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Douglas_Abrams

Douglas_Abrams

Douglas Abrams is the CEO of Singapore-based venture creation company Expara. They’re involved in teaching and developing entrepreneurship and venture financing with training programs in Southeast Asia. Expara IDM Ventures became one of the first private incubators in Southeast Asia, and now has partners in Singapore, Malaysia, Thailand, Indonesia, Czech Republic and Norway. In this podcast interview, Mr. Abrams talks about early-stage venture funding in Southeast Asia and why he sees this as the most exciting time to be a venture capitalist in the region.



Today I’m joined by Douglas Abrams, who runs Expara. Douglas, thanks for joining us today.

You’re welcome.

And can you tell us a little bit about yourself, how you ended up here in Southeast Asia investing in small companies?

I’m originally from the US. I worked at JP Morgan on Wall Street for fourteen years before coming to Singapore. I left there in 2000 to come to Singapore to set up my first company, Parallax Capital Management, an alternative investment manager, where I was co-managing the venture capital practice. So I started doing early-stage venture capital in Singapore in 2000, and have been doing that ever since.

So, since the early days after the Asian Financial Crisis you’ve been on the ground.

Yeah, on the ground in Southeast Asia doing early-stage venture almost from before the beginning, because it was the very early days. In 2003, I set up Expara, originally to do entrepreneurship training and advisory work for startup companies and government agencies in the enterprise and innovation sector. In 2002, I also joined BANSEA, Business Angel Network Southeast Asia, as a director and now Chairman.

I launched Expara’s first incubator fund in 2007. This was part of the original i.Jam micro-funding program here in Singapore. And we started doing early-stage investment at that point. For 2003-2007, I did my own angel investment one at a time into companies. From 2007-2011, Expara invested in sixteen very early-stage interactive and digital media companies—very small investment, pre-seed sized, 50,000 Singapore Dollars per company.

In 2008, I also launched Extreme Ventures with three partners. It’s an early-stage venture fund. There, we invested 1-3 million. In 2012, I launched a second Expara incubator fund, Expara IDM Ventures II—also part of the i.Jam Reload program. We do up to 255,000 per company. We’ve done seven companies so far, and plan to do another 10-15 by 2015.

So can you tell us about one of those investments in the companies, maybe one that has an interesting story that goes along with it?

Sure. I’ll talk about from our first portfolio, the Expara IDM Ventures portfolio, we had three companies that have gone on to raise series A or B funding out of that portfolio. The companies are: a company called Wildfire Asia that started out doing word-of-mouth marketing but pivoted a few years later to do social media marketing monitoring in China. The second company is called 2C2P. 2C2P does end-to-end payment solutions for e-commerce and m-commerce payment including banks, large merchants, small merchants, and consumers. And the third company is called First Meta, a virtual currency exchange.

I think the 2C2P story is very interesting, the founder is Burmese, but I met him in Bangkok, Thailand—I’m also, in addition to my work at Expara, teaching. I teach entrepreneurship at the National University of Singapore for thirteen years, and I teach venture capital as Sasin, which is the business school at Chulalongkorn University in Bangkok since 2007. The 2C2P founder, Mr. Aung, was one of my EMBA students in my first class in 2007. He had started, launched, grown, and successfully exited his first company by the time I met him. The company was called PaysBuy, it’s a PayPal equivalent in Thailand. He sold it to DTAC, one of the largest telecos in Thailand and subsequently wanted to do something bigger, so we decided to together launch 2C2P in Singapore. This was 2008, and it was just him at that point in Singapore. He was one of the earliest companies in the i.Jam incubator program. And he has now raised subsequently two rounds of venture funding including a series B that we closed in October last year. That company has grown from just one person in Singapore and fifteen people in Bangkok to over 70 people. We’re now in eight countries in Southeast Asia, and on the way to becoming the leading regional e-commerce/m-commerce payment company in Southeast Asia.

2C2P is a very interesting story. It could be the PayPal killer in Southeast Asia.

A lot of people are comparing 2C2P to PayPal, but 2C2P product offerings include a payment gateway just like PayPal, but also a whole range of other payment products. So I think we don’t exactly compete directly with PayPal, where the PayPal product is just one small part of the 2C2P business. So I think when you look across Southeast Asia, the payment processing market is highly fragmented. In each country there are a few small players—maybe even medium sized players—that dominate the local market, but there’s nobody that dominates regionally, and we intend that company to be 2C2P.

So given that there’s a fragmented nature to Southeast Asian startups, how do you see that impacting startup companies in the region? How does that impact you as an investor?

It’s good because one of the characteristics that we look at when deciding if it’s favorable or not for a new company is: Is the market fragmented? We  love to see fragmented markets because that means the competitors are relatively smaller than if it were a consolidated market. So I think that’s one of the things that makes Southeast Asia attractive, especially for startup companies is that if they can get into the right space, like payment, where there are no dominant players, it gives them a chance to become the dominant player. We’re always looking for investing in companies that are small now, but can become dominant players in their space. So I think there’s a lot of opportunity in Southeast Asia for that. For example, in the US, there are a couple pretty big companies that would be potential 2C2P competitors, but in Southeast Asia they don’t exist now.

And I think—depending on the product category—Southeast Asia may or may not be a meaningful region because it’s mainly comprised of different countries with different consumer bases, languages, cultures, and buying activity. But in something like payment there’s enough consistency across the region that we have a real shot to go from a small Singapore-based startup to a regional player within 5-10 years.

Have you seen companies that face an uphill battle or a disadvantage given the fragmented nature of Southeast Asia? A lot of companies have trouble getting out of one country and going into another market.

I don’t see that very often because—being based in Singapore—companies have to very quickly get out of the local market or die because the local market is so small. It may well be the case in other countries in Southeast Asia that startups can focus on the local market longer, and can get very comfortable in the local market, and then face a real challenge scaling regionally. But I think for Singapore-based startups, the companies that can’t scale relatively quickly out of the local market are just going to die pretty fast, so they don’t struggle that long. Either they’re able to grow relatively quickly, or just die. Now there can be some exceptions. There are local players that have done very well with a profitable niche market in Singapore, but for our investment, we’re looking for companies that can scale regionally or globally very fast.

Can you talk to us a little bit more about your investment strategy at Expara? What type of companies are you looking for? What markets are you in?

For the current Expara IDM Ventures II, which is our current i.Jam incubator reload fund, we look at interactive and digital media as an industry. We look at early-stage …very early-stage because we invest only up to 255,000. We look for companies that have innovative products solving a painful customer problem, addressing a fast-growing market, and with a core of a strong management team, some ability to create barriers to entry, a sound financial business model, and the ability to grow relatively fast.

Do you have a preference towards B2C or B2B type of businesses?

No we don’t have a preference for one of those or the other. We’re investing in companies that do both.

Can you tell us a little bit more about the i.Jam scheme for people who don’t know how that works?

i.Jam Reload is a funding program that’s part of the National Research Foundation. The National Research Foundation is a Prime Minister level office that was created in 2006 and I think launched in 2007 with a whole range of funding programs to support research and development in three key industry sectors. One of which is digital and interactive media. The other two being clean-energy and bio-medical. So iJam is part of the interactive and digital media pillar in the National Research Foundation, and it’s administered by MDA, which is the Media Development Association of Singapore, who’s the media regulator and also the agency responsible for the growth of the media industry.

So in the i.Jam program in the IDM office—that’s the agency hosted by MDA—appointed ten mentors or incubators that can administer grants and co-invest into digital and interactive media companies. So the economics are very similar across incubators, they may vary a little bit. The funds are dispersed in two tiers. So the first tier is 50,000. The second tier is up to 200,000. In our case, because we’re a private incubator, we also make co-investments at each tier. So the requirements for the program are: the company has to be active in digital media, they have to have a local company, they have to have one full-time local founder, and a full-time CTO. And they have to have an innovative product with the ability to scale.

Going back to the Southeast Asia region, can you tell us a little bit about some trends you’re seeing in the region?

Interesting trends in the region—we’re very bullish on Thailand and Malaysia as growth markets for startups. We have set up Expara Thailand in 2011 and Expara Malaysia in 2013. And we think the startup ecosystems are starting to develop there rapidly, so we now see an increasing number of interesting companies coming out of especially Thailand and a lot of interesting research coming out of Malaysia. We see the other parts of the ecosystem as well as entrepreneurs, but incubators, co-working spaces, venture capital funds spring up in these surrounding countries, so we think there’s going to be a lot of interesting opportunities there. Also Myanmar, and of course, Philippines and Indonesia are starting to go up the growth curve. So I think, to pull that together, Singapore has been leading the enterprise ecosystem over the last 7-10 years, and has now reached a certain stage of maturity, but I now think the surrounding countries are starting to catch up.

So we see a lot of interesting companies coming into the pipeline, and investment has gone way up. In 2013, we’ve estimated at Expara that there were 90 million Singapore dollars invested in investments sized 600,000 Singapore dollars or less. So that was estimated to be invested in about 250+ companies. And if you look at the US market for the same period, the numbers are higher at an absolute level, but it’s about 1000 or 1100 companies, and the amount may be also two or three times. So if we think about Singapore at 25 percent of the amount of investment at that stage of company to the US, it’s pretty impressive.

Another interesting trend is exits. I saw—keeping some informal track of exit activity for venture funding companies in Southeast Asia, it’s not complete because it’s just data that I get from public sources and my own information—but in 2013, I saw exits with a published value of 400 million Singapore dollars.

2013 alone?

In 2013 alone, in Southeast Asia 400 million in exits with a published value, which is going to be lower than total exit activity.  And if you include large rounds that were effectively partial exits, the number goes up to 600 million. If you look at all the years before that, the average was around 50 million, so there was a huge surge. And I don’t think it’s just a freak data point from 2013, I think what we’re seeing is the beginning of the growth of exit markets which are reaping the startups that have been sown in the last 5-10 years.

So the pipeline is getting bigger, higher quality. A lot of money is going into early stage investment, and on the other end exit markets are starting to balloon. So this is good news for entrepreneurs, venture capital investors, and others involved in the space in Southeast Asia.

Where are you seeing these exit markets come out from?

Most of these exits were in Singapore. So I think markets develop first in Singapore, but we’ll see those also expanding regionally over the next few years.

Where do you see the exit market going?

The form of exits that I’ve seen so far and that I think are the most likely to grow over the next few years are trade sales. These are almost all trade sale exits. So I think that’s a very hopeful sign.

Well, it must be happy times to be a venture capitalist when you see these signs moving in a positive direction.

That’s one of the reasons I’m so excited about the direction of the industry. I’ve been here since 2000 doing this, and I have to say now is the absolute best time since I’ve got here for this industry.

Is there anything else you’d like to tell us before we head into the lightning round?

No, I think that’s good.

So as always, we do the lightning round at this point. Can you tell us what you’re reading? What’s on your bookshelf?

I’m reading two books right now because I read on my Kindle. Actually, I’m reading a book that I heard about and wanted to read for a long time, which I’m sure a lot of your listeners have read already. It’s called “The Lean Startup”. I sort of knew what it saw about, but I decided I should go and find out in detail what it’s about. I’m really enjoying it.

The other book that I’m reading is called “The Second Machine Age”, and this is a book about the growth of advanced robotics and also digital innovation. So they’re both focused on future trends and startups, and both highly recommended.

Very relevant for this podcast. We’ll link to that in the show notes. Do you have one piece of advice that you’d give to entrepreneurs.

My favorite piece of advice is: Take more risk. Whatever level of risk you’re taking now—increase it a little bit. My other favorite piece of advice is: Do something that you love to do. I know everybody says that, but I think it’s the most important thing. If you do something you love to do, take more risk…Oh, and my third piece of advice is: Do something this week that you’re afraid to do, and then see how much better you feel after. It’s similar to take more risk.

