What Do Investors Look for in Startups? We Talked to JG Summit’s Startup Guru to Find Out
ILLUSTRATOR Bianca Papa
The startup industry in the Philippines has steadily built its momentum in recent years. What was once just a few lone startups in the country has evolved into an entire ecosystem that thrives on finding innovative solutions for today. But as more startups populate the industry, it’s become more competitive for businesses to find investors. And more challenging for investors to find the right businesses.
To take a deeper look at the investor side of things, Esquire Philippines talked to Elmer “Jojo” Malolos, the CEO of JG Digital Equity Ventures Inc. (JGDEV) and Data Analytics Ventures Inc. (DAVI).
While JGDEV focuses on investing in up-and-coming startups in Southeast Asia, DAVI uses data analytics to guide and incubate the next big digital businesses. Among these businesses are Zyllem, a logistics startup; Zuzu, an “asset-light” software as a service; and Snapcart, a data analytics platform that dissects consumer behavior. Other JG Summit investments include Cashalo, Kumu, Beauty Manila, and GrowSari.
Companies like JGDEV are picky about the startups they invest in. JGDEV currently handles a $50 million fund that’s been set aside for only the best, and is currently “looking at investments that are between $1 million to $5 million, and between Pre-Series A or Series B.”
With a number of growing startups under JGDEV and DAVI, Malolos also brings invaluable experience to the table, particularly as the former CEO of a pioneering fintech in Cambodia called Wing Money. Not to mention a number of other executive positions around the world.
So what advice does a startup veteran have for Filipino fintechs? Well, a lot.
Find An Existing Ecosystem And Make It Your Playground
Saturation in the startup world is good. It’s a sign that Filipino creativity and innovation is being harnessed. But how do you become one in a million, especially when said million is composed of equally brilliant entrepreneurs?
Malolos explains that for investment companies like JGDEV and DAVI, it’s a matter of finding the companies that will fit seamlessly into their ecosystem. For example, JG Summit is a giant diversified conglomerate that houses Cebu Pacific, which “democratized an airline industry,” Univeral Robina Corporation, which “embedded itself in the masses,” and more than 50 malls that offer a space for thousands of MSMEs.
“We use the ecosystem as a way by which we can take a look at investees or startups we would like to invest in,” explains Malolos. In short, imagine a giant conglomerate like JG as a playground in which a startup can grow and expand by testing the gears that make it work.
“The way we can really clean it up is that we look for startups that will have strategical elements to the group,” whether that’s to the supply chain, retail, commerce, or automation side, adds Malolos.
He breaks it down as follows:
“So it serves two purposes. One is that if I invest in a company that has strategic relevance, and I'm able to use it even at the surface level, then I'm quite sure that that company is going to be and my investment in the company will be a good bet. The other one is that it also helps the startup accelerate success. Why did the startup raise money [in the first place]? I want to raise money because I want to grab my product. I want to raise my money because I want to capture first 100,000 customers. I want to raise money because with 100,000 customers, I will be able to achieve a GMP, which will now make me a more valuable company. And then I go to the next round of raising money.”
It’s a practical approach that lets startups use existing ecosystems as its “primary customers or primary guinea pigs,” explains Malolos.
It’s hard to imagine one of the biggest companies in the country as a guinea pig, but it does makes sense. It’s “a landscape by which they can play…there might be some pain points and we’re able to solve that.”
It doesn’t necessarily have to be a conglomerate. It could be a community, a town, or a network of interconnected clients. When the goal of every company is to widen its reach, it might pay in the long run to narrow your focus in the beginning and build from there. Find an ecosystem in which you can work, so you can prove that you do work and you can benefit more clients if given the opportunity.
Take Care of Your Ecosystem
Once you have an ecosystem, Malolos' next piece of advice is pretty simple: take care of it.
“Develop strategies [that are] long-term that will have an immediate impact on harnessing the capability of the entire Philippine ecosystem. Eventually, if you’re able to do this, you’re able to expand to regional ecosystems,” said the CEO.
Business should not just be a matter of getting what you need from the client and moving on. The big picture should be to impact people beyond your primary customers and grow your network.
“The only way you can prove that you're really transforming digitally is if you have an economic impact on the landscapes by which you play,” said Malolos. “We harness our capability to achieve our objectives to have an impact on every Filipinos life. We are able to have an impact on our other shareholders, [which] creates an impetus for our employees to benefit from this type of system. We want to make sure that all of our customers also benefit from this by not only giving them what they asked for, but by giving them their daily needs or being able to create opportunities for them to put up their own businesses.”
Let one idea be the first domino of many so others can build on the opportunities you provide.
The big malls in the country offer spaces for MSME bazaars to take place. GrabFood and Foodpanda are a platform made by and for food startups. And Instagram has become the new hub for pandemic home businesses.
It’s what JGDEV has been doing with Zyllem, Zuzu, Snapcart, iPrice, Growsari, which are integrated into the seams of the entire network.
