The government, in turn, has responded by raising foreign worker levies, although critics see this as a blunt instrument that hurts enterprises unfairly.

It’s unclear at this moment how the government will balance political interests with business needs, although they are moving full-steam ahead when it comes to providing more capital.

The Deputy PM said in his speech that the government is in the midst of fine-tuning the details for a Co-Investment Programme, with S$500 million  (US$390 million) in funding contributed equally by the private and public sector.

The fund will be managed by Heliconia Capital Management, a fully-owned subsidiary of Temasek Holdings, the government’s investment firm.

The aim of this fund is to catalyze the expansion of local SMEs as they enter foreign markets.

“I hope that Singapore-based enterprises will take advantage of this new initiative to push ahead with their next stage of growth,” he says.

As a former venture capitalist I’ve been privileged to interact with numerous entrepreneurs in South Asia and play a small role in some start-up ventures. A few of these succeeded and went on to become large companies while many others failed.

Some ended up as lifestyle businesses – the living dead in VC parlance – and continue to chug along never quite realizing their original promise.

Most of these start-ups had credible solutions targeting large, fast-growing markets, had raised one or more rounds of venture funding and in every case was led by a passionate and committed founding team.

Why then did so many of these businesses fail? Indeed, why do most start-ups fail?

In Silicon Valley – the poster child for entrepreneurship – the majority of Valley start-ups tended to be IP heavy, product companies. Most failed since new product development took up too much time and money and often the products didn’t work. In some cases, the market either wasn’t ready or turned too quickly, and poor execution killed the rest.

The Asian picture is different. Most start-ups here are relatively low-tech with little IP. Many target high-growth consumer markets with either a novel business model or follow a copycat approach, localizing Western success stories (think daily deals websites like Beeconomic or Deal.com.sg).

Still others tend to be service businesses. Capital requirements are relatively low. With non-existent product risk and only limited concept risk, execution turns out to be of overarching importance.

What is execution anyway? It’s the day-to-day stuff that keeps the company moving onward and forward towards the Founder’s vision. It’s where the rubber meets the road, where strategy meets tactics and where pies in the sky confront realities on the ground. Ultimately, it means having the right people at the right place at the right time doing the right things.

I believe 60-70% of the outcome of any business venture is attributable to people, 20-30% to external factors such as market environment and the rest to dumb luck. Time and again I’ve observed that the degree to which a founder is self-aware and willing to stretch himself/herself and evolve can make all the difference between success and failure.

This is especially true in Asia, where most business founders are first-time entrepreneurs and not battle-hardened by past experiences. The smaller pool of entrepreneurial CEO talent also means that founders continue to run operations long after the start-up phase.

Here’s a very incomplete list of dos and don’ts for first time entrepreneurs to minimize their chances of failure:

Do delegate and know when to let go.

In the early days you’re forced to wear different hats and be all things to all people. As the business grows, hire competent professionals and step back from day-to-day operations. For instance, as a technical founder, sales may not come naturally to you, yet you have to don a sales hat, meet customers and close the first few deals.

But as soon as the time is right, hire hungry and competent salespeople, incentivize them and let them loose. I’ve seen many founders continuing to micro-manage sales and other key functions long after the business has hit a certain level of maturity. Entrepreneurs love to talk about how scalable their business model is but don’t often realize that a controlling behaviour limits internal scalability.

Actively delegating and creating an inclusive decision-making process is one of the most empowering and liberating things you can do as a leader.

Don’t course correct every few months.

Make a plan and stay with it. Yes it’s hard. After all, nimbleness and agility are your assets, but you also need to give your team the time and space to execute. Some young start-ups get into a “throw it all at the wall and see what sticks” mentality which seldom works.

Agree on a direction, set clear milestones and be patient. If things aren’t going right, then understand why, and chart a new plan after getting your team’s buy-in and communicate this to all concerned. Nothing demotivates an organization more than constantly shifting strategy and direction.

Don’t expect everyone in your company to share your passion.

People are motivated by different things. Outside of your core team it’s unreasonable to expect everyone to have the same degree of excitement and passion regarding your vision. Everyone is different and people change.

As a leader it’s your job to understand what makes each of your team members tick and find a way to link your vision to what’s important to them. This is especially true as your business grows and your 51st hire may be more interested in a good income and stable job and care less about changing the world.

Do create your own leadership style.

Photo: Tony Hue

Many young entrepreneurs are rightly inspired by famous technology leaders like Steve Jobs, Bill Gates and Larry Page. However, some take the role-modelling too far and try to mimic someone else’s leadership style and attempt to create a culture that resembles a far-away Silicon Valley company.

Nothing wrong with a little inspiration but the only management style that’s going to work for you is your own. Understand your strengths and weaknesses and grow into your role as a leader. Create your own distinct style of leadership and shape the culture of your company the way you want to – and in a way that’s appropriate for the realities of your operating environment.

What works in Silicon Valley rarely works in Singapore, Bangalore or Shanghai. Every company succeeds for a different, and sometimes hard to quantify, reason. There’s more to learn from other people’s failures than trying to ape someone else’s success.

Do self-reflect.

Your ability to change and stay one step ahead of your business is the single most important factor for success. Being an entrepreneur is a lonely job, venture-funded company or not, and the pressures of the business and meeting the expectations of various stakeholders leave little time for reflection or personal development and can lead to a situation where the business has grown but you are playing catch-up.

What worked from a start-up phase to a million-dollar revenue base may not help you get to a $20m top-line. Understand your strengths, weaknesses and appreciate that you – just like everyone else – have blind spots. True leadership has less to do with managing or motivating other people and more to do with managing yourself.