Now can you tell us for our last question, what sector do you have your eye on?

Industry sector…I look at interactive and digital media, but I’m excited about virtual economy, virtual currency, and digital currencies. This is a sector that I’ve been looking at for a long time. I mentioned that one of my successful first portfolio companies was called First Meta, and this company was one of the first in the virtual currency market to do a virtual currency exchange. We’ve been a sort of candle in the darkness on virtual currency for a long time, and the market has taken a while to catch up, but I believe that over the last year or 18 months, with the rise of Bitcoin and other crypto currencies, we’ve seen virtual currency moving into the mainstream, and I believe that this part of the economy and companies that are leveraging digital currency over the next few years are going to explode. So this is an area I’m watching closely and very interested in.

You were very, very early with that investment in First Meta.

Well, I always say in this business, you’re either too early or too late. It’s almost impossible to time the markets right, so since we’re an early-stage investor, we’re going to be too early most of the time. In this case, with First Meta, we were able to hang on until I think the market is starting to catch up now, so I see big opportunities there.

Well, thank you very much for your time today. I appreciate having you on.

It’s my pleasure. Thank you very much.

fenox-vc-logo

fenox-vc-logoInvestor Eddy Lee of the Silicon Valley based venture capital firm Fenox Venture Capital uses his experience to bring value to startup companies in Southeast Asia. As one of the few Silicon Valley VC firms to take a serious look at Southeast Asia, Fenox is in a unique position to take a leading role in a growing market. In this interview, Eddy Lee talks about the differences between the investment ecosystems in the US and Southeast Asia, and he gives advice on how to bridge the gap.

Part 1:

Part 2:

Hello podcast listeners. Today my guest is Eddy Lee. Eddy, thanks for joining us on the show today.

Hi Edmund, glad to be here.

Eddy LeeCan you introduce yourself, can you tell us a little bit more about yourself, how did you first start getting invested in private companies? Who are you? What’s your story?

Sure, I’m Eddy Lee, right now I’m a principal with a Silicon Valley investment firm called Fenox Venture Capital. It is based out of Silicon Valley and we’ve got a presence through joint venture offices in Singapore and also in Indonesia. And also a small office in Japan. So right now, I’m running the due diligence for this company. Looking into investment opportunities in IT companies, and also Medical Technology Companies, both in the US and also in Southeast Asia. And at the same time I’m a consulting assistant professor in Stanford University, where I’m helping the projects spin-off into viable businesses. So I’m doing this for the School of Medicine in Stanford.

So what type of companies would you be interested in at Fenox, and what round of investment typically are you deploying capital?

Fenox is an early round investor. So in the US, it is primarily investing into Series A. But they do consider seed investments, and also some B-round investments. But what they do is, after investments they will always do follow-on investments into all the rounds of the company after they get invested. No matter at what stage they get started. Whereas for Singapore, we have a focus on B-round companies or later. And this is very much because we see that in Southeast Asia it’s extremely difficult to raise a round size between two to five million dollars. This is a combination of various reasons. One, because there are Singapore incentives at the seed round funding. Secondly, because the late round investment structure is very mature with PE firms like Jafco,  Vertex, and IPL picking up the late rounds. But there’s a huge gap—the between two to five million dollar round—that we are trying to address right now.

Since you have experience in both Silicon Valley and in Asia, can you talk to us a little bit more for entrepreneurs, maybe in Asia and don’t know what it’s like in the US, or US entrepreneurs who don’t know what it’s like in Asia? Can you talk more about the funding landscape, particularly comparing Singapore to Silicon Valley?

I’ll speak about it from investor’s point of view, and then I’ll try to address what it’s like from a fund raiser’s point of view. For investors in the US, there are 400 venture capital firms in Silicon Valley. And this is a huge number. And in Silicon Valley there’s no shortage of deals. They have multiple deals available all the time. And the potential for exit is huge. So in Silicon Valley, there is great potential for ‘triple’ exits, which means hundreds of millions of dollars. Or even in a billion dollar range, and most recently we had seen exits such as WhatsApp to Facebook, right? 19 billion dollars. So in the US, there are lots of deals and also there’s lots of noise as well. So one has to have the connections and also the resources to be able to analyze a huge number of deals and to see what is a good deal from a bad one.

And in comparison, in Southeast Asia, the environment is quieter. Which means from investor’s point of view is easier to set up your antenna and make sure not to miss any good deal. This is simply because the number of deals are fewer and it’s easy to capture all of them.

And from the fund raisers point of view in the US, we’re in no shortage of investors. It’s very typical that for a new entrepreneur, you can go out there and say that you are about to raise money to start a new venture. And you have backers. And the best entrepreneur can go out there and select who they want to have in their round. And they often kick out even VC firms from the seed round. So it’s not uncommon that best entrepreneurs choose their investors. Whereas in Southeast Asia, the funding mechanism is not so mature. And entrepreneurs, some of them are at the stage of preparing their pitch in order to convey their ideas within 30 seconds, within 2 minutes to the investors. This is not an easy skill to learn—to be able to sell your ideas within a short time frame. And this is a time where I think a lot of entrepreneurs in Southeast Asia may want to get exposure to the fund raising process in Silicon Valley by spending some time over here. And then to bring the mindset and skill back to Southeast Asia for fund raising reasons.

That’s fantastic advice. Would you say that—having looked at deals in both places—there’s a difference in quality between the companies in either place? Or is it kind of difficult to compare?

It’s difficult to compare. But I will look at it from the point of view of an investor—that investors look for return on investment, right? How many x’s they return? So I’ll say that in the US the potential for return can be 100x,1000x. But there are also a lot of companies which cause the investors to lose money. Whereas if you look at Southeast Asia in comparison, there is more stability, because of the fewer number of deals. The stability to get you returns. Although at the higher limit, the number of the return is less than 100x. So, on average, if one were to invest in multiple deals in the US as compared to multiple deals in Southeast Asia—from my experience, you’ll get similar returns. But the other advantage is that, in Southeast Asia there’s less competition. There are less international investors going to Southeast Asia, and for example from my knowledge we are the only Silicon Valley investors in Southeast Asia right now. So it gives us huge advantage to be able to bring value to the startups in Southeast Asia. So the value we bring is that we can help them in early stage financing. But because we have a larger capital, we can do every round of funding with them. And also because we have done many M&As. We have helped our portfolios exit. And even before forming this venture capital firm the founders of Fenox have done more than 40 M&A exits. So we have an experience of helping portfolio companies, all the way from seed level to M&A exits.

You mentioned something interesting there, that you might be one of the only Silicon Valley based venture capital firms that has a unique focus on both the US and Southeast Asia. Why do you think that is?

We have seen over the last 10-15 years that we have seen Silicon Valley firms starting to look at Asia. And when they look at Asia, they could see that the elephant in the room is China. Right? Because China has, since years ago, become a trillion dollar industry. Right? But a lot of Silicon Valley firms have moved into China—some got burned for various reasons. Because China is a totally different business environment compared to the US. And they have also tried some of the ideas to see whether what has worked in the US—does it work in China. What has worked in China—does it work in India? Same thing, we have seen firms going to India and some of them are not getting very good results.

Whereas when they look at Southeast Asia, it’s very clear to them that we are seeing a pattern of how ideas that worked in a developed country will one day work in a developing country. But they are concerned as well, that Southeast Asia looks extremely heterogeneous. Look at Singapore, we’ve got GDP Capita of 62 thousand dollars and you’ve got Myanmar, which is less than 1/10th of that. So how do you address a product that tries to serve this entire heterogeneous market? They do not have an idea of how to do that. So they are very afraid of a heterogeneity and how will startups scale to address the six hundred million people. Whereas for my firm, we look at how even in China it is a heterogeneous market. What works on the coastal cities may not work in the inland, rural cities. So China itself is heterogeneous. If you look at Southeast Asia, it is heterogeneous but there’s some similarity in user behavior—where there are some trends that what has worked in Malaysia seems to work in Indonesia. And if you look at the economy, the size of the economy in Southeast Asia is 2.3 billion dollars GDP combined. This is equivalent to the GDP of the UK, which is sixth in the world. So this is a huge market for us to tackle. It’s one of the fastest growing markets in the world. And my firm is in there to capture this opportunity.

It is one of the fastest growing markets in the world. And I think that it’s also a market where we’re seeing a dramatic rise in the middle class, where more people are coming online for the first time. These trends are combining and creating an interesting melting pot in Southeast Asia. But you’re also correct that it’s very fragmented. What are some things that entrepreneurs can look at in terms of best practices, in terms of advice from you in moving from one country where they’ve proven the concept to another market where they’re now looking for growth?

We have seen a number of companies, for example in the B2C platform, and this is a good time to talk about e-commerce because that is one of the most popular industries right now in Southeast Asia. And this is following in the footsteps of Amazon and Ebay in the US and Alibaba in China, right? So we are seeing the likes of Zolara, rocket internet companies, and also some other companies that are serving the fashion market or the cosmetic markets…that is rising right now. So a lot of companies have chosen to start in Singapore and proof itself in Singapore. They want to prove their model sufficiently, gain enough traction before moving to another country. But, we do feel that very often what works in Singapore does not work outside of Singapore. This is because the people have different purchasing power in Singapore. So, customers’ behavior is completely different. So I suggest for e-commerce players is to get government support, get incentives to get your feet on the ground in Singapore. But move out of Singapore and start tapping into Malaysia’s customers, Indonesian’s customers as soon as you can. You do not have to wait for too much traction before you try out a new market. Because the experience can be extremely different. This is part of the Lean Startup mentality to try out MVP in Malaysia as soon as you can. Because MVP in Singapore simply does not work elsewhere.

Singapore is also a comparatively small market in size—less than six million people—compared to Indonesia which is one of the top ten largest countries in the world in terms of number of people.

Exactly. Singapore has five million people, forty percent of them are expatriates. As compared to…now the population of Indonesia is, I think close to 250 million. That’s a quarter of a billion people—the fourth most populous in the world. And that’s a huge market that a lot of people in the US are not aware of. And there’s huge potential there.

Well, it’s interesting that some Silicon Valley startups have gotten a lot of users in Indonesia. Path is one startup that comes to mind. And they sort f brushed off the fact that they got those users. It wasn’t interesting to them because they’re not North American users. So, it’s interesting that, to a large extent, Southeast Asia is still ignored by most of Silicon Valley investors and by most of Silicon Valley entrepreneurs. So you think that trend will continue, or do you feel there will someday be a more internationally-minded outlook from Silicon Valley entrepreneurs and investors?

I think for businesses, there’s a trend that the business decision usually lies in a hidden behavior where you want to take a risk only if your peers around you are taking the same risk at the same time. And this works the same for B-round, C-round companies. They’ll move to Indonesia only when they see their peers doing the same. They will start tapping to China when their peers around the same size do the same. The same goes for the venture capital industry. So Fenox may be one of the earliest to go in there. But if we do report success, for example, with one or two good exits, I believe more and more firms will be coming in. And we do see some signs of it because I do work with some of my close friends, they are in talks about setting up a presence in Southeast Asia. We know that 500 Startups is there, funding startups. So we also see Vinnie Lauria, who is doing great work. He used to be from i/o Ventures and he’s setting up his own investment practice, and bringing his experience of Silicon Valley to Southeast Asia.

And these are great people that I enjoy working with right now as well. So it’s a matter of time that American companies and international companies will start paying attention to the growing influence of Indonesian consumers and as a whole, Southeast Asian consumers. It’s interesting that for Dave Morin, we noticed the results that Path is getting in Indonesia. And in private conversations with Path, we managed to inform them that Indonesia is one of the fastest growing markets. Will you be interested to go over there and perhaps give a talk at Startup Asia Jakarta? So full disclosure, I’m an investor in Tech in Asia, and Startup Asia Jakarta is their event. Right? So it’s very unfortunate that at that time, at first he was actually available but then, due to conflict of schedule he could not make the event.

