Takeaways from Qualgro Partners Sharing Session/Masterclass

“For every 100 companies a Venture Capital (VC) firm meets, only 4 to 5 receive funding from the firm”

With hundreds of promising young startups out on the market, how should young, early-stage VCs approach the deal-sourcing and due diligence process?

The Protege Ventures team was delighted to have the opportunity to host Lim Yi Chao, an Associate from Qualgro Partners to share some insights on the startup evaluation process, especially deep diving into founder evaluation.

With over 30 investments in early-stage Data, SaaS and AI B2B startups across Southeast Asia, Australia and New Zealand since the fund’s inception in 2015, Qualgro Partners is one of Southeast Asia’s leading technology-focused VC firms. The team’s current and past portfolio includes the likes of Taiwan-based unicorn, Appier, peer-to-peer lender — Funding Societies, R&D analytics company — Patsnap and cashback rewards platform Shopback, amongst others.

Apart from sharing the team’s philosophy for evaluating potential investments, Yi Chao also shared about his experiences working on investments in areas such as enterprise SaaS, data, EdTech, HR-Tech as well as his personal thoughts on what makes a good founder and team in the early stages of the due diligence process.

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Here are some takeaways from the analysts:

1) Early-stage Startup evaluation tends to be more qualitative than quantitative

Despite having rigorous frameworks in place, Yi Chao shared that many of the key attributes considered ultimately boil down to a holistic assessment of not just quantitative metrics such as the company’s traction and risk, but also the team’s founder and its competitive advantage, which are more qualitative in nature.

This is because risk-return and traction tends to be harder to assess in early-stage startups, particularly ones in emerging technologies where data on a product’s attractiveness and potential market demand is either unavailable or hard to forecast.

Instead, Yi Chao suggests that analysts place more emphasis on make-or-break factors that are likely to lead to a startup’s success or demise such as its founder’s vision, capabilities in building both its team and product, the team’s values and its receptiveness to adapting to difficult situations and questions.

2) There’s no one right way to evaluate teams

Each firm or VC may have its own framework to evaluate founders and teams, and even then each start-up team dynamic is different. Across many different preliminary meetings, it is common to meet many different founders, team dynamics, and products — this calls for a bit of flexibility in mindset and framework in order to properly evaluate how good the team may be.

Yi Chao raised a particularly interesting angle to look at when meeting teams, which is the fit of the founding team in their respective roles, in terms of their knowledge and skillsets. The most optimal matches come when the individuals understand what the roles entail and have relevant experience and/or expertise at that particular aspect of the business. For example, individuals who are good at painting a bigger picture and connecting with people are good candidates for the CEO role, given that CEO is generally the one driving the overall business with more focus on the commercial aspect.

“Try to find out the motivation behind the creation of the product line and link it back to how you think each founder can complement each other and contribute directly,” is one advice Yi Chao gave when approaching the evaluation of founders’ dynamics. Ultimately, each team may require a different approach, and it’s up to us as VCs to be able to make a judgement call on the ground.

3) Cast away the mental models and stereotypes

It’s easy to categorize people into molds once we get to know their background in black and white. Qualgro Partners interacts with startups and founders across the Southeast Asian and Oceanic regions, and it makes up for a rather diverse and inclusive group of portfolio companies.

“Sometimes founders are underestimated because of the language barrier,” shares Yi Chao. For founders who don’t speak English as a first or second language, it’s easy to dismiss them as poor speakers and poor ideas, but that’s not necessarily the case. In fact, the contrary is more common, as Yi Chao can attest when speaking to founders in places like Vietnam and Indonesia. Looking past our biases can very well lead us to the brightest of products and ideas.

This applies too, when comparing first-time and repeat founders. We may evaluate them on their ability to attract talent and their traction, but to base our judgement simply off the number of times they’ve tried their hand at founding a startup would be plain unfair.

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Concluding Thoughts

To conclude, the key takeaways are to look beyond the numbers and withhold superficial judgement. Evaluation of startups goes beyond the tangible metrics, and we encourage everyone to keep an open mind and look beyond what is observed on the surface.

Once again, a very big thank you to Yi Chao and the Qualgro Partners for very generously sharing their time and experience with the team. We hope that you’ll find our insights meaningful, and stay tuned for more as we continue our learning journey!

Done by:

Anaanya Elizabeth Bijay

Jordan Ang

Chuan Yang Chua