Meet The VCs Series – Quest Ventures

Attended an event hosted by Found8, as part of its fireside chat series with leading VCs in Singapore. Founded in 2011 by James Tan and Yunming Wang in Beijing, Quest Ventures is arguably a well-respected and known seed/series-A VC in Singapore that focuses on technology investments in the Southeast Asia region. Quest has been consistently featured in the press for not just the investments it has made, for example it the online-classified startup Carousell, but also for the founders’ insightful interviews and more notably recently, its adoption of environmental, social and governance (ESG) focus for its corporate social responsibility (CSR) activities by Khor Qianyi.

My first (online) contact with James was when he did an AMA on Asia-focused technology media company Tech-in-Asia’s website, which was extremely insightful as he patiently answered the many questions raised. I was hoping to hear James’ view of investment in the Southeast Asia region, Quest’s approach of screening and making investments, the investment thesis of its new fund, which is the first time the firm is raising capital from limited partners (LPs) and also of his own journey from being a founder and then a VC. Beyond that, I wanted to also hear what questions people had for him (I had though there would be a bit of pitching) and how he answers them. I had also previously heard from Yiping (co-founder of MataharilMall.com, Lippo Group-backed omnichannel fashion eCommerce) on her thoughts of startups expanding their business globally into Southeast Asia and Europe and was curious to hear James’ thoughts on that.

Some of the key questions that were aimed to be covered were:

  • What Quest looks for when making an investment into a startup
  • Investment thesis of your new fund and how that differs from the previous fund
  • A startup’s journey from early-stage to growth stage in Singapore (drawing on James’s and Quest’s long-term experience in growing the startups in our country)
  • Lessons learned from startups that have failed
  • Tips and tricks for the startups looking to raise from Quest and more