But lo and behold, a few months later and an Indonesian conglomerate invested into Path. They took up the entire round. So people are taking notice of that. And I also had a chance to talk to Ashton Kutcher as well. To alert him about the opportunities in Southeast Asia. So on my part I’m doing my small part to inform the various stake holders in Silicon Valley to start paying attention to the region.

Well, I’m doing my part from over here, so together, Eddy, we’ll be a powerful force. So, moving on in the interview, what makes a deal investable for you specifically? What are you looking for? Are you doing a due diligence phase? How long is this phase? What specifically are you looking for during that due diligence?

So in terms of due diligence, I’m by-training an engineer. So I take a lot of value in the product. So by training, I’m an e-engineer who then went on to do medical devices. But I’m also very aware that a good product requires a market to sell well. So in the due diligence we look for two things. We look at the product market fit, and also the people behind the product/the company. And we do put a lot of weight on the people, and this is because the earlier the deal that we look into, the more emphasis we put on the people. If it’s a later state deal, we have numbers to crunch, we can look at the revenue expenses and so on, so forth. So, for me it’s extremely important that the product serves a need in the market. There could be a competitor right now, out there in the market, that’s fine. Because the presence of competition tells me that it’s a product that people want to use. It is the lack of competition that really worries me. And we’ve seen over time that the first product that reaches the market may not be the winner. Think about the Myspace, think about Friendster. Right? So, it’s okay to have competition but I would like to see the team behind it whether they can outgrow the competition with my investment. That is what can trigger me to put in an investment and back the team. It’s about the relationship with the entrepreneurs that the investment at the current round, is a beginning of the relationship. Because after investing I’ll support them in every round. I’ll hand-hold them to do business development. I’ll put them in front of M&A acquirers. And we have companies that are going IPO as well. And even after they exit the business, when they want to start a new business as a serial entrepreneur, I’ll be the first one to put money in them. So the first meeting I have with them and also the investment is only the beginning of a long journey ahead.

That’s fantastic. It seems like you have a relationship-based method where you are evaluating the character. And that’s as important we can say—and I don’t want to put words in your mouth—as the numbers, because as an early stage company you might not have those numbers and the metrics to go by. So you kind of have to make a character judgment on them.

Yeah, I would not say a character judgment because we try to limit our number of times we meet entrepreneurs to two times. And this is in respect of their time. Because entrepreneurs’ time is money for them. It’s their runway. And we’ve seen many investors who delay and wait for other investors to commit before coming in to buy time. But we have also a lot of investors who go on to give false hope to entrepreneurs. And because the later they do so…make a decision there is the advantage is to the investors. Right? So, but the fund raising process is extremely painful for entrepreneurs. Especially if they do not factor it as part of their business’s growth.

I encourage every entrepreneur to put…if you have a team, put one guy in charge of fund raising. This is a guy who uses Mail Chimp to update the potential investors about the latest progress. This is the guy who warms a relationship. It could be the CEO, it could be this guy who once in a while has a coffee with the investor. And fund raising should be part of your everyday business. Such that you can be collecting convertible notes along the way, and when you have a valued round, you know who to tap into. So a lot of entrepreneurs stop whatever they’re doing and for three months, four months just do fund raising. It’s extremely disruptive to the business. And for the point of view to the investors, we really want to minimize that kind of friction. After investing, investors should be part of the team.

I absolutely agree. I’d love to hear you say more about that. How in only two meetings with the investor, the entrepreneur is able to properly convey his business? Do you find they need to exceptional communicators in order to do so? Can you talk to us about how an entrepreneur looking to receive capital…he’s got the meeting with his investor, he feels the money is just around the corner. How can he convey to you here’s where we are, here’s where we want to be, and here’s how your money can help get us there. Or what else should they be trying to convey?

So as investors, we require only two face-to-face meetings. But there can be some other phone calls or it may be some Skype video calls as well at the request of the entrepreneur. So, during the time with the investor, it’s extremely important to be able to sell the idea, whether it’s in 30 seconds or it’s over in 5 minutes or half an hour. So the entrepreneur has to put themselves in the shoes of the investor to talk about the numbers, to talk about what’s in it for the investor. They have to start understanding that their business is about exit. There should be an endpoint. And there should be an idea about when is the endpoint? What kind of size is it? Who’s the likely acquirer? If it is an IPO, which stock exchange is it? And there should be an endpoint in the picture. And that would be thinking in the shoes of the investor.

In terms of the product, a lot of entrepreneurs face too much emphasis on the details of the product. Because I can share with you that I’m an engineer by training, but I cannot understand all types of engineering products. So they have to be able to speak in lay person terms. And they come down one level, and speak as though the VC is an ordinary audience like the man on the street. And if the VC happens to have the domain expertise, they will ask advanced questions which you can answer or ask your CTO to answer. So by doing that there will be better communication. The investors will be able to invest only in something they understand within the short time period. And it is a challenge, but the entrepreneurs can start practicing in front of their friends who are not in that business, in front of different audiences in order to nail the pitch.

So, can you tell us a story, or perhaps a story of a deal that comes to mind as particularly memorable throughout your career?

One of the deals would be Lark. Lark is run by Julia Hu, who was a part of Stanford and also MIT Sloan. She was named Marie Claire entrepreneur of the year and also named Inc. 30 Under 30. So it’s an interesting product. So it’s a wearable and it’s one of the wearables which hit the market in 2010. It’s a wearable wristband that improves your sleep quality. So it tracks your sleep pattern, and then there is a SaaS model to advice you on how to sleep better and become more energetic in the day. And then it moves into activity we’ve tracking, and what has evolved into the Fitbit and also the Jawbone and Nike FuelBand that you see these days everywhere.

This is a market where they have been the first player but right now they have a lot of competitors. And what’s interesting for us is that when they were released in the US only—it is a US company—they were in the Apple Store but because of our connection right after the first investment, we managed to bring them into brick and mortar stores in Japan. Even at series A. And this is extremely difficult for series A company to break into the Japan market. A lot companies have failed—have tried but failed. Because of our connection, we brought them to BIC Camera for example, and later on Apple in Japan picked them up. And they started selling in Japan Apple Stores. So much so that their revenue per month went multiple times. And we continue to invest four additional rounds after the first round investing into them. And in recognition of our efforts, they invited us into the board of directors. And along with the board of directors are notable people, for example Weili Dai from Marvell Semiconductors. She’s an Indonesian. Right, and then the Marvell story is very famous in Southeast Asia especially in Indonesia. So they are on the board of directors as well. Together we are helping a lot in big ways. For example in manufacturing, in sales, and also technical advisory. So this is a story about us using our connections to really improve the sales of the company. And also to connect them to various other Japanese players. I cannot review their names right now but these electronic giants in Japan, in order for them to get into product co-development dues, also for enterprise sales opportunities. And in return, in recognition in effort, they invited us into the board so this is a nice story for us.

That is a nice story, and we’ll see how that story ends up with an acquisition or an IPO. I’d love to keep an eye on Lark and see what happens.

I’m keeping my fingers crossed for now.

You started off the interview by telling us that you do have a focus on Silicon Valley, and also Southeast Asia, where do you see the future of startups and investments in Southeast Asia?

I see that in the near future you’ve got firms like Vertex and IPL coming from early stages to fill the gap that I mentioned earlier on. And I see that right now, there is a recent rise in valuation of some of the Indonesian startups. And I see that as various countries in the Southeast Asia ecosystem mature. There will be countries like Vietnam, or even Myanmar, coming out with more startups which are investable. So as a whole, I see the ecosystem growing, with the influx of more foreign investors, for example, like Fenox from Silicon Valley. And there will be a recycling of capital where entrepreneurs who exit become angel investors and re-invest in companies, take on board directorships, be advisers, and so on so forth. And that is a hallmark of a success in building an ecosystem. We’re seeing some early sings of that ready but we need more of that happen.

That would be fantastic. That’s a bright future…pretty exciting. So moving on, do you ever have a company that you wish you had invested in, but didn’t pull the trigger, and later on you had some regret and wish that you had?

There is a company that is worth mentioning. It’s a good company. There would be a company in Southeast Asia actually. To me, Carousel is a great company. Great entrepreneurs, great investors, and that was an early stage deal when they were raising. And because of our mandate, our focus on series B in the region. And because of the quality of the team, it came under our consideration as well. But at the end, because the deal was outside our focus area and they filled out the round very quickly, before we made an investment decision. But I will be happy to look at the company as it grows, and is raising series A and B later on.

Well, I hope Carousel is listening. And I know how much you like them. Moving on in the interview, now we’re coming up on our lightning round closing, where we ask you three questions, and you ire back and answer us. How does that sound?

Okay, sounds good.

What are you reading right now, what’s on your bookshelf?

I’m all the time reading the Economist. It is a magazine, but it’s my staple reading. I love the business section, and I love the technology quarterly update. And even when it’s in my domain area, such as in genetics, I still love the new information. And also the way that complex issues are explained in simple terms, amazes me every time how they do it.

What’s one piece of advice you would you give to entrepreneurs?

Never stop fund raising. It is part of the game.

Give us a business idea. What company would you like to see start up in this world?

I like to see more companies that start from mobile solution. This can be a marketplace, this could be an e-commerce platform. And I like to see more to-do apps that really changes, makes things convenient for everyday life. We have seen a lot of to-do apps for example Workflowy, but none of them is really integrating into our everyday schedule. And predictively telling us what we have to do. For example, buy milk, because the milk in the fridge is running out. So I like to see an app that can really do that. That will be a game changer.

That would be a game changer. That would be pretty cool. Is there a way that entrepreneurs can get in touch with you, or do you prefer an introduction? How can they reach out to you?

Sure, you can reach me at twitter, my twitter handle is @eddysmlee and you can also find me on my Gmail or my Fenox email. Those are not difficult to find.

pile of bitcoins

pile of bitcoins

John John Kim is a Singapore based VC investor who has worked at some big firms such as Goldman Sachs and Mercuria. He talks about his new cross-border venture capital firm Amasia, and what kinds of investments they look for. John also discusses the startup ecosystem in Singapore, including the special government schemes the Singapore government has put in place to encourage investment in entrepreneur ventures. And perhaps most interestingly, John gets into Bitcoin, and why he thinks the future may be in Bitcoin, not as a currency, but as a platform.

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Hello. Today I’m joined by John Johan Kim. Mr Kim is a Singaporean VC with a pretty interesting history in both venture capital, angel investing, and also entrepreneurship. So I’m going to let him do his own introduction today, contrary to what we typically do here on the podcast. But John, thanks for joining us, it’s good to have you here.

Thanks a lot Edmund, it’s a pleasure to be here. my first angel investment was in 1998, and it was actually the same year that I invested in my first company…or started my first company rather. So it was an electronic books company, and like many investments of the era, I thought I was a genius for awhile before the whole thing crashed and went to zero.

Beyond that, I’ll just tell you a little bit about my background. That first company that I started was an internet music company. It basically came out of an internship that I was doing for IDG (International Data Group), which is the largest technology publisher in the world. I was building an online decision support system, kind of an online data base for the CEOs of their subsidiaries. And I though it would be interesting to use this technology to solve a pain point that I had. I was very passionate about music—I still am—and often I would think about what music events were taking place in a particular city, and I wanted to know and figure out where to go. So I thought it would be nice to build an engine like that.

