EP 293 – Jeremy Au – Monk’s Hill Ventures – In Southeast Asia, There Is a Lot of Future to Be Built

by | Sep 6, 2023

In this episode of the Asia Tech Podcast, Jeremy Au, an investor and the Chief of Staff at Monk's Hill Ventures, talks about his experience building companies, the lessons learned, and his transition into venture capital.

Some of the topics that Jeremy covered in detail:

  • Entrepreneurial success patterns and the importance of being able to explain the problem one is trying to solve
  • The challenges of unit economics in Southeast Asia
  • The necessity of creating a path to profitability for startups
  • Long-term optimism about the future of Southeast Asia
  • The joy of helping founders navigate challenges and build a better future

Some other titles we considered for this episode, but ultimately rejected:

 
  1. If There Is a Problem, Let’s Go Fix It
  2. There Are Different Seasons In Your Life
  3. Venture Capital Is About Building the Future
  4. There Is a Lot of Work and You Don’t Know What Needs to Be Done
  5. It’s a Humbling Experience
Read the best-effort transcript

Read the best-effort transcript below (This technology is still not as good as they say it is…):

Michael Waitze 0:05
Hi, this is Michael Waitze. And welcome back to the Asia Tech Podcast. We have with us today Jeremy Au, an investor and the Chief of Staff at Monk’s Hill Ventures. How are you doing today, Jeremy?

Jeremy Au 0:17
Amazing. Got to pay the kids a little bit in the morning. Got to read the newspaper while hanging out with them. You know, worked out a little bit. And then now here.

Michael Waitze 0:28
So what’s your workout?

Jeremy Au 0:30
Ah, you know, is this very generic, kind of like, you know, dumbbell press dumbbell row, you know, your little weight rack, and then you know, you feel good about it, you hit your 30 minutes. I know your Apple Watch is good. You know, good job. And I’m like, Okay, I did my job on my health today. And

Michael Waitze 0:48
so it’s only said the Apple Watch thing, right? I wear an Apple Watch as well. It tracks all my fitness stuff. I go for like a 6k run every day when I’m here in Fukuoka. And every day at the same point in my run, because I normally use the same path, I get this little notification, right, exactly. I always check it and then I’m like, Okay, it’s the same thing every single day. Why am I checking? Why do I care?

Jeremy Au 1:10
Because it’s praise, right? As I get is like, Oh, you get 30 minutes of activity. That’s your goal. Congratulations, right. I mean, I’m a sucker for praise, like just like every other human right, you know.

Michael Waitze 1:20
Okay, look, before we get into the main part of this conversation, let’s get a little bit more of your background just for some context. Yeah.

Jeremy Au 1:26
Yeah, happy to share. And I grew up in Singapore army, UC Berkeley, studying technology, economics and business. I was a consultant at Bain, across Southeast Asia, in China on consumer and tech. And then I built my first company, which was a social enterprise, which was a consultancy for the social sector, bootstrapped profitable over 100 clients. Eventually, I left hand over to my co founder to do my Harvard MBA. And then after that, there, I built second company in education tech, grew out to millions of dollars of revenue precede seed series, a individually sold the company, and then moved back to Singapore, and Dropbox ventures where I’ve been invested in VC over the past couple years. And I also host the brace obvious Asia tech podcast, www dot Briefe sca.com, which is, has over 20,000 monthly listeners. So there’s a little bit myself, happy to add more.

Michael Waitze 2:22
And a nice little plug at the end there. I love it. I love it. I love it. It’s like being on Johnny Carson in the 1970s. It’s beautiful. Talk to me about this company that you built cozy kin I’m really curious about it and more curious about the stuff that you learned by building it than actually the outcome of selling it to higher ground, although I’m curious how that went as well, because I think it’s a big experience and something that most people don’t really understand. Just like the intricacies of taking something literally from zero to one.

Jeremy Au 2:47
Yeah. Well, I think from zero to one was that why learned was that it’s really hard. Yeah. And is much harder than you know. I mean, I I didn’t remember University out, you know, I watched like social network. I remember that movie about Mark Zuckerberg Facebook. And it was like, I mean, I know it’s supposed to be a parable on like, you know, sacrifices so far. But when you’re like a young person, you’re like, Wow, this is inspirational. Right? You know, so

Michael Waitze 3:13
they also showed me his dorm room, right? Just sitting in his computer in the dark coding, and then just things just like clicking, clicking, clicking, clicking, clicking, this never happens. Sorry.

Jeremy Au 3:23
Yeah, exactly. You know, I thought, I’ve always been somebody who has been, you know, entrepreneurial in the sense that and I started being entrepreneur, but very much like, hey, there’s a problem. Let’s go fix it. And then TV doesn’t exist. Let’s go figure out where how to do it. Right. And I think that was an emerging, Larry, that was at, you know, as management consultant, it was my first company. But I didn’t do some around is building for, I think, a simple problem, which was, I think, the lack of like, great quality childcare, right? In the US. And so I think, for us as a team, you know, we came together, we had a mission to say, like, how do we make this better? How do we set up eventually what became, you know, a series of column names sharing, but also, like micro daycares effectively in people’s homes? Right. Yeah. Now, that was interesting experience. Because I think for me, what I realized, and I think there are three lessons, right, first of all, it’s really hard. And it’s not just hard, because it is a lot of work, right? Because the truth is, you know, even in the army, there’s a lot of work, right? It’s, you know, you get through it, you know exactly what you need to do. The problem is, when there’s a lot of work, and you don’t know what needs to be done, as figuring all that stuff out and you’re your own is like, I don’t know, it’s like being dropped off in the middle of a jungle and you’re like, Yeah, you know, it’s a long walk. But a problem is which direction waves go,

