EHK Chats with Early Stage Investor Ming Lee
Ming Lee is the CEO/CIO of CAIDAO CAPITAL Limited, actively invests and advises start-ups in the region, with a focus on the Fintech, consumer and internet related spaces. Ming is also a Startup Garage mentor.
This interview with Ming Lee was conducted and condensed by EntrepreneurHK (EHK).
1. What are the common characteristics of a “fundable” startup?
As a general rule, we think a “fundable” startup should have a big addressable market, a reasonable business model and high execution capability. We often see start-ups overestimating their addressable market, to include certain sectors or geographical regions which they have no idea how to expand into. We like ideas, but we focus more on the founder/team’s ability to execute, therefore, we always ask for the current status of the company and how long it will take to have the official launch. We tend to stay away from startups with no substance. In terms of business model, of course, we are interested in start-ups with high technology and IP, however, we know it is not easy to come up with a complete new idea, product or service, and most of the start-ups we have seen do not belong to this category. They either try to improve the business model of existing players or target a country/region which the goods/services are not available.
2. What is the one thing that you always look for when you evaluate startups?
We always look for a solid, stable and experienced founding team. It is common for a startup to go through bad times due to numerous reasons (e.g. mis-execution, regulation change, fierce competition, pivot of business model). Whether the founders can stay focused, persevere under stressful situations, and still be able to process feedback and pivot — is a big ask. Critical though is perseverance and a dogged belief in what you are building.
3. What are the big “red flags” that indicate you should pass up on an idea/startup?
Startups who constantly miss their forecast. We will follow a startups for months before investing, maintaining a regular dialogue with the founders and/or team. We monitor their business and product development and compare it with the original forecast from founders. We need to develop trust with the teams and see who is realistic and who can deliver what they promise vs those who just dream. Founders, though, definitely need to have big dreams! As a long-term investor, we like startups with billion dollar dreams, but execution is where many companies fail and it is therefore crucial in our evaluation. Another red flag are start ups who aren’t willing to bootstrap enough to fight to win at all costs. Bootstrapping is an overused term, but it provides a start up with invaluable experience and is part of the school of hard knocks which separates the gemstones from the rubble.
4. The founder(s)’s personality vs. startup idea, which one is more important?
A founder(s)’s personality is more important than the idea. Startup ideas are important, but ideas need people and leaders to make those ideas a reality. Nowadays, the whole startup environment is becoming more transparent, which makes it less possible to hide ideas or for good ideas to be copied or stolen. Even with the same concept, different startups may come up with different strategies, and implement their visions differently.
5. A lot of start-ups / people are reluctant to talk about their ideas, whether it is with investors or friends, fearing that the “unique” idea will be copied. How important would you consider sharing is at an early stage?
As mentioned, ideas are just ideas, and we seldom see truly disruptive, unique ideas. That’s the reason why we pay a lot of attention to the competitive landscape in the pitch deck. Investors like startups who are open to share their ideas, which indicate the founders are not afraid of being copied and the business has a high barrier of entry. Barriers of entry do not necessarily come from technology, but can also from the founding team’s unique expertise, network and attitude.
6. What are some key pieces of advice you would give to new startups out there?
First, understand the problem and need. It may not work to copy the same model from one country to another country, or from one sector to another sector. For example, the success of e-commerce in China does not mean it can be successful in other regions. Every market may have their unique needs and problems. Second, do as much research on the existing market and whole supply/demand as possible, and discuss with various industry participants before approaching investors. It is possible that investors have seen similar models before or are experts in the sector. Third, demonstrate that you are more likely to be successful. Investors like companies who have done enough work to flush out/develop their core products, or at least can demonstrate that the product is viable. Lastly and most importantly, entrepreneurs should be passionate, and truly willing to devote themselves to the new venture — never give up!