I hired a team, went out and built this thing, then realized that a lot the companies, the bands, the venues, and the companies that were looking to list in this engine didn’t have sites of their own or any understanding about the web. So we started building out some of their websites and thinking about online marketing and online strategy, and helping them with that. So, we had two different parts of this company, and our advisers suggested we start thinking about focusing a little bit more. And because the consulting part of the business was generating more cash, I decided to take that with a couple of my other partners. And then the other folks who kept the online music engine, they actually joined forces with some folks at GoLite Tonight, and that eventually became part of CitySearch, which I think was a much better ultimate outcome for them.

But it was a great experience, I made a bit of money, and what I found—and this is something I tell entrepreneurs all the time—was that I lost my passion. You know, the original impetus for the business was that I was passionate about music and a pain point that I had. But once it was just about e-consulting, the money wasn’t in the music industry. So we were doing projects for manufacturing companies…we actually built a small incubator. MBAs at school that were wanting to build online communities or commerce sites.

And so it lost its passion a little bit for me, but from there I decided that I wanted to get back to my passion. So I started my third company, which was a Delaware incorporated rock-n-roll band. We had some success with that. We toured around the US, did some session work, and played in Korea as well with some folks. I did that for a while. It was a really great experience, but it wasn’t really my calling at the end of the day. I think a lot of—kind of like starting a company as well—what you see on stage is really quite appealing, but all the rest of it is a lot of hard work that goes into it. There’s sometimes conflict with bandmates, and you get punched in the nose, you know it’s just like starting a company. So all of that stuff I hadn’t really reckoned for, and ultimately I just wasn’t sure if it was my calling at the end of the day.

So I went to Korea, and that’s when I kind of started my financial career. So I was at a hedge fund for four years, and Goldman Sachs for five years here in Singapore, and then joined a privately held Swiss commodities trading and investment firm called Mercuria. Before this opportunity presented itself with my current partner, who’s been a VC investing in tech companies for over 20…22 years now. And we felt there was an interesting opportunity in entrepreneurship in technology in Asia, and so we kind of put our heads together and we started this firm called Amasia, so we’ve been doing that. We started talking a little over a year ago, and started investing a little about eight months ago. So that’s currently what I’m up to.

That’s great. can you tell us a little bit more about Amasia since we’re on the topic. What typically is that fund looking for? What type of investments have you made and are you looking to make?

Sure. Amasia…we’re kind of a cross-border venture capital firm, with a presence here in Singapore and in Silicon Valley. Basically the thesis is this: because there’s certain technology trends that have allowed startups—and companies in general, but particularly startups—to go international a lot earlier then they’ve ever been able to before, think about mobile penetration, think about computing, there are businesses here that have…there’s one computing company here that has 40,000 clients that we can speak to, and over half of them are in the US, but I don’t think they’ve ever taken a business trip to the US to make any sales. So this is one example of companies that can really go international a lot sooner than they were able to before.

Now simultaneously, top-tier companies…they don’t need money. They have their choice in investors—it’s really about what you can bring to the table as an investor beyond your money? What’s your value proposition on top of that? And there’s this trend in Silicon Valley where some of the top-tier VC firms are really proactively adding value. So take as an example, Andreessen Horowitz and Google Ventures have been at the forefront of this trend. If you take a look at Andressen’s website, i think they have twenty people on the investing team and seventy people doing everything else. So you know, helping companies with PR, with hiring, with everything.

And so, there are these VC firms that are focused on adding proactive value, but the nature of VC investing is very…it’s a little bit less codified and distributed than later stage private equity investing or public equity investing. The reason for that is: once a company gets more mature, you can encapsulate more of the value of a company—whether it’s got good prospects ahead of itself or not, in numbers. So you can codify it in numbers because there’s a longer track history, you have top line/bottom line, you can have growth, and for all these things you can actually capture numbers. And when you can capture something in numbers, you can actually distribute the decision making. So when you look at later stage private equity firms, they’re almost like mini investment banks—they have offices all over the place, you can actually have analysts go out and look for companies that fit certain numerical criteria—and the thing in venture, as you move earlier in the cycle of a company, it becomes much more intuitive, the decision making. So you don’t have that same kind of numerical track record and history, and because of that when you are making an investment decision with a committee of people, the partnership needs to be very tight-knit. Because you need to be able to convey to your partners, “Well, yeah, this team was really inspiring. This leader is a visionary.” It’s not something that you can just put in a spreadsheet. And for that reason, it’s been very difficult to build global VC firms under an umbrella. There are some global brands, but they typically operate out of multiple funds and with a different set of partners.

And so, our thesis is kind of that companies are going global faster than ever before, VC firms of top-tier are adding value much more proactively, but they’re adding value typically at home a little bit more than internationally. And that’s because of this intuitive decision making process that takes place in the venture world. And so we thought if we could try and build a one firm/one fund structure cross-border, where we’re helping entrepreneurs to scale outside of their home markets, that would be a very orthogonal value proposition. And so we actually managed to invest alongside some of the top investors in the world because we’re adding value, and they’re happy to have us along because we’re adding value in a very different way than some of those other investors are.

That’s kind of the main thesis—the main criteria—is that we’re looking for businesses that can go global. They don’t need to be going global tomorrow. We have some businesses that just want to think about going global a little bit earlier in their life cycle. They might not do it for three years or five years, but they should just want some advice about how to do that. For instance, there’s a company that we just invested in called Iodine, which is a big data company focused in health, and we know some people, such as leaders in the Korean Food and Drug Administration and Singapore Medical Council, and so forth…that would be interesting for them, but they have a lot to do in the US. They would probably not go to Asia for 3-5 years, but it’s just interesting for them to get that kind of advice early on. Then later, when there’s a specific need, we can help out, potentially participating in series A investment.

The main theme is cross-border. We have some teams on sector focus, and I can go into that a little bit more if you like. But that’s really the main idea.

Some VCs have missed the boat on a new trend, and that’s VC as a service. So that’s this thing where, now you can really get money from anywhere and it’s getting easier and easier for entrepreneurs. So it’s exactly what you said earlier: Who do you go with? Which VCs do you choose, and what extra value are they bringing to the table as a venture capital fund beyond just the money? So it’d be interesting to hear you say some more on that, and also—picking teams—what kind of teams do you pick as being potentially successful. If you could talk to us about that, it would be great.

Sure. Absolutely, the VC as a service is something that really resonates with us, and is really at the core of what our thesis is, and what we try and do for our companies. You know, you’re absolutely right—with all these crowdfunding platforms now, it’s very easy for good companies with good ideas to raise money. There’s been a lot of material written about it by VCs…the model is being completely upended. Part of that is the emergence of crowdfunding platforms. I think a lot of it also has to do with cheaper infrastructure costs. Way back when—when the scions of the industry were starting out in venture capital—it was much more focused around silicon, which is where we get the name Silicon Valley. So you had to have massive capital expenditure to start some of these companies. And even in the first internet boom you had to have significant amounts of capital—maybe tens of millions of dollars, maybe single digits. But nowadays you can go online—because of computing—you can go and start a company… Actually you can find companies to help you with your outlay of expenses. So Amazon is giving free hosting for startups for certain programs, as is Microsoft, and so forth.

So it really takes a lot less in terms of infrastructure costs. Everything can be a variable cost that you need to pay out for. So it takes less money. So capital becomes less important, less necessary—partly because there’s more of it around—but because the costs are so much lower, VCs really need to focus on what else they can bring.

Well I think that’s absolutely correct, and it’s maybe to the point where entrepreneurs nowadays are spoiled where you have things like Twitter Bootstrap, things like Ruby on Rails, which allows you to develop things much quicker. You have Amazon webhosts services, which you just mentioned, which allow you to have hosting and scale infinitely with pretty much a low cost to begin with, and then the cost rises along as you grow. So those things are obvious and definite trends.

I don’t know if you read the recent Economist piece on the Cambrian explosion for startups, but I think that really summed it up well. One of the places featured in that piece was Singapore, and you’re also based out of Singapore—you do some deals there. If you could talk to us more about the Singapore ecosystem—what you think its advantages are, what you think its disadvantages are, if any, and maybe what the Singapore government could do to improve it, or what Singapore entrepreneurs could use there. Talk to us about the Singapore ecosystem for a bit.

Singapore is a real interesting place. I talk to a lot of entrepreneurs all around the globe, and I tell them if your main hurdle is getting a bit of seed funding, then Singapore is a great place to come. There are a lot of schemes here to support entrepreneurs. One of them—I guess the most prolific of those—is what they call the technology incubation scheme, or TIS. So there are 14 incubators that out there—they’ve been sanctioned by the government to invest. If they invest up to 88 thousand dollars in Singapore, then the government will match with 500 thousand dollars. And it’s a great scheme for the incubators because they get to take out the government’s stake almost at cost. It costs a little bit of interest if the company does well. And if the company doesn’t do well, then it’s on the government’s bill.

So that’s led to this proliferation. You can call it a Cambrian explosion of startups here in the ecosystem. That’s led to a few different knock-on effects. In general, it’s good to get people interested in startups I think. it’s not unique to Singapore. It’s a phenomena that’s taking place all around the world, and my thesis for that is that you have this widening of income gaps all around the world. And because of that, there’s this political trend where the masses are getting increasingly unhappy with the rich getting richer. And so governments, by definition start with the small guy, so they want to help the small guy to become big. It’s just a lot more politically palatable compared to helping big banks or big conglomerates. So I think it’s a trend that’s not just unique to Singapore.

This scheme has led to a lot of interest, but it’s also led to a lot of non-market based funding. Startups that just would not have gotten funded otherwise have gotten funded. So it makes it a little bit more difficult, to be honest, as a VC, to kind of sift through and try to find the gems.

Now there’s a new scheme that’s coming up, which is the Early Stage Venture Funding (ESVF). The first iteration of the scheme was before TIS took place. It was maybe a little bit too early because in order to get series A funded companies you need the incubated companies. But now that TIS has been going for a while, and there’s a good number of companies that have been funded, they’re kind of re-introducing this scheme. There was actually a call for proposals last month. I think it will be five funds that are chosen to get 10 million dollars in matching money from the government for 10 million dollars that they put up from venture capital funds for companies focused on series A in Singapore.

John, tell us what makes a deal investible for you? What are you looking for in this phase?

There are three broad categories of things that are most important to us. And we have a pretty extensive proprietary scoring system. The three main things that we look for are team, large opportunity, and financial trajectory. If you dig into each of those, there are a few things we look for in the team. The top characteristics are: one is a history of success—that’s just an indication that people are going to work hard. They know how to execute. And increasingly that doesn’t need to be success in exactly the same thing that they’re starting a company in, if it’s not exactly the same domain. But if they’ve been successful in something or other, it just shows a bit of track.

The second is a will to win. Being an entrepreneur is one of the toughest things—maybe the toughest thing—a human being can possibly do on the face of the planet. There’s so many tough days when people are saying no to you, and you get punched in the nose. And if you don’t have that kind of endurance and perseverance to stick with it, then it’s obviously not going to be good for investors. So that’s the second thing: win to win.

Third is a sense of humility, and that’s related to a number of knock-on effects of humility. We want people with confidence, but at the same time people who are willing to listen to advice. They don’t need to listen to everything that everybody says and certainly not everything that we say, but they just need to be open to advice, and also there are some CEOs who are very fixated on the fact that they should be in the leadership role, for instance. And they’re threatened by people they hire who are capable. So the general attitude you want to have as an entrepreneur is to hire the best people, and bring them in. Whatever title that requires, even if that’s CEO and you’re hiring your boss. Because ultimately, what’s good for the company is good for you.

I used to hear this a lot when I was at Goldman, and I started believing it after a while—after my bosses kept saying it to me. But in the venture world, a lot of the value that comes from a particular individual is from the fact that a very small pie becomes a very big pie. So because of that, interests are aligned, and entrepreneurs should be fixated on getting everybody on board to make that pie as big as possible. Because even if they’re not the CEO and they own a little bit less equity, if you get a 1000x outcome, it’s going to be very good for you. Those are the three things under team that we look for.

