Swanky offices and smart suits are often associated with the glamorous world of venture capitalism, but Ku Kay Mok, a partner at venture capitalist firm Gobi Partners eschews this stereotype, preferring to align himself with the start-up culture of the firms in which he invests.
Dressed in a short-sleeved shirt and casual pants and more likely to be composing his memos while flying on a budget airline, he said: "When I started out, I was a 'kopi' venture capitalist - I sat in Ya Kun cafe every day and listened to a pitch every hour."
Gobi's start-up philosophy is what differentiates it from other venture capitalist (VC) firms, he said. Unlike other VC firms here, which work with sponsored funds and thus do not undertake fund raising, Gobi Partners is a "real venture fund" that raises its own money, he said.
And this is the toughest part of the job, he added. One needs to go through it for a feel of what entrepreneurs go through. He pointed out that the fact that employees of other VC firms neither raise their own funds nor own the funds they manage creates a misalignment of incentives. They thus focus more on protecting the downside.
Employees may stand to lose their jobs if they make a mistake; on the other hand, they do not directly partake in profits which accrue to the entrepreneur.
Gobi's business model of "carried interest" thus ensures that there is a greater focus on the upside from the alignment of incentives in that employees do get a direct share of profits. Mr Ku said that Gobi's business model is encapsulated in three song titles - Come And Get It, Price Tag and One In A Million.
First, Mr Ku explains that as Gobi is a Series A venture capital fund, companies that approach it have to be ready with their product to "come and get it" at the first institutional round, as Gobi does not do seed funding.
Second, as the lyrics of Price Tag go, it is not just about the money. Gobi considers factors other than the valuation of a company.
Third, Gobi is always looking for that "one in a million" firm. It invests in fewer than 10 deals out of the thousands it assesses.
With an investment focus on early-stage IT and digital media companies in China and South-east Asia, Gobi, which has offices in Singapore, Hong Kong and China, manages four China funds with portfolio sizes ranging from S$30 million to S$190 million, and one Asean fund with a portfolio size of S$30 million.
Its focus on the Asian market means that its job requirements differ from that of VCs in more developed Western markets. Unlike in Silicon Valley, where it is relatively easy for a VC to source for professional chief executives to scale up the company that has outgrown its founder, there tends to be fewer professional chief executives available in Asia. Hence it is crucial to pick the right entrepreneur, said Mr Ku.
Market execution is key
"In Asia, you do and die with the entrepreneur - the entrepreneur is key."
He added that while a company's patents may be relevant for VCs in Silicon Valley, it is less so in Asia, where the exploitation of technology is of greater importance. For start-ups here, the key factor is market execution, he said, so it is critical to consider whether the entrepreneur can grow the company and outcompete the rest. What are the qualities of such entrepreneurs? Mr Ku said he prefers entrepreneurs who have had some prior experience.
Picking the right entrepreneur to back is often based on gut instinct, on intuition, he said, much like buying durians - "once you've seen enough, it becomes an intuitive process".
Mr Ku said that undertaking venture capitalism is not just about having analytical skills, but also about the relationships one cultivates. "The relationship you have with the entrepreneur is a bit like that of husband and wife - Behind every successful man, there is a woman. Likewise, the entrepreneur is at the front line, and I am the one supporting the entrepreneur from behind."
As the venture capitalist is removed from the day-to-day operational issues of a business, he is able to provide a listening ear and serve as a partner with whom the entrepreneur may brainstorm, he said.
Mr Ku's instincts and relationships with entrepreneurs have led to notable successes in the Asean fund he manages: of the seven companies Gobi has invested in over the past two years - they include DeClout Limited and Apps Foundry - there have been three exits, one up-round, and one management buy-out.
These successes were aided by a strong understanding of the unique differences of the markets in which Gobi operates. Mr Ku said that while the Chinese market is characterised by its homogeneity and a high-risk, high-return environment in which returns may reach up to a hundred fold, the Asean market is not as scalable.
Diverse set of challenges
Returns in Asean are thus lower than those in China, but tend to be less risky and can be realised sooner. These differences in market structures have given rise to diverse sets of challenges and opportunities faced in the Chinese and Asean markets.
Mr Ku observed that in China, there is often room for only one player, so "even if you're No 2 in market share, it may not be a sustainable business"; this is due to consumers gravitating towards the application that is used by others.
"This is why in China, there is only one WeChat and one Weibo. In China, you've got to invest in the guy who'll be No 1," said Mr Ku.
However, he notes that this is difficult because of the dominance of top players in China, which he describes as "10-year old start-ups with scale"; their nimbleness and scale tend to inhibit the growth of new start-ups.
In the Asean market, on the other hand, there is no such winner-takes-all situation because of the fragmented nature of the market, said Mr Ku. Although the various countries in the grouping have home champions, no single player dominates the entire Asean region. It is thus possible for multiple winners to co-exist.
This presents a different set of challenges, as companies tend to be tied to their home markets; it is thus difficult to scale up and expand regionally when they achieve growth. This is where regional venture capitalism plays a role - specifically in cross-border mergers and acquisitions.
"When these companies need to go regional, the only way forward is to merge," he said.
The Asean market also presents unique opportunities due to its young population; those aged below 20 comprise a third out of the region's 600 million population. It is the demographic which drives demand for digital media, IT services and the adoption and innovation of new technologies, said Mr Ku.
To capture this potential, Gobi is starting a second Asean fund of an estimated US$100 million, to be launched next year. "We are keen on Asia because this is where the young population is and where growth is coming from," he said.
Indeed, he noted that China's current restructuring of its export- and investment-led economy to a more consumer-driven one presents opportunities for investments in consumer products and services in the country.
"China will be the next US. Once you have a consumer-driven economy, you not only buy from your own country, but also import from overseas, so the prospects are great."
Gobi is constantly on the lookout for the next "one in a million" firm. Mr Ku said: "Venture capitalism is all about the future and is driven by underlying trends."
For instance, social media has been the dominant driving force in the past decade. It has set the stage for the next major trend - that of online social and mobile media directing consumers to offline businesses using significant discounts in the same way Groupon is doing, said Mr Ku. He predicted that the combination of two previous revolutions - that of the rise of the personal computer and the Internet - will create "a much bigger wave of social commerce in which purchases are driven by comparisons with others".
Amid these changes, Gobi's philosophy of supporting start-ups will remain constant. Mr Ku said: "We can work well with start-ups because we believe in the value of start-ups - in a sense we are the start-up behind start-ups."