Fireside chat moderated by Germaine Inez Tan from Found8

  • James’ experience studying and working in China
    • Learned about the significance of SoLoMo (Social, Local, Mobile) in marketing
      • It is “an acronym that applies to the integration of one’s social media platforms and physical location with one’s mobile device”
    • Learned the importance of diversification, as a large proportion of wealth was tied up in one company (55tuan) – then, Quest was parked under 55tuan and when 55tuan was listed, it continued to function as an investment vehicle in the company
    • He relocated back to Singapore (he is Singaporean) in 2018 after 10 years in China (He had gone to Tsinghua under a Singapore public service scholarship but did not fulfill the obligation to serve a bond, related to building a business (relations) between the countries
  • When did James make his first investment in Singapore?
    • This was in 2011 in Burpple, then an online food journal, which, in 2015, became a platform for anyone to contribute and discover reviews, and in 2018 launched a subscription plan for 1-for-1 deals with restaurants
    • James had met the team in Stanford while he was having a burger and got in contact with them due to their Singaporean accent, telling them to let him know when they decide to found a company
  • How he decides to make an investment, how much emphasis there is on “investing in founders” rather than the company
    • Quest invests in all deals because of the founders
    • He recalls that they invested in Carousell (online C2C marketplace for buying and selling new and secondhand goods) when it was called Snapsell, and how he was impressed by the team
    • He is also comfortable with writing a check pre-launch of a company, just based on his impression of the founders
    • Quest does not care about patents because the market is the ultimate decider and what a company is doing can likely be done (copied) in some other form
    • The founders need to be complementary to each other (互扶) and well balanced – there can be gaps but they must be open to addressing them
    • These companies must be both replicable and scalable
  • What idea or markets Quest is looking at
    • Anything that Quest invests in will not be popular for at least a few years, for example, bitcoin quite a while ago, and agriculture a few years ago
    • Currently, James believes that children (education) technology, for those of ages 1-9 will be the most relevant, since these are the transformative ages for children and when they are the most malleable
    • In terms of geography, Vietnam and/or the Philippines are the focus, as Indonesia is very saturated and they invest in companies there for the presence
    • The Philippines and Thailand have had their runs and opportunities with fair valuation are harder to come by
    • There is no focus on Taiwan and Hong Kong because the much larger Chinese market is adjacent to it and presents a far better opportunity
  • The success metrics of a company
    • Depends on what sector the company in, for example for eCommerce it would be Gross Merchandise Volume (GMV) and for a market place it could be the liquidity in the market place
  • Any further details on the Open Fund – Ticket size, what sort of valuations?
    • The fund is called “Open Fund” because the team is open to investing in everything, from seed to series A, and in contrast to the previous fund, can also do a follow-up funding
    • They are willing to do write up to a $1M check size, however, if the company is raising for the first time, this goes down to $500K, although they can also write checks as small as $50K, with total investment up to $2M over the life of a company
    • If the company has no fundamentals (i.e. traffic, revenue) to show, $1-5M is the valuation they will give just based on the founders
      • The difference between companies in that spectrum can be inferred relative to Carousell, which was valued at $1M initially
  • His thoughts on exits on investments and what the success rate of Quest is
    • It is rare in Singapore and anyone who has done so successfully will have no lack of suitors if they decide to raise
    • Quest has invested in 50+ companies and 40+ of them are still active
  • His thoughts on solo founders and what he looks out in them and if he will invest in companies founded by them
    • There are some companies they have invested in that are founded by individuals but these people are more technology-centric
    • A technology founder does not necessarily need a partner or employee that is business-centric but needs to be clear on what he wants and needs
    • James is less enthusiastic about a business-centric founder with an outsourced technology team (in an overseas location) as it is very hard for the founder to have oversight
    • He made clear that a “technology” founder does not necessarily imply knowledge in coding, but, rather, is a subject-matter-expert in what the company intends to do – for example, an agriculture firm founder is an expert in seeds
  • Biggest learning lesson in his investing career
    • The founder chose to give up and if they had just waited maybe 1.5 more months, that would have been a business contract that would have helped
  • What sort of cashflow runway or financial health does he look for in a company?
    • 18 months of cashflow run way, 1-12 months to show growth and traction and in month 13 they will use the achievement in the first 12 months to fund raise and have money in the bank by month 16, with 2 months of buffer left
    • The company that has raised the fastest most recently is Shopback (Singaporean-based digital loyalty and discovery platform that utilizes a cashback reward program), which is now raising once a year
  • What value does Quest bring that makes it competitive in the VC space?
    • Quest family network, where old and new founders are able to exchange learnings and advice through an internal chat group, as well as events
    • Examples of collaboration are event companies featuring Shopback GO
  • How much should founders be paying themselves?
    • This differs from a household (VC) to household and Carousell founders were paying themselves $1K a month until they raised a substantial amount
    • James feels that the “suffering” does not necessarily have to be very long and can be a badge of honor for the founders
  • When and how would James encourage a digital technology company to explore overseas markets?
    • 5 years ago the advice would be to look regional if there is an MVP (Minimum Viable Product) in Singapore
    • However, now they should take the approach that even if there is an MVP, if there is no regional player that has emerged, the company should continue growing locally and gain a better footing first, wait for another company to learn and test the market for them
  • How much does he believe acquisitions are required for regional expansion?
    • Most of the portcos have made acquisitions
    • Generally, these are done using stock-cash mix with more stock because the intention is to work with the founders of the acquired company
  • What is one pitch that stood out?
    • James receives 40-60 business plans a day, scheduling 3-4 meetings
    • On average, an investment is made every month
    • If a business plan is received through someone who the company trusts, a meeting will be scheduled – they have never rejected any plan referred by one in their network
  • Elaboration on the company’s Environmental, Social and Governance (ESG) plans
    • As compared to traditional PE firms, there are fewer VCs that focus on ESG
    • James thinks that companies can be significantly leveled up by focusing on ESG
  • Thoughts on dilution
    • James believes that for any fundraising before Series A, founders should, collectively, have the veto-power of at least 51% ownership
  • Does Quest make equity and/or convertibles investments?
    • The second fund does equity only but if the lead investor, which is rarely not Quest, wants to do convertibles instead, Quest will consider it too

Further reading