The second thing is a really large opportunity. So we look at problems that are tackling a billion-dollar plus markets and have global potential, leveraging disruptive trends. so just really large opportunities. And one of the reasons that needs to be the case in the venture world, you know, you have high data portfolios, and a high percentage of companies will stagnate and fail in this space. So the ones that win, you need to make sure they’re going to have a chance to win big.

The third characteristic is financial trajectory. So we just want to make sure that the companies we invest in are capital efficient. They don’t need too much more money to become successful. We see a lot of random things in…clean tech, real estate…I used to be an oil trader, so I see a number of things there—these are all pretty capital intensive businesses. So we want to stick with capital efficiency. We want signs of traction: early customer wins, paying customers. If it’s an consumer internet company, then a bunch of users. The What’s App news that came out recently is an example of that. And just a clear path to profitability. You know that doesn’t mean that there is necessarily a clear business model for monetization. There should be some ideas. It doesn’t need to be in execution just yet. But if there isn’t, then we need to be comfortable that this company is going to be able to raise enough money to get to a situation where they’re profitable. Those are the three broad categories that we’re looking at.

So are there specific industries in there? You mentioned capital intensive, but maybe you could give us a little bit more specifics about specific companies that you can add value to. Or if I’m a SaaS application, I want to go to John because he can help out with X. Or are there specific companies that would maybe fit your investment perspective and that also you feel you could add value to?

Absolutely. we have four broad categories of sector focus that we look at: crowd computing, big data, fin tech, and consumer internet. Now crowd computing, we’re very focused on Saas companies as you mentioned. These are the best examples of companies that can go global really early in their life-cycle. We just completed an investment in ReferralCandy, which is a SaaS company here in Singapore. And the majority of their customers are in the US, number two client base is in the UK. So because you have companies that can go global earlier, our value proposition is particularly relevant for them, whether the company is in Asia trying to go overseas, or whether they’re vice-versa.

For big data, I can give you a quick example, there’s a company called Bay Sensors that we’ve invested in. They are a big data company focused in the retail space, they’re working with really big retailers in the US such as Starbucks and Samsung, and so on. And they have some of the top investors in the world on board. Andreessen and Google have invested in them. But they didn’t really have too much going on in Asia. And there are a couple of angles that they’re interested in. One is market penetration, so we’ve introduced them to some of the top retailers here in the region. But they’re also interested in manufacturing. And this is something that we see as a really particular value proposition for a lot of these big data companies. There are many different parts of big data. But really where the power comes in data, where the most powerful companies will be situated in is this chain of the big data ecosystem, is the people who own the data. So you can own data—often it’s acquired for a particular reason, but you can re-analyze it much later for many different purposes. So the people who own the data are going to be the most powerful players. But in order to own data you need some sort of acquisition layer, so that’s really made possible through…we started talking about infrastructure parts before, but sensors are just getting so cheap now, you’re getting a trend of an internet of things, and everything in the real world being sensed and being put onto the internet.

And there’s a lot of talk about manufacturing, and especially the high quality manufacturing houses moving back to the US eventually with energy costs so low and so forth, but I think it’s going to take a while, and at least for the foreseeable future—5, 10 15 years—Asia is still going to be the manufacturing base of the world. So, this particular company, they’re also interested in manufacturing partnerships for their sensor solution in Asia. So that’s another example of a big data space.

And consumer internet, we’ve done some things…we’ve invested in a pure play consumer company which is about to launch in Silicon Valley. We’ve done an e-commerce company here called RedMart, which some of your listeners may have heard of. They’re doing groceries in the online space here in Singapore. This is an example of cross-border value with not necessarily a cross-border company. I think that RedMart has potential to be cross-border. It’s very internationally renowned folks who are on the team there, all the way down from the managers to advisers, employees and so forth. But right now they’re just tackling Singapore, which is a seven billion dollar market in grocery. So they can become a billion dollar company just in that one market. But the thing is, with e-commerce best practices, the space is wide open. The product offerings were not very comprehensive here, and my partner was the first VC to call Jeff Bezos who has actually written about…there’s a chapter on him and John Door and their bidding war for Amazon back in ’93 or ’94 in the Amazon book, and I’d been coding shopping carts since 1997, so we’ve been watching this space for a while and just bringing some of those best practices, thinking about margins and so forth, and having conversations..for product growth map and so forth. I think it’s useful for companies like RedMart that are not even necessarily looking to grow abroad anytime soon.

The last sector is fin tech. Personally I think the most interesting thing happening in fin tech right now is crypto-currency. Bitcoin is the most visible of the crypto-currencies. It started out with a lot of visibility due to some associations with criminal activity and so forth, but it’s quickly moving into the mainstream. You have top-tier VCs in the world investing in Bitcoin companies. Andresson Horowitz, Google Ventures, Union Square Ventures…you have people like Peter Thiel, as the inventor of PayPal he said something like, “Bitcoin has the potential to be everything I wish PayPal was.”

It’s really interesting what’s happening in this space. It’s not really well understood because in order to get it, you need a really deep understanding of technology and of finance. And even a lot of the financial folks, the economists, have not really dug deep into what the meaning of money is, you know, the essence of what that is, and will not really understand the technology side of things. So there’s a lot more debate that needs to take place and a lot more education, but it’s a really interesting space that has a lot of potential.

I would agree with you, and I’d love to talk more about that. Particularly in Southeast Asia, where do you see Bitcoin being more useful? Is it in the payment space? How can they beat out premier solutions for payments in Southeast Asia as opposed to say…credits on a cellphone or leveraging teleco infrastructure? Why would an entrepreneur want to use Bitcoin? Anything on your thoughts on Bitcoin in Southest Asia would be interesting.

Sure. Southeast Asia is a pretty diverse set of countries. One the one hand you have countries such as Singapore, that are very advanced. And on the other side of the spectrum you have countries such as Laos and Burma, which is quickly becoming much more advanced, but there’s a very broad spectrum of levels of development I guess you could say. So the problems and the pain points in each of these regions are very different. You touched on payments…Bitcoin does have a potential to solve the payment problems that are in developing markets like in Indonesia. The problem with that is that we need gateways. People ask me all the time, “How would Bitcoin solve this problem?” YOU can go to a gateway—it can be a 7-Eleven, it can be a bank, or anywhere—you deposit money, you get Bitcoin, you have a wallet, and then you can buy things online, or you can tap that into a merchant and so forth. And so why can’t PayPal do that? Actually they can. Visa can do it, but the thing is that Bitcoin is an open source architecture, right?

A really good article that I would suggest your viewership reads is called Bitcoin isn’t Money – It’s the Internet of Money. If you think about it—the Internet—the actual underlining protocols that are the foundation of the Internet, things like TCP/IP, those really allowed for innovation, but the innovation around the internet and around those protocols really happens at the fringe. And because it’s an open protocol, you have people, mobile developers who can develop apps for all these different applications, and you see this proliferation, this explosion that kind of has to do with the Cambrian explosion you mentioned in the Economist article, where people can come up with all sorts of ideas and execute on them. So, Bitcoin…it’s not a company, it’s not one of these innovations on the fringe. It is like TCP/IP. It’s the network in the middle on which people can actually innovate.

And so, that’s the difference. It’s kind of like VisaNet. I went to a presentation just the other morning where one of the vice presidents of Visa was talking about payments and some of the issues in the region with governments that they faced over the last year or two. And he described VisaNet sounding very similar to Bitcoin. He described themselves as not a credit card company, but as a payment processing company. And so they just had this system that processes payments, it sits in the US, and that’s becoming increasingly problematic because of the Snowden leaks. so people don’t want to have their data just processed in the US. They have I don’t know how many hundreds or thousands of employees sitting there full-time. So imagine all of that, and American Express and Mastercard have the same thing. So they’re all duplicating all this technology. So imagine all these companies not having to use their own systems, but using this open architecture, and from there they can go out and make their own credit cards. They can make their own bank accounts and so on and so forth on Bitcoin.

So I do think there’s a potential for the payment space, but I think it’s misunderstood a little bit. I think there’s a company in Indonesia…which is focusing on the payments problem, and there doing a good job of it, but it needs to be tackled from a more holistic perspective, a little bit more systematic perspective than I think is currently happening with a lot of the debate.

I think one of the most interesting things about Bitcoin is the Bitcoin ledger, where you have this artifact or kind of living document of all of the Bitcoin transactions that have ever happened. And having that verify a transaction, as a proof of existence, a proof of record for every Bitcoin exchange, every Bitcoin transaction up to that point…that infrastructure doesn’t really cost anything. It’s kind of spread as a distributed system, and I wonder who will be the company that kind of leverages that distributed system to build something on top of it as a platform like you said. It’s really interesting times, and there’s certainly a need for it in the payment space, and you can look directly at somebody like Visa or Mastercard and say, well there are Mastercard charges on this, but Bitcoin is essentially free. And I think one of the barriers to entry for the modern day consumer is, as you mentioned, the technical expertise that’s needed to even buy Bitcoin right now. It’s just so difficult, and there are some companies like Coinbase, which are trying to solve that problem. Have you seen any companies in Southeast Asia that are working on it? You mentioned that company in Indonesia, have you seen anyone else working on this problem?

Yes, we invested in a company recently called MaiCoin. there billing themselves as the con base of Asia. The founders are good friends with the folks at Coinbase and the folks at BTC China. I mentioned recently in an interview, we’ve invested alongside these two brothers, Bobby and Charlie Lee, who have been dubbed by a lot of folks in the community as the most powerful family in Bitcoin. Bobby runs BTC China which is the largest Bitcoin exchange in the world, and Charlie is the inventor of Light Coin, and is a developer at Coinbase now. They also happen to be cousins-in-law of the CEO of Bay Sensors, the company that I just mentioned.

Coinbase is very focused on making it frictionless to buy Bitcoin, sell Bitcoin, and get merchants to accept Bitcoin in the US. MaiCoin is effectively tackling that problem in Asia. They’re about to launch their product any day now. I’ve seen a lot of companies here, but the things that really makes these guys stand out are their focus on security and their technical expertise. It’s just something that’s just far beyond what I’ve seen with most of the Bitcoin companies in the region. They’re Harvard and Stanford guys, PhD’s, and very linked in, so they know all the best practices in the space. So I think they’ll be doing a good job as soon as they launch.

And just to touch again on some of the differences…I think it’s relevant for the region, but not just in Asia and the US. In the US, because it’s one very big market, it’s interesting and it’s easy for a company like Coinbase to go out and plug into all the banks and make it very frictionless. But here in Asia, outside of China, it’s much more of a split cultural and regulatory framework. So it’s not easy for a company like MaiCoin to just go spread out through the whole entrenet. China came out with some regulations recently which would ban Bitcoin from merchant space and so on, so the opportunities here…I think that’s definitely one of them—the typical wallet and payment merchant processing model of Coinbase. There are also some other things.

There are a lot of folks who are going out, and let’s say I have a 100 million dollar hedge fund and I want to allocate. If I allocate one percent of my portfolio to Bitcoin, then maybe this year I make 13 percent instead of 14 or whatever it is. But if it goes 1000x and becomes the real underlying infrastructure of the payment ecosystem in the world, then that’s pretty life-changing. So maybe I should just buy a million dollars of Bitcoin. The thing is, the exchanges out there, they’re not very liquid. It’s very difficult to buy a million dollars of Bitcoin. There have been these dark pools of liquidity in the United States where buyers and sellers of larger chunks of Bitcoin have emerged and come together. Now a lot of those transactions are done very informally. Somebody asks me—they know I’m in the community—I know some hedge fund managers, who know someone else in the community, and someone is trying to sell. The reason that works is because there’s trust throughout the chain. If you create a programatic and scalable system with a bit of trust, maybe with one of the big banks in Singapore, you could actually get almost a monopoly on some of these transactions.

