EHK Talks to Angel Investor Simon Squibb – Part I
This interview with Simon Squibb was conducted by Nathaniel Suen and condensed by Maria Antonia Mier and Selena Li of EntrepreneurHK.
As an angel investor for over 18 years, Simon is dedicated to bringing ideas to life and helping the next generation of entrepreneurs in Hong Kong achieve their dreams. As the founder of an award-winning, globally respected creative agency, Fluid, Simon has worked with an impressive list of clients and brands. He is also CEO of NEST Investments, Hong Kong’s first full-service incubator investment platform.
1. How is the early-stage investment scene in Hong Kong? Are there lots of angel and early-stage investors in the city?
I have been in Hong Kong for over 18 years. I was on the entrepreneur side of the equation – I started business from scratch and build them. I am not the typical angel who tends to come from a finance background. In the past, I raised money myself and I know how hard that was. I used to do angel investing on the side when I saw really talented people, and it’s only in the past 4 years that I have really been on the other side, focusing full time on my angel investing.
In Hong Kong there are a huge amount of angels and people who have the money to invest in young companies. I think Hong Kong has been quite spoilt for the last 10 years or so with property doing so well, the stock market has been buoyant and trustworthy. Now interest rates are practically zero and people are starting to drift away from the stock market. I believe that money always follows opportunity, and a lot of angels have recently been popping up. A lot of people now are looking at startups as an opportunity.
In my organization NEST, we are focused on being more than just angels. We think that entrepreneurs need money and help, so we are focused on both. We supply capital and even more importantly, we provide support to them. At NEST we have good angels who focus on the investing and also full time people who are there to help the entrepreneurs in many other ways.
EHK talks to Simon.
2. Asia has far fewer VC firms and institutional investors than the Valley, and all the top dogs (i.e. GGV Capital, Sequoia China, IDG, Qiming) are in Beijing.
There are a lot of different organizations that invest in startups at different stages. Frankly, Hong Kong has it all. The good thing about Hong Kong is that it has a transparent banking system, a good rule of law and low tax.
I have invested in companies in China: you put your money in and you get your money out but it’s complicated and tough. So I like Hong Kong as a place to be based in and to invest because as an investor it’s easy to put your money in and easy to get your money out without any of the complications that China poses.
Although this does not mean that there is no opportunity in China. People do invest over there, but the guys who do so, live in Hong Kong. What they are actually looking for is startups that can think big, see global and can get a large number of users. Nowadays with the cloud and technology getting cheaper, there is no reason as to why Hong Kong can’t produce exactly these sorts of companies. It’s just a mindset issue that personally for the last 4 years I have been working with entrepreneurs based in Hong Kong. They don’t just think about building a business that only caters to the local domestic market.
Over the past 12 months, Hong Kong market has had over 50 million visitors. That is an awesome demographic to test your product on. Hong Kong, same as Silicon Valley has just over 7 million people. Silicon Valley is not only thinking about those 7 million people, but about the entire US market. In comparison, Hong Kong is not just thinking about its 7 million people, but about the whole world. That is one of the main differences.
In fact, just because you start in Beijing does not mean you will end up getting into the whole of China. You still have to think big. Hong Kong has that advantage that you can think both East and West, that you can think about going into China and scaling in China but you can also think about going into Europe or going into America. If you start looking into the details of some of the entrepreneurs here, they are international from Day One, as are their teams. In china the teams are nothing but Chinese teams and in America they are nothing but American teams. When we look at the team in Hong Kong, they are global teams at the very start.
We are now starting to see CSA CSB money flowing into Hong Kong. Of course startups here want to attract that sort of investment. But like I always say ‘money will follow opportunity’. The key for entrepreneurs’ success in Hong Kong is that they think global from Day One and they build those companies into opportunities. It’s a mindset thing. You don’t need to move to Beijing, Silicon Valley or Israel, you just need to shift your brain and think globally. Those people will seek you out if you have big enough business.
3. Singapore has SingTel Inno8. What about strategic investors? Do they exist in Hong Kong?
Strategic investors are a big part of what make Hong Kong work. Hong Kong has a large number of strategic investors, in fact that is often the most popular way from an angel’s perspective to invest.
So when I am advising entrepreneurs about how to seek investment it’s often just looking for the right investor to solve the problems that you may have. Making sure that the people who invest in business can help entrepreneurs as well as gain capital wins is at core of what we do in NEST. We also help a lot of entrepreneurs connect to strategic investors.
If your problem is raising more capital, it’s probably best to work with people that have done so before. This is personally something that I push quite a lot when capital growth stage and investment is needed.Having built businesses myself, I know it has been strategic partners and inventors that have helped me scale these businesses. They often have the connections that I need, the ones that I don’t have. I apply that now when I invest.
4. We’ve seen some angel investors passing on a deal once they heard the word “exit strategy”, because they felt the founder is not really committed to bringing their vision to life. What’s your take on that?
Exit strategies are an important element of what an angel or any strategic investor looks for when investing in a business. But it is important to be careful with this point, if you are an entrepreneur focused too heavily on the exit of the business, you are often not running business for the right reasons.
As investor I am looking for an eventual exit. We put our money in and eventually we need to get our money out so we can put our money back in again. Ultimately entrepreneurs should run a business that they love. It should not be about the exit, so as an investor, although we need to think about it, we do want the entrepreneurs not to focus too heavily on it. If someone is too focused on nothing but an exit and are only building this company to sell it in two years time then often that is a big red flag for investors. Because no one will know what will happen in two years time when you don’t sell it. You are then stuck with a business that you don’t love and therefore the business will probably collapse or you will give up. So it is very important that you don’t focus on the exit as an entrepreneur but investors do need to focus on that.
5. Asia focuses on monetization far sooner in the company building process. Silicon Valley will wait 2-3 years before determining your revenue model. For example, Asian investors will focus in on EBITDA very early on – a concept almost unheard of among early-stage VCs in the Valley. For you, do you take a more Asian approach (quick monetization) or the Valley approach (incubate big disruptive ideas)?
When it comes to investing, in the end we all want companies turn into Facebook or Twitter. As investors and also as an entrepreneurs we want those sorts of values and we want that potential power and success. But frankly even in markets like Silicon Valley, not everyone is a hit.I think it’s a little bit wrong to say ‘well we never need to have any sort of monetization strategy around this business’ or ‘we will just get users’, which is actually a very big misunderstanding for a lot of people.
The truth is that you have to at least try to have some sort of idea about where the business is going. For example what a lot of people don’t realize is that, when it first started, YouTube did have a monetization structure. The founder of the business said that eventually it would be subscription based. Of course now Google has brought it and they don’t not need to worry about monetization, but YouTube originally did have a monetization scheme. I do try to share this story with entrepreneurs to make them see this.The first stage about investing is investing in potential, investing in the entrepreneur. But it is smart to at least have a prediction as to where revenue could come in the future. I think for the entrepreneur they should try to at least have some sort of long-term structures of where the money could come from.
And knowing when to put the monetization is crucial. It’s dangerous to put it too early and also to put it too late. If you look at Facebook, as soon as it starting putting monetization, it started losing users and suddenly it allowed people like Pinterst and Instagram to earn market share.
So at what point do you turn on monetization? At what point do you talk about monetization? Twitter, for example, is still losing money today, how do they monetize if they don’t want to upset the user base? When users have got used to a certain way of operating. So they started throwing ads out there and try not upset users. It is a tricky thing but I always suggest entrepreneurs they should increase their chances of making money, and at least have some way to monetize later on at the back of your mind.
Make sure you also read our interview with the NEST Investment Team if you are interested to pitch to NEST.