Fundraising for startups often comes down to mobility. It’s long been hinged on face-to-face networking, casting a net far and wide to find the right investors. Contending with the global pandemic, however, we’re faced with the obstacle of fundraising from a distance. By and large, the needs of venture capitalists are changing too—whether it’s what they’re investing in, or if they’re investing at all.
To give young entrepreneurs a better roadmap for facing today’s challenges, Alibaba Entrepreneurs Fund (AEF) hosted a webinar with Cindy Chow, the AEF’s Executive Director, and Thomas Tsao, the Founding Partner of Gobi Partners.
Cindy and Thomas encouraged startups, particularly in Asia, to acknowledge that most investors are operating in survival mode. But every challenge presents new opportunities—and according to the two business veterans, Covid-19 has given way to pressing demand for innovative solutions in communication, healthcare, education and other sectors. They also agreed that so long as startup founders can get straight to a solution the world needs right now, pitching is anything but impossible.
The webinar, part of AEF’s new SparkUp series, was moderated by Melody Kwan, the Director of Hong Kong-based Speak Up Event Coordination.
"If you didn’t have an online strategy during this pandemic, you probably ended up in a bad situation."
Thomas Tsao, the Founding Partner of Gobi Partners
Moving Forward With Cautious Optimism
Melody: Since the pandemic started, how has the fundraising landscape in Asia changed—what have we seen and what does it mean looking forward?
Cindy: In Q1, with Covid-19 hitting China very seriously, we see a big drop in terms of the number of deals and also the total amount of investments. If you compare the Q1 figures to last year, what we have achieved is only about one-seventh of what we have done last year. The sentiment is not good at all. In Q2, we do see a bit of pickup in China, but in Hong Kong most of the startups have been suffering and trying to see how they can survive.
Thomas: Looking forward, I think that the markets, especially venture capital, will continue to be cautiously optimistic. There is a growing interest from investors to look for startups in emerging markets, particularly Southeast Asia, South Asia, the Middle East and Africa. Most investors realize that there are great entrepreneurs all around the world, but many of them lack access to opportunity. Venture capitalists are therefore starting to go further abroad to look for the best entrepreneur.
Cindy: We’re certainly trying to conserve our dry powder to see how we can help our existing portfolio. That being said, Covid-19 is a catalyst to wake up corporates and spark innovation. They need new technology to survive at this point and there are good opportunities for startups to offer these solutions.
Thomas: That wakeup call may be the silver lining in all of this. Experts have been warning us for years about a potential pandemic but we haven’t listened seriously. Experts have also been warning us about climate change, pollution and the need for financial inclusion. With the entire world having gone through Covid-19, we’re taking global problems more seriously. We’ll have a lot more of the world’s smartest brains focused on purpose-driven innovation, coming up with solutions to some of the world's most pressing problems.
"The execution is important, especially during Covid-19 — they need to answer for how they’ll get the right people to join when it’s a challenge to meet others physically."
Cindy Chow, Executive Director of Alibaba Entrepreneurs Fund
The New Investment Playbook
Melody: Looking at the pandemic as that kind of catalyst or wakeup call, how has it impacted your investment strategies and decision-making?
Cindy: In terms of the sectors where we’re looking, the first thing we consider is the new normal. We’re looking at technology that helps teams work remotely from different locations along with innovation in the fields of education, health and sustainability. For example, now many of us are ordering more takeaway and we’re using a lot of plastic—how can we better solve that problem? These are the kinds of areas where VCs [venture capitalists] have a growing interest. At AEF, we always say that when we invest in views, we try to invest in views that solve a problem.
Thomas: Covid-19 has, interestingly enough, accelerated a lot of digital adoption. If you didn’t have an online strategy during this pandemic, you probably ended up in a bad situation. So you need an online component for VCs to take interest and the easy ones come to mind. There’s the adoption of video conferencing and having different offices communicate virtually instead of flying to meet. Covid-19 has also accelerated the discussion around online education, which has been talked about for years. The same goes for healthcare—while we’ve been discussing telemedicine for a while, there’s been a lot of resistance from doctors. We also have a clearer idea of e-government now, getting essential or basic services done online instead of going to a government office in-person.
Cindy: Adding on to this, everybody's suddenly more concerned about their personal health. There’s a focus on solutions or services that can help us in terms of keeping fit and we’re doing more gym workouts or yoga online. These are things that have popped up during the pandemic and we hadn’t given much thought before. And back to the plastics issue I just mentioned, this is a good segue into opportunities for new services around the circular economy—more people are interested in participating now.
Thomas: Again, these are the big sectors that have traditionally been resistant until more recent innovation and digital adoption since Covid-19. When you look at government now, think about delivering release checks or an e-signature in order to get documents signed. Everybody’s doing that online. Travel has been badly impacted too but I think there's going to be a pickup in what I call essential travel, such as travel around religion—which will also be an opportunity for innovation and technology. We’re seeing that these are all interesting sectors where there's going to be less resistance and more widespread adoption.
Starting Up, From a Distance
Melody: What advice do you have for startups trying to pitch and fundraise during a time when it’s so difficult to venture out?
Cindy: Startups need to have a specific answer to solve a problem. The execution is important, especially during Covid-19 — they need to answer for how they’ll get the right people to join when it’s a challenge to meet others physically. Venturing out during this difficult period, startups should be able to sum up to a VC what their big dream is in just one or two sentences. Personally, especially when I'm judging a pitch with limited time, I really want to know exactly what they're doing, the value they're bringing and whether there's a market.
Thomas: The traditional mindset is that you've got to meet the entrepreneur, look her in the eye and get a feeling. But again, the longer Covid-19 goes on, VCs are going to have to adjust as well and accept the reality that this just can’t happen. Luckily, everybody's on social media. Founders should spend the time to do a little background research before they reach out to that VC. They may find a point of interest to leverage into the introduction of an email, which could help spark something and lead to a meeting. Second, founders should cast the net as widely as they can. Fundraising is difficult. We have an old saying, "Whenever you fundraise, expect to raise half as much and it's going to take twice as long."
Cindy: Startups also need to explain to VCs why they think they’re capable of achieving a specific goal, especially today with the obstacles of the pandemic. That means that if you’re a founder, you need to tell a VC why you’re good and how your team complements one another. The bigger vision for the business also needs to be clear. A startup is never going to be sailing smoothly because there’s going to be a lot of ups and downs, so there needs to be a mission, a vision, driving the business to continue its journey. During difficult times, especially like what we’re all experiencing today, it’s important to have a guiding star.