So that’s another idea we’ve been toying around with incubating here in Singapore. And so—just touching on what we were talking about before—the opportunities are very different in different parts of the region. Singapore is really uniquely placed—not from the merchant perspective—it’s a small market, it’s only five million people. But because it’s such a visible and trusted financial hub of the world, it’s really uniquely placed to take advantage of some of these opportunities. Actually the commissions are very high on that sort of business, they’re three or four percent. So whoever can put this all together can stand to win quite a bit.

That’s a fantastic business idea. You already skipped ahead to the lightning round closing, but, Wow, that would be an impressive thing. I wonder if the big banks in Singapore would understand that opportunity because it certainly is a big opportunity. and Singapore is so well positioned as you say, as just this very stable, predictable financial hub. Almost fifty percent of all the foreign direct investment in Southeast Asia goes into Singapore. Yet it’s the smallest country by a long shot. So it’s be interesting to see if you can put that together. I think you’ve got quite an idea on your hands. There’s also a lot of funds in Singapore, so that’d be an interesting business model.

We’ll see how it goes.

We are at the lightning round closing, but you already answered number three. Let’s get your answers to number one and two. What are you reading right now? What’ on your bookshelf John?

I just finished a book on big data. I read pretty broadly I guess you could say. The exact name of this book is “Big Data: A Revolution That Will Transform How We Live, Work, and Think“. It’s by Viktor Mayer-Schönberger. It’s good…if you follow this space, a lot of it will be information that you know, as it was for me. But it’s just a good overview on some of the principles of big data. So that’s kind of the most recent book that I’ve read on entrepreneurship and technology.

I read pretty broadly, I’m a churchgoer so I read a bunch of Christian books. I’m also interested in politics and international affairs, so I have a few things I’m reading there as well.

What’s one piece of advice you’d give to entrepreneurs?

There’s so much…well, it really depends on the entrepreneur because there are so many elements of being successful as an entrepreneur. And everyone comes at it from a different angle. So for instance, I get a lot of these enterprise-y feeling guys. So for example, they’ve worked at big companies and they’ve risen very high. And then they decide, “I’m going to go and start a company.” So for guys like that, I’ll say—in the three things we talked about in “team”, they have a track record of success, but they might not be as open to being humble, I guess you could say. Because they’ve been so successful, they think they know how everything operates. So they tend to try to bite off a lot more than they can chew.

There are certain startup methodologies that are best practices now. And so for a lot of these entrepreneurs, I’ll say rather than going and trying to tackle the whole world at once, which is what you’ve been used to doing—in a startup you have very limited resources. So you need to do it really quickly. Go and read some of these books on minimum viable product and so forth, and also be prepared to get punched in the nose a lot. You need to make sure that you have a will to win.

There are other entrepreneurs—the younger guys who are just out of school, who maybe haven’t risen very high in big companies and so forth, and at the beginning I’ll tell them that you need to have a lot of advisers on board to help you with the domain experience. so those would be some of these guys like entrepreneurs who have been at corporate jobs for a long time. They don’t need to entrepreneurs, just advisers that you can surround yourself with, people who know a lot about a particular domain.

And then also as entrepreneurs scale, there are all sorts of challenges that a company can go through in different parts of it’s life-cycle. So what we’re talking a lot about, with one of our particular companies now…they’re just about to do series A, and typically when you start a company, you can find engineers who are really passionate about solving a particular problem. and so the culture of this particular company is that they have these really hard-core engineers who are working all the time—the work Saturdays and Sundays, they work till midnight or two in the morning, and that’s all great. But as they start to scale out a little bit and build out the team, there’s no sense of vision or purpose, and Marc Andreessen actually wrote a blog post about this very recently, but there’s this trend in the valley—that there’s no amount of money that can get you the top talent now. Everybody’s paying ridiculous sums. so in order to really motivate people to come over to your company, you need to set out a broad vision, a broad mission for them. They need to feel like they’re working on an effort that’s really greater than themselves.

So I think that’s really important, building on a great culture, a great vision and a great mission that people can buy into. Also, just having passion for the product and for the company.

Thank you very much for you time John, we appreciate it.

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Semyon Dukach is an angel investor and former professional blackjack player with the MIT Blackjack Team. He currently serves as Managing Director of Techstars in Boston. Semyon has invested in over 70 startup companies as an angel investor, mostly in the Boston area. In this podcast episode, he shares his tips for people interested in angel investment.

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Keirn O’Connor is an emerging markets investor in Southeast Asia and greater China. He was Managing Director at AIM Capital Management, a boutique investment firm that provided capital to companies in Cambodia and Vietnam. Before that he also served as Managing Director of Small Enterprise Assistance Funds (SEAF), managing their Vietnam fund. In this podcast episode, he talks about how he got started investing in emerging markets.

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Photo credit: taestell / Foter / CC BY-NC-SA

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Dean Van Drasek is Executive Director of Arch Advisory. Throughout his career, he has shifted between law, investment banking, and fund management. He has a long history of working in Asia since first coming over to work in South Korea as a business lawyer in 1988. In this podcast episode, he talks about investment and growth opportunities in Southeast Asian countries.

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Photo credit: 401(K) 2013 / Foter / CC BY-SA

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Sergey Gribov is a technology entrepreneur originally from Russia. He has been a founder or top manager in a number of startups over the years in the USA, Russia, and also Israel. He was employee number one at Compugen, and today serves as the Managing Partner at Startup Access. Sergey also sits on the board of several Russian based startups. In this podcast edisode, he talks about his experiences as an investor in startup companies.

 

Photo credit: LendingMemo / Foter / CC BY

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Bruce Miller, a Boston based technologist and Angel investor talks about his criteria for making angel investments. He also discusses the problem of packet-loss with mobile communication, and the technology that is being developed to solve this problem.

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Today we’re joined by Bruce Miller who is an Angel investor and technologist based out of Boston, Massachusetts. Bruce is a smart guy. He’s got a couple patents to his name. And he wants to talk to us today about investing in Boston, a little company he’s got going out in South Dakota, and packet loss technology. So stay tuned and we’ll get to all of that. But first could you introduce yourself, and tell us a little bit about your background?

Sure, my name is Bruce Miller. Today I’m operating as a consultant and Angel investor. I’m a technologist by background. I have a set of degrees from Rensselaer Polytechnic Institute back…probably embarrassingly way back, I graduated many years ago. And my background includes medical instrumentation, fault tolerant computing, artificial intelligence, and more recently data communications and telecommunications. I started with a little company called Wealthly back in the nineties, and that became a company called Bing Networks ultimately part of Nortel, probably companies that you recognize. I went off at that point and started a company called Astral Point Communications, and we developed some of the early optical technology that went into the networking infrastructure. We were ultimately bought by Alcatel. And I stayed on with Alcatel for about five years, operating as the lead strategist and technologist for the North American Optical Division. And after that I’ve got involved in data center technology. I was working with a company called Force Ten Networks out of California, which fairly recently got acquired by Dell. And now I’m back to my roots which is more small stuff, more individual level stuff. I’m very involved with my investments, and I have a reasonably busy consulting agenda.

So can you tell us about those Angel investments you’ve made recently? Because there’s some interesting companies there, and I’d love to talk about some of those.

Yes I’m probably more diversified than most of the angels that you’re used to dealing with. I’m a technology guy, and a lot of the angels you deal with to the comfort zone and stay there. I tend not to do that, part of the reason is, opportunities come in lots of forms. And also for me it’s more interesting to be involved in a variety of different areas. Right now I’m heavily involved with four companies and four areas. One of them is a social networking company called Pingup. It was originally called Gettable. And this is a company that operates out of what Massachusetts is calling the innovation district. We have a bit of a migration from the innovation area, which used to be in the shadow of MIT, to the waterfront. So it’s kind of interesting to see the waterfront becoming more of a dynamic environment. I have a second company that I’m invested in which is in MIT’s spinout. It was started by a group of MIT, University of Porto, and Cal Tech professors called Code-On Technologies. I have a third one which was started by a good friend of mine, I was sort of instrumental in helping get him going which called Q Factor Communications, and the fourth one, which is completely different, is called BBT Homes and we’re building residential housing up in North Dakota. And there’s a reason for that. We didn’t pick North Dakota because we threw a dart at a map or anything.

So what’s the reason for that? Shale exploration?

Yeah, it’s fracking. What’s going on up there is, housing is a rare commodity because of the infrastructure growth. So we chose that area because we knew there would be a demand. And it sort of fit our model for what we could build and what we thought we could make money.

That’s a scalable business, and there’s clearly a demand. There’s a lot of cash-rich people with nowhere to put the cash right now, and supplying them with a single-family home  makes a lot of sense. But this is a technology podcast, Bruce, so tell us about Q Factor.

So let’s go back to technology. You don’t want to hear about lumber and concrete.

Maybe in another podcast

So let’s go back to technology.

The have a multiplicity of patents. The formation of the company occurred initially by leasing intellectual property rights out of Code-On Technologies. And then subsequently augmented that with…the last time I talked to them, about a half dozen patents of their own.

Interesting, so can you tell us a little about the technology. And you don’t have to reveal anything proprietary, obviously. But  explain to the listener what Q Factor does in terms packet loss, why when they’re using their iPhone, it slows down, and why Q Factor thinks it has the technology to solve that problem.

Ok I mean what happens is, there’s a technology out of MIT based on randomized packet encoding. And this was a technology that’s been developed, as I said, by multiplicity of universities. What it does is it basically takes packet information and encodes it as coefficients and spreads this misinformation out over a communication stream. And what that does is it says that when you have sort of randomized errors – packet drops, there are certain cases where you can reconstruct that information, and the technique is very low overhead.

So if I could explain that in layman’s terms, you’re seeing a particular pattern and then you’re using an algorithm to predict what should be there. Because when there’s packet loss, there’s a loss of information. And this technology basically substitutes that lost information without actually having tho pull it over the Wi-Fi network. Am I correct in saying that?

Well that’s fairly close, and they use of multiplicity of techniques, so we’ll talk about several if there are interest. So, basically think about it as adding a small amount of information to a packet, which can encode the packet stream and spread out fashion, so if you lose one piece of information, the information that’s spread out can be recompiled to recreate that packet.

Ok, so that’s slightly different from what I said. That’s interesting. So it’s actually coming from the origin.

Correct! And they’re multiple techniques. One technique is called randomized network coding, in which you don’t need to have communication between the source and destination. The algorithms can operate independently, and the reconstruction can be independent. Or you can have deterministic where, if you will, there is information exchanged, and the two ends can figure it out in concert. So what they can do, if you look at things like Wi-Fi networks, and you look at things like cellular networks, one form of loss is based on sort-of randomized dropouts. And when you get a packet drop, algorithms like TCP are not very gracious. When TCP was designed…I don’t know if you guys know what TCP is, I don’t know my audience so maybe I should define by acronyms. TCP is the fundamental control protocol that handles data transfers across the internet. And it’s an algorithm that was designed to be opportunistic. So basically it tries to shove a lot of information through the communication infrastructure, and when it sees things slow down or there’s a drop, it reels it way back down again. It says, “Oops, I got to go down to something  little because I started losing throughput. And the problem with that is, in this day and age it can really screw up your communication in terms of the fidelity and efficiency of the network. So having any sort of packet drop in a communication network today is a really bad thing. Think of watching a movie, and you lose a key piece of information and your movie has to reconverge again. Right?