About the author

RJ Sridhar is the founder of Radical Shift, a Business Coaching practice based in Singapore, and works with entrepreneurs and small business owners across S.E. Asia and India. Prior to coaching, RJ was a venture capitalist with JAFCO Asia where he invested in several early-stage and high-growth businesses across the region and actively worked with management teams to scale their operations. Previously RJ developed technology products and held operational roles with industry-leading companies in Silicon Valley.  He also spent a couple of years on Wall Street as an equity analyst covering the technology sector. RJ has a Master’s degree in Electrical Engineering from The Ohio State University and an MBA from Duke University. His other interests include meditation, writing, running and travelling. RJ is a member of the Singapore Institute of Directors, a Business Mentor at Singapore Management University, a Mentor with Mentor Square and is also a member of the International Coach Federation.

Top photo: Terence Lee

About Jeff Paine: Jeffrey Paine loves ideas and entrepreneurship. Assists founders in honing their business strategies, by partnering with larger industry players, customers and gaining exposure to prospective early stage investors and acquirers. He spent the first eight years of his career in early stage venture and private equity in the US, North and South Asia. He then co-founded a China market entry advisory firm which was then merged with a China mid market private equity firm and subsequently co-founded Generation Origin, a venture advisory firm based in Palo Alto (advised by Pitch Johnson of Asset Management Company). He left Generation Origin in 2009 to set up Battle Ventures- a venture advisory and investment company based in Singapore and the Bay Area, Lotus Entertainment (SE Asia)- a Pan Asia feature film production and distribution company, and is behind 2 stealth consumer Internet and mobile companies.

He currently sits on the board of Endeavor Capital Partners Pte Ltd, Rediffusion Pte Ltd, TheMobileGamer Pte Ltd, and the organizing committee of the Zayed International Humanitarian Award in Abu Dhabi.

Probably, as an investor and entrepreneur myself, I have never believed that you should pay consortiums or groups of angels and venture capitalists to pitch. It is totally contrary to the spirit on how the entrepreneurial ecosystem should work. Sometime back, Jason Calacanis, CEO of Mahalo and also host to “This Week in Startups” took on angel groups in US, for example, Keiretsu Forum, Angels Den and Tech Super Club. According to Jason Calacanis, get entrepreneurs to pay for pitching is ridiculous. As a result of taking on these groups, Jason Calacanis led the beginning of an Open Angel Forum to provide a new model for entrepreneurs to pitch for free against these groups.

It is not in my place to offer any opinions about Angels Den, but I will state my opinion why entrepreneurs should not pay investors to pitch.

• Renowned Business Angels and Venture Capitalists who created big companies don’t do that: Ask the famous business angels like Joi Ito or famous venture capitalists from Sequoia Capital, Kleiner Perkins, Benchmark Capital and etc, you do not hear that they require the entrepreneurs to pitch. Instead, they are ready to buy the entrepreneur a meal or drink and spend the time to listen to the ideas of the entrepreneurs. These are the same angels and venture capitalists who produce Google, Facebook and Twitter. None of the top notched companies pay angels to pitch their ideas. Consider another argument, entrepreneurs are trying to set up companies with limited resources and financing, and yet these groups make them pay to find investment. In fact, a lot of entrepreneurs and developers enjoyed the free Neoteny Conference organized by Joi Ito last year. The people who attended (including myself) even learned more abut term sheets and valuation. Try to make a guess how much it cost to get Joi Ito to talk about start-ups and new venture financing: Absolutely Free! and I did not add the free lunches and coffee breaks too.
• Even agencies Singapore Government make it free for entrepreneurs: If you have recently watched the iMatch conference, where MDA organized entrepreneurs in Singapore to pitch in front of an international consortium, you do not hear the Singapore government will tell you to pay for pitching. In fact, they enlisted the services of the incubators in iJAM and several business angels to help the companies to prepare their presentation for the investors. It’s probably one of the things I praised the government agencies like SPRING and MDA are doing with the iJAM and TECS schemes.
• If you fail many times to get an investor, you will end up losing more money doing this: Here is a way to think about this. If you pitch your idea and the investor did not respond to you, it just means that he or she has no interest to invest in your company. Your job is to iterate from the reason to why the investor did not think that it’s a good proposition to invest in your idea. If you are serious about your start-up, you will put your own money to make it work than to spend the money to pay some middle men to get you investors who may or may not put money into your company.

I will leave the entrepreneurs to decide whether to engage with these groups. Ultimately, in the ecosystem, there must also be a natural selection to decide the weak and the strong. Perhaps, having these groups help to make that distinction.

References for this podcast:

• Copying Y Combinator – WHY and HOW by Jed Christansen
• Paul Graham, founder of Y-Combinator.

You can check out the podcast in the TWIA page.

This Executive Summary workshop aims to not merely guide participants in the technical requirements of preparing an executive summary; far more importantly, it gives you a better understanding of what entrepreneurship is about, and how you can build an enterprise that is sustainable is every sense of the word. The workshop will also highlight important points that investors and “judges” look for in an executive summary. In short, it will help you to propel you idea further with a clear purpose!

The Executive Summary workshops will be facilitated by Dr Bernard Leong, who is co-founder of SGEntrepreneurs.com [yes, that's us]. He is an investor for early stage Interactive Digital Media companies as a partner of Thymos Capital. He has been a judge on business plan competitions at NUS, NTU, INSEAD and was formerly an advisor to Start-Up@Singapore business plan competition.

Date: Saturday, 24th Oct 2009
Time: 1-7.30pm
Venue: 100 Victoria Street, Level 5, Imagination Room, National Library Singapore

RSVP here.

Expected number of participants is 60 and attendance is only by RSVP.

For more information on the Ideas.Inc competition organized by Nanyang Technopreneurship Centre, NTU and SPRING, please go to the main site.