In short, take care of your ecosystem until everyone benefits, not just you.
The Vision of the Founder is Still #1
You can have the best people on your team, but it’s still the captain of the ship that defines your startup’s course. For Malolos, as an investor, it’s the founder’s big idea that plays a big part in his decision to invest:
“On a personal basis, it’s all about the vision of the founder. Why is that? The vision that [has] innovation is really something disruptive and compelling.
“Second is that [there’s a] target market, on whose lives to improve because innovation will easily adapt to this. They can adapt without me giving them cash.
“Third is that it (vision) is future-proofing. Future-proofing your plans right. You have to be very aggressive to say that you can change the norms when you say [you’re] disruptive. You can come up with business models [that are] unconventional and unorthodox—something that people can't believe can happen—but you’re able to do it because you’re pre-determined to say this is really going to happen.”
Certainty in a brilliant idea combined with a future-proof plan and a sure audience is a recipe for a startup that investors will be eager to invest in.
One example Malolos gives is Zuzu, a hotel startup that doesn’t have any hotels. He calls it a “company that challenges hotels in terms of revenue generation.” Its software consists of an algorithm that allows independent hotels to trust the company enough to run its operations in order to boost revenues.
And by the nature of their business model, Zuzu is surviving the pandemic. The tourism industry has been hit the hardest by the pandemic, with many closing down or going into debt. And yet, Zuzu is “floating,” meaning they’re not earning money but at least they’re not losing it either.
“These are the types of companies you would like to look at. They're able to challenge the norms, but they're able to prove that even with this seemingly difficult, unorthodox business model, they are still able to manage the holy grail—which is adoption emergency,” said Malolos.
Don’t Wait to be Discovered
The startup world isn’t like show business. There are no talent agents scouting every block for the next big thing. While there are people tasked with finding startups for investors, sometimes called portfolio associates or managers, it rests largely on the resourcefulness of an entrepreneur to get its brand’s name out there.
Malolos shares how Lance Gokongwei, CEO of JG Summit Holdings, might bump into an interesting entrepreneur at a conference. Or how his team at JGDEV might find something that catches their eye at a forum.
“I speak in a few forums and I spoke at the launch of startup research on what companies are attractive to investors. And then all of a sudden, in just one night, I had [countless] startups making a pitch by LinkedIn, making a pitch by a call, and all that,” recounts Malolos.
With all these startups, it’s a matter of filtering out the ones that best fits their ecosystem. Investors don’t have the time to scout and look at every single startup, so ventures like JGDEV rely on partner funds like Openspace Ventures, Asia Partners, Iklhas, and Ascent Myanmar, Wavemaker, Dymon that shows them their existing portfolio of startups. This just goes to show how far you can reach by marketing to the right person, who will tell another person, who will tell a potential major investor.
Be Disruptive. Don’t Just Say You Are
Sometime in 2018, disruptive became the catch-all phrase to describe every new startup. But it takes more than just a word to prove that you are.
“There's digital, there's disruptive, and there’s thought leading. If you are disruptive, you have a different and compelling idea and an unacceptable business model,” said Malolos.
“But it becomes disruptive if it works.”
According to the JGDEV and DAVI CEO, if it doesn’t work, it means people don’t use it, and if they do, they don’t use it again. “Disruptive” is an obscure type of business model, but it works. One modern example of a “disruptive” startup that failed to work is WeWork. The co-working company’s attempt at an IPO bombed and it lost $37 billion in valuation in just one year. Now, the company is struggling to get back on its feet after a turbulent couple of years. While the co-working idea is brilliant, its execution was rendered faulty due to traditional management philosophies that plagued the millennial company’s ability to grow.
Meanwhile, one success story of disruption is Malolos’ former company Wing Specialized Limited Bank in Cambodia where he was CEO. At Wing, Malolos led the company’s digital transformation into the leading mobile banking service provider. He and his team managed to persuade Cambodians, who were once wary of digital apps, to trust in Wing to transfer their money digitally.
He did that by understanding the ecosystem, and making it his playground. Instead of pushing for Cambodians to download the app and transfer money on their own phones, Wing launched thousands of outlets or “agents” around the country who would do the transferring for them. Similar to pawnshops, these agents would be around every corner so customers wouldn’t have to travel far to transfer money.
“The disruption there [is that] I still believe cash is king,” said Malolos. “People will still be carrying cash, but they’re bringing it to the agents who are doing [the transferring] digitally.”
When Malolos joined Wing, the company was already moving around $8 billion in money transfers. By the time he left, the money in circulation had more than tripled. And it was done by providing financial inclusion to the “unbanked and underbanked.” Now here’s an example of taking care of your ecosystem. Wing was able to “bank” everyone from farmers to tuk-tuk (trik) drivers, focusing on remote areas until Wing accomplished 100 percent district coverage.
This is disruption. And this is the type of soul and energy that investors look for in startups.
JGDEV and DAVI are under the JG Summit Holdings, as is Esquire Philippines through Summit Media.