Right. this is stuff that is technically complicated, but it basically affects anyone with a smartphone or a tablet. It’s interesting technology because it’s looking to replace the IP protocol with something that is more designed for a wireless or a Wi-Fi connection.

Yeah, well it augments it. It can work in a domain which is graceful, you don’t have to change the end protocols. So this basically lives in the middle, dealing with the impairment. So if I have something like a cellphone, I can run their app on a cellphone, so the cellphone is a termination point and the other termination point can be on a server in the cloud. So the communication link between the server and your endpoint is covered by their algorithm. The other things to pay attention to, are things like burst mode losses. Sometimes you may do things like drive behind a building and lose a body of communication that can’t be reconstructed. So in those cases, what you have to do is either start a session over again,  or have a mechanism to detect that and retransmit it. Which they do.

That’s pretty fascination. Oviously this is technology that could be useful to a wide breadth of people. How did you recognize this product as being investible? And how did you go about investing in this product?

Yeah this was a special case. I was on the board of Code-On. And Code-On is focusing on marketing intellectual property, and a lot of the companies that they were dealing with were very academically focused. Not commercially focused. And my feeling was that in order to get a product that was meaningful to the market and could solve the multiplicity of problems that you see, you really needed a skilled commercial team. So I have known the CEO, a fellow by the name of Subhash Roy, for many years. He’s an accomplished technologist, he had a stint in the VC world, he worked for Kodiak Venture Partners for a little while. And basically what I did is put the two ends together. I found Subhash, I was involved with the technology, and I suggested that he explore this. And then what we did is, the angel team that had funded Code-On moved over to capitalize him.

So they did a follow-on investment after their initial investment. Or was this kind of a spin-ff and it’s a little bit different?

Yeah, we did a seed round for him. He subsequently received a series A. So he’s moved beyond. Were all invested and heavily engaged. But he’s got his series A, and at some point he’ll be going for his series B.

Well, that’s obviously great for you as an angel investor to see an entrepreneur receive follow-on funding. Did you help at all with that follow-on funding round. Were you able to introduce him to some venture capitalists? How did that process go about for him?

For that one I did, but he was so involved with the VC community given his background. That he really need much help. He had all the contacts. He knew as many people in the industry as I did. So in Subhash’s case it was really lighting the fuse and to a certain extent standing back as the rocket took off.

Interesting. what’s something that our listeners who want to be , or aspire to be, angel investors—what’s something they can learn from this deal? What’s something they can take from our experience and model in their own life?

Well if you want to be an Angel investor, that’s sort of a complicated question, and certainly it’s a work in progress. The issue you run into is, there’s a tremendous amount of, if you will, companies today that are seeking investment and exposure. Back in the day, when I did Astral Point,  being an entrepreneur was a little bit less common place. And as an angel investor I think the key is to have a relatively high level of discrimination. It’s very easy to invest in something that is not of sufficient quality, and in particular if a company is going to require funding beyond the seed round, you have to think like a venture capitalist to say, is this a company that a VC firm with fund? The funding is usually based on convertible debt. So if I put money into a company, basically that’s a note that says I get a discount when there’s a series A. Problem is is there’s no series A, my investment is worth nothing. Right?

Right. I mean there is a chance they could return the bond with the interest accrued, but that doesn’t normally happen. I’d say that’s a rarity.

You’re dealing with companies who justifiably should be investing all their money in their idea and not worrying about capital return to the investors. It’s very risk laden. And you’ve got to understand you’re playing statistics here. Not everything you invest in is going to succeed. So you have to think about, where do I put my money that has the best possibility? Where is the best team? Where is the large addressable of a market? Where is the disruption factor?

Did you ever have a company that you looked at, you thought about investing in, but you didn’t, but later wished that you had invested in them?

Not yet. The problem is that none of the companies have progressed to the point where you can say there’s successful or not unsuccessful yet. So I mean, if I saw a company is that have a big exit, and opportunity to invest in and I said, “oops, maybe it would’ve been nice”. I know some people who invested in Nest but that was before my time in terms of being an Angel investor. So I’m sure there’s some people could have invested in companies like that and said, “Well smart thermostats? Why do I want to invest in that?” Right?

Well, they would be wrong.

They would be wrong. And sometimes companies that you don’t think are going to make it surprise you. Right? For as smart as you think you are, sometimes the most ridiculous things are the ones that will succeed, and the most well thought out things are the things that won’t.

Isn’t that funny. So, it’s almost a little bit of a gamble on the Angel investor’s part. Would you say there’s other things which really have to be attractive as an Angel investor other than the money? We’ve had other angel investors on here before for instance who’ve said if you’re doing it for the money, you’re doing it for the wrong reasons. Others have said if you’re trying to make money, you probably won’t. Would you say there’s other reasons beyond the monetary factors that enable you to make Angel investments that are really key and core to your beliefs and values?

Yeah, I mean I think we’re entrepreneurs turned Angel investors. Right? So as an entrepreneur, it’s a birthing process, it’s the intellectual process, seeing something grow and create something out in the industry. So I mean, I think Angels have different reasons. Certainly if you’re losing money on every one of them, you’re not going to be Angel investing too long. I think that’s called charitable contributions.

So what are your reasons? Why do you invest?

And why do I invest? Because at my point in my career, it’s a way for me to continue to be involved. Right? I’ve done a startup. I’ve seen everything there is to see about a startup. For me it’s better for me to be able to mentor, to coach, to subsidize—then to get involved in the daily activities of the company. I could coach ten companies. If I took a full time job, I could be involved in one. It’s great to see people develop. You look at a company like Q Factor, we went from two guys having a conversation over coffee, to a series A company that right now has a list of potential customers that are a who’s who? Right? So, it’s an edifying, fulfilling thing. Some people do it just for the money. I know people who do that. Some people specialize. I have a good friend who’s doing clean energy. But I think you’re going to find the motivations are highly varied.

We’re coming up on the end of the interview, but before we do, as usual we have to go through the lightning round of questions where we ask three questions, and then you fire back three answers at us. Does that sound OK to you?

Sounds good, my voice will hold out I hope.

So Bruce, what are you reading right now. What’s on your book stand?

Paths to Power” is the latest one I’m reading. “Paths to Power”. I like reading books about what has happened in the industry and what lessons we’ve learned. One of my favorites is a book called “Optical Illusions” that was about Lucent, ’cause I lived all that stuff.

Interesting. So what’s one piece of advice you’d give to entrepreneurs who are just starting out their business?

Don’t be too quick to decide on what your product is. Make sure that you focus not only on the industry but the best opportunity. I see a lot of entrepreneurs who try to lock and load their product idea, and they don’t necessarily pick the best product or the best opportunity.

Let me dig into that a little bit further. Do you feel like there’s a lack of customer development being done, where they’re not properly finding out their product market fit? Or do you mean from a more holistic perspective of they’re just kind of jumping into something to make money rather than doing something that the market needs or they’re passionate about?

The problem is usually, you come up with a concept and then you try and vet it in the marketplace. And if you vet it properly, very often you to come back and say, “that’s a great idea. But what if I did this?”  Right? Or what if we went to this other market? So it’s a learning process. You’ve got created a trajectory that very hard to change. And if you make a mistake in this day and age, it can be fatal. So the only time you get the chance to really play, is in the beginning. So use that time to try and create the best idea, the best product, and the best market opportunity.

Bruce, as a final question, give us a business idea. What company would you like to see started in the world?

I don’t know, there’s so many problems to solve. I mean when the day is done, what we need to do is figure out what the right problems are to solve. As an engineer that’s always the cathartic moment. You sit there and you go “oh I didn’t know this is a problem. I can solve that.” One of the articles I’ve read said we’re having a Cambrian explosion of startups. That was a time where life sort of exploded after an ice age. What I would personally like to see is well thought out, very high quality companies. I really personally don’t want to see the moccasin companies…I don’t want to see the fourteen wearable technology company, I want to see the companies that are solving fundamental problems, and are fundamentally disruptive.

Taking a page out of the Economist—I like it. So Bruce, thank you for your time, we really appreciate it. If there’s any way entrepreneurs want to get in touch with you. Is that possible? Do you prefer an introduction? How can they reach out to you?

Email address, I do answer emails. It’s Bruce dot Miller the numeric twelve at Comcast dot net.

Well, thanks a lot for your time today. Hopefully you get bombarded with emails from entrepreneurs. And don’t just ask him for money. Maybe you can engage with him in a meaningful conversation. Just because he’s an Angel investor doesn’t mean he wants to invest in your company. Reach out to him and get to know him first.

If you want interaction, I’m happy to do that. I don’t normally sound like this. I usually sound a little clearer so again apologize for the voice. If you want to discuss an idea, one of the things I always tell people is talk to the people who’ll tell you their mistakes. Because you can’t recreate success, but mistakes are usually invariant.

I’ll tell you my mistakes.

That’s a great quote to end on. Thanks very much, we appreciate your time.

Photo credit: Svenstorm / Foter / CC BY-NDangel statue

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Part 2:

Today we’re joined by Bruce Miller who is an Angel investor and technologist based out of Boston, Massachusetts. Bruce is a smart guy. He’s got a couple patents to his name. And he wants to talk to us today about investing in Boston, a little company he’s got going out in South Dakota, and packet loss technology. So stay tuned and we’ll get to all of that. But first could you introduce yourself, and tell us a little bit about your background?

Sure, my name is Bruce Miller. Today I’m operating as a consultant and Angel investor. I’m a technologist by background. I have a set of degrees from Rensselaer Polytechnic Institute back…probably embarrassingly way back, I graduated many years ago. And my background includes medical instrumentation, fault tolerant computing, artificial intelligence, and more recently data communications and telecommunications. I started with a little company called Wealthly back in the nineties, and that became a company called Bing Networks ultimately part of Nortel, probably companies that you recognize. I went off at that point and started a company called Astral Point Communications, and we developed some of the early optical technology that went into the networking infrastructure. We were ultimately bought by Alcatel. And I stayed on with Alcatel for about five years, operating as the lead strategist and technologist for the North American Optical Division. And after that I’ve got involved in data center technology. I was working with a company called Force Ten Networks out of California, which fairly recently got acquired by Dell. And now I’m back to my roots which is more small stuff, more individual level stuff. I’m very involved with my investments, and I have a reasonably busy consulting agenda.

So can you tell us about those Angel investments you’ve made recently? Because there’s some interesting companies there, and I’d love to talk about some of those.

Yes I’m probably more diversified than most of the angels that you’re used to dealing with. I’m a technology guy, and a lot of the angels you deal with to the comfort zone and stay there. I tend not to do that, part of the reason is, opportunities come in lots of forms. And also for me it’s more interesting to be involved in a variety of different areas. Right now I’m heavily involved with four companies and four areas. One of them is a social networking company called Pingup. It was originally called Gettable. And this is a company that operates out of what Massachusetts is calling the innovation district. We have a bit of a migration from the innovation area, which used to be in the shadow of MIT, to the waterfront. So it’s kind of interesting to see the waterfront becoming more of a dynamic environment. I have a second company that I’m invested in which is in MIT’s spinout. It was started by a group of MIT, University of Porto, and Cal Tech professors called Code-On Technologies. I have a third one which was started by a good friend of mine, I was sort of instrumental in helping get him going which called Q Factor Communications, and the fourth one, which is completely different, is called BBT Homes and we’re building residential housing up in North Dakota. And there’s a reason for that. We didn’t pick North Dakota because we threw a dart at a map or anything.

So what’s the reason for that? Shale exploration?

Yeah, it’s fracking. What’s going on up there is, housing is a rare commodity because of the infrastructure growth. So we chose that area because we knew there would be a demand. And it sort of fit our model for what we could build and what we thought we could make money.

That’s a scalable business, and there’s clearly a demand. There’s a lot of cash-rich people with nowhere to put the cash right now, and supplying them with a single-family home  makes a lot of sense. But this is a technology podcast, Bruce, so tell us about Q Factor.

So let’s go back to technology. You don’t want to hear about lumber and concrete.

Maybe in another podcast

So let’s go back to technology.

The have a multiplicity of patents. The formation of the company occurred initially by leasing intellectual property rights out of Code-On Technologies. And then subsequently augmented that with…the last time I talked to them, about a half dozen patents of their own.

Interesting, so can you tell us a little about the technology. And you don’t have to reveal anything proprietary, obviously. But  explain to the listener what Q Factor does in terms packet loss, why when they’re using their iPhone, it slows down, and why Q Factor thinks it has the technology to solve that problem.

Ok I mean what happens is, there’s a technology out of MIT based on randomized packet encoding. And this was a technology that’s been developed, as I said, by multiplicity of universities. What it does is it basically takes packet information and encodes it as coefficients and spreads this misinformation out over a communication stream. And what that does is it says that when you have sort of randomized errors – packet drops, there are certain cases where you can reconstruct that information, and the technique is very low overhead.

So if I could explain that in layman’s terms, you’re seeing a particular pattern and then you’re using an algorithm to predict what should be there. Because when there’s packet loss, there’s a loss of information. And this technology basically substitutes that lost information without actually having tho pull it over the Wi-Fi network. Am I correct in saying that?

Well that’s fairly close, and they use of multiplicity of techniques, so we’ll talk about several if there are interest. So, basically think about it as adding a small amount of information to a packet, which can encode the packet stream and spread out fashion, so if you lose one piece of information, the information that’s spread out can be recompiled to recreate that packet.

Ok, so that’s slightly different from what I said. That’s interesting. So it’s actually coming from the origin.

Correct! And they’re multiple techniques. One technique is called randomized network coding, in which you don’t need to have communication between the source and destination. The algorithms can operate independently, and the reconstruction can be independent. Or you can have deterministic where, if you will, there is information exchanged, and the two ends can figure it out in concert. So what they can do, if you look at things like Wi-Fi networks, and you look at things like cellular networks, one form of loss is based on sort-of randomized dropouts. And when you get a packet drop, algorithms like TCP are not very gracious. When TCP was designed…I don’t know if you guys know what TCP is, I don’t know my audience so maybe I should define by acronyms. TCP is the fundamental control protocol that handles data transfers across the internet. And it’s an algorithm that was designed to be opportunistic. So basically it tries to shove a lot of information through the communication infrastructure, and when it sees things slow down or there’s a drop, it reels it way back down again. It says, “Oops, I got to go down to something  little because I started losing throughput. And the problem with that is, in this day and age it can really screw up your communication in terms of the fidelity and efficiency of the network. So having any sort of packet drop in a communication network today is a really bad thing. Think of watching a movie, and you lose a key piece of information and your movie has to reconverge again. Right?

Right. this is stuff that is technically complicated, but it basically affects anyone with a smartphone or a tablet. It’s interesting technology because it’s looking to replace the IP protocol with something that is more designed for a wireless or a Wi-Fi connection.

Yeah, well it augments it. It can work in a domain which is graceful, you don’t have to change the end protocols. So this basically lives in the middle, dealing with the impairment. So if I have something like a cellphone, I can run their app on a cellphone, so the cellphone is a termination point and the other termination point can be on a server in the cloud. So the communication link between the server and your endpoint is covered by their algorithm. The other things to pay attention to, are things like burst mode losses. Sometimes you may do things like drive behind a building and lose a body of communication that can’t be reconstructed. So in those cases, what you have to do is either start a session over again,  or have a mechanism to detect that and retransmit it. Which they do.

That’s pretty fascination. Oviously this is technology that could be useful to a wide breadth of people. How did you recognize this product as being investible? And how did you go about investing in this product?

Yeah this was a special case. I was on the board of Code-On. And Code-On is focusing on marketing intellectual property, and a lot of the companies that they were dealing with were very academically focused. Not commercially focused. And my feeling was that in order to get a product that was meaningful to the market and could solve the multiplicity of problems that you see, you really needed a skilled commercial team. So I have known the CEO, a fellow by the name of Subhash Roy, for many years. He’s an accomplished technologist, he had a stint in the VC world, he worked for Kodiak Venture Partners for a little while. And basically what I did is put the two ends together. I found Subhash, I was involved with the technology, and I suggested that he explore this. And then what we did is, the angel team that had funded Code-On moved over to capitalize him.

So they did a follow-on investment after their initial investment. Or was this kind of a spin-ff and it’s a little bit different?

Yeah, we did a seed round for him. He subsequently received a series A. So he’s moved beyond. Were all invested and heavily engaged. But he’s got his series A, and at some point he’ll be going for his series B.

Well, that’s obviously great for you as an angel investor to see an entrepreneur receive follow-on funding. Did you help at all with that follow-on funding round. Were you able to introduce him to some venture capitalists? How did that process go about for him?

For that one I did, but he was so involved with the VC community given his background. That he really need much help. He had all the contacts. He knew as many people in the industry as I did. So in Subhash’s case it was really lighting the fuse and to a certain extent standing back as the rocket took off.

Interesting. what’s something that our listeners who want to be , or aspire to be, angel investors—what’s something they can learn from this deal? What’s something they can take from our experience and model in their own life?

Well if you want to be an Angel investor, that’s sort of a complicated question, and certainly it’s a work in progress. The issue you run into is, there’s a tremendous amount of, if you will, companies today that are seeking investment and exposure. Back in the day, when I did Astral Point,  being an entrepreneur was a little bit less common place. And as an angel investor I think the key is to have a relatively high level of discrimination. It’s very easy to invest in something that is not of sufficient quality, and in particular if a company is going to require funding beyond the seed round, you have to think like a venture capitalist to say, is this a company that a VC firm with fund? The funding is usually based on convertible debt. So if I put money into a company, basically that’s a note that says I get a discount when there’s a series A. Problem is is there’s no series A, my investment is worth nothing. Right?

Right. I mean there is a chance they could return the bond with the interest accrued, but that doesn’t normally happen. I’d say that’s a rarity.

You’re dealing with companies who justifiably should be investing all their money in their idea and not worrying about capital return to the investors. It’s very risk laden. And you’ve got to understand you’re playing statistics here. Not everything you invest in is going to succeed. So you have to think about, where do I put my money that has the best possibility? Where is the best team? Where is the large addressable of a market? Where is the disruption factor?

Did you ever have a company that you looked at, you thought about investing in, but you didn’t, but later wished that you had invested in them?

Not yet. The problem is that none of the companies have progressed to the point where you can say there’s successful or not unsuccessful yet. So I mean, if I saw a company is that have a big exit, and opportunity to invest in and I said, “oops, maybe it would’ve been nice”. I know some people who invested in Nest but that was before my time in terms of being an Angel investor. So I’m sure there’s some people could have invested in companies like that and said, “Well smart thermostats? Why do I want to invest in that?” Right?

Well, they would be wrong.

They would be wrong. And sometimes companies that you don’t think are going to make it surprise you. Right? For as smart as you think you are, sometimes the most ridiculous things are the ones that will succeed, and the most well thought out things are the things that won’t.

Isn’t that funny. So, it’s almost a little bit of a gamble on the Angel investor’s part. Would you say there’s other things which really have to be attractive as an Angel investor other than the money? We’ve had other angel investors on here before for instance who’ve said if you’re doing it for the money, you’re doing it for the wrong reasons. Others have said if you’re trying to make money, you probably won’t. Would you say there’s other reasons beyond the monetary factors that enable you to make Angel investments that are really key and core to your beliefs and values?

Yeah, I mean I think we’re entrepreneurs turned Angel investors. Right? So as an entrepreneur, it’s a birthing process, it’s the intellectual process, seeing something grow and create something out in the industry. So I mean, I think Angels have different reasons. Certainly if you’re losing money on every one of them, you’re not going to be Angel investing too long. I think that’s called charitable contributions.

So what are your reasons? Why do you invest?

And why do I invest? Because at my point in my career, it’s a way for me to continue to be involved. Right? I’ve done a startup. I’ve seen everything there is to see about a startup. For me it’s better for me to be able to mentor, to coach, to subsidize—then to get involved in the daily activities of the company. I could coach ten companies. If I took a full time job, I could be involved in one. It’s great to see people develop. You look at a company like Q Factor, we went from two guys having a conversation over coffee, to a series A company that right now has a list of potential customers that are a who’s who? Right? So, it’s an edifying, fulfilling thing. Some people do it just for the money. I know people who do that. Some people specialize. I have a good friend who’s doing clean energy. But I think you’re going to find the motivations are highly varied.

We’re coming up on the end of the interview, but before we do, as usual we have to go through the lightning round of questions where we ask three questions, and then you fire back three answers at us. Does that sound OK to you?

Sounds good, my voice will hold out I hope.

So Bruce, what are you reading right now. What’s on your book stand?

Paths to Power” is the latest one I’m reading. “Paths to Power”. I like reading books about what has happened in the industry and what lessons we’ve learned. One of my favorites is a book called “Optical Illusions” that was about Lucent, ’cause I lived all that stuff.

Interesting. So what’s one piece of advice you’d give to entrepreneurs who are just starting out their business?

Don’t be too quick to decide on what your product is. Make sure that you focus not only on the industry but the best opportunity. I see a lot of entrepreneurs who try to lock and load their product idea, and they don’t necessarily pick the best product or the best opportunity.

Let me dig into that a little bit further. Do you feel like there’s a lack of customer development being done, where they’re not properly finding out their product market fit? Or do you mean from a more holistic perspective of they’re just kind of jumping into something to make money rather than doing something that the market needs or they’re passionate about?

The problem is usually, you come up with a concept and then you try and vet it in the marketplace. And if you vet it properly, very often you to come back and say, “that’s a great idea. But what if I did this?”  Right? Or what if we went to this other market? So it’s a learning process. You’ve got created a trajectory that very hard to change. And if you make a mistake in this day and age, it can be fatal. So the only time you get the chance to really play, is in the beginning. So use that time to try and create the best idea, the best product, and the best market opportunity.

Bruce, as a final question, give us a business idea. What company would you like to see started in the world?

I don’t know, there’s so many problems to solve. I mean when the day is done, what we need to do is figure out what the right problems are to solve. As an engineer that’s always the cathartic moment. You sit there and you go “oh I didn’t know this is a problem. I can solve that.” One of the articles I’ve read said we’re having a Cambrian explosion of startups. That was a time where life sort of exploded after an ice age. What I would personally like to see is well thought out, very high quality companies. I really personally don’t want to see the moccasin companies…I don’t want to see the fourteen wearable technology company, I want to see the companies that are solving fundamental problems, and are fundamentally disruptive.

Taking a page out of the Economist—I like it. So Bruce, thank you for your time, we really appreciate it. If there’s any way entrepreneurs want to get in touch with you. Is that possible? Do you prefer an introduction? How can they reach out to you?

Email address, I do answer emails. It’s Bruce dot Miller the numeric twelve at Comcast dot net.

Well, thanks a lot for your time today. Hopefully you get bombarded with emails from entrepreneurs. And don’t just ask him for money. Maybe you can engage with him in a meaningful conversation. Just because he’s an Angel investor doesn’t mean he wants to invest in your company. Reach out to him and get to know him first.

If you want interaction, I’m happy to do that. I don’t normally sound like this. I usually sound a little clearer so again apologize for the voice. If you want to discuss an idea, one of the things I always tell people is talk to the people who’ll tell you their mistakes. Because you can’t recreate success, but mistakes are usually invariant.

I’ll tell you my mistakes.

That’s a great quote to end on. Thanks very much, we appreciate your time.

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