Michael Waitze 4:37
which direction do I go? Can I share a little story with you? One of my friends from high school actually went to the Air Force Academy. Yeah. And the summer before they actually enter school. They do survival training. Yeah. And he said to me, they take your they give you your shoes, but they take your shoelaces away. Yeah, you can wear your pants on your shirt, but they take your belt away. And they drop you in the middle of the woods with no With nothing, all right, and you have to find your way back. Exactly. And I think that’s the same feeling you’re you’re right, that building a startup from zero to one is super hard. And you’re just not sure what the right direction is. Yeah, yeah. What do I do? Exactly? It’s hard. Sorry. I interrupted you.

Jeremy Au 5:16
No, I think it’s perfect, right? Because you know, you got to build from zero to one from a company perspective. But zero to one implies, like a linear path, right? It’s like sitting in a jungle is like north, south, east west, there’s a river, there’s a swamp, you know, where do you go? How fast do you go? There’s alligators. Exactly right. And so I think I remember I was like reading books like zero to one. But you know, zero to one is so hard. And I think it was really benefited. I think, of having, eventually meeting solid co founders who, you know, we sat down and said, Okay, let’s figure this out. And the truth is, you know, coming up with the idea, that sense was actually a series of co founders, right? Different founders, they sit down and effectively dating each other in a sense that, you know, do I like to work for you? And do you like to work with me right, then. So it is a series of dynamics where all of that is happening? So I think, first of all, I think being a founder is really, really hard. I think the second thing that I realized was that I think there’s a lot of theory, and there’s a lot of advice that you get. And the FDA says like, what do you do? And you know, some advice works in some aspects, and some advice was other aspects. But at the end of day, you just got to do it. Right. Yeah.

Michael Waitze 6:25
Can you think of any advice that you were given that you just thought that’s ridiculous. And even from a person who there are so many people who present themselves as advisors, particularly in the startup space, that have no idea what they’re talking about? At least this has been my experience? Yeah. So do you have any examples of advice that was given to you that was just so bad?

Jeremy Au 6:45
It wasn’t bad this case, but I think it was very dialed in, right into the point of view. So this advice, you know, eventually, actually, we started out, you know, looking at mental health care. So we were looking at depression. And so this team was looking at how do we, you know, reduce depression and stress and so forth. And we basically isolated into like three major populations that we felt like, had a very high incidence of depression or risk. And so for one of them was students, right, you know, so kind of like going through teenage years adolescence, but also a changing environment and life stage inflection point, same group is what I call, like dealing with some level of trauma or grief. So you can subdivide that into people who lost a loved one recently, so you can call that grief. But the other aspect was, like, you know, first responders and people who are dealing with some level of trauma, right, so. So that’s, I think, a very strong cluster right of issues. And the third issue class that we saw was really kind of like, mothers with postpartum depression, right. And so, you know, as a common story about how I think that a lot of mothers after giving birth, you know, they really struggle, right in terms of career, personal life support. And so they classify as postpartum depression. And I think one of the biggest issues was that, you know, disaster in the US there isn’t, you know, federal maternity leave, let alone paternity leave, you know, there’s a lot of stress and family support, you know, there’s a lot gaps in a system that makes it. And so a postpartum depression, if you sit down is like, you know, higher D correlated with being poor, highly correlated, losing your job, you know, all these other aspects that are pretty straightforward in the sense that, you know, if you don’t have quality childcare, then you don’t feel like you can go back to work, and you don’t feel like you go back to work. How do you make money for your family? And are these kinds of stresses kicked in? And I think the advice that kind of kicked in, and I remember the doctor was kind of saying, like, Okay, well, you know, if all these moms are really stressed about the lack of childcare and the inability to go back to work as a result, let’s look at putting together like self help groups to accept the fact that there isn’t childcare. And there’s, you know, it’s hard to go back to work. And that makes total sense if you’re a doctor, right? Because as a doctor, your medical system, you’re like, Let’s do self help groups. And, you know, people can talk to each other, and they can be peer counselors to each other to accept the fact that they’re not going back to work versus childcare. And that was, I was like, why don’t we just get childcare? Yeah, why don’t we just fix childcare? And there’ll be less stressed out? We won’t need a depression, right? Yeah. I was just saying, I mean, you know, not everybody has posted under pressure because of childcare. But a very big subset is a driver of the distress. Right. And so it wasn’t bad advice. He was just like his his Dowden from a medical perspective, right? And so, for me, it was very much like, Okay, how do we kind of like, look at it differently.

Michael Waitze 9:41
Talk to me about the sale. So what are the reflections that you had after being acquired? I mean, you built this really great company, you built it to a decent revenue level, what were what were your feelings about after being acquired and what was that experience like?

Jeremy Au 9:56
It’s a humbling experience. And it’s not an easy one. I Uh, because you know, you have a sense of identity, right, as a founder of having been in charge and building, and now you are in a part of a larger organization. And your job is to kind of integrate the product, you know, replicate this and so forth. And I think it’s both a relief, but also big identity shift, right? Because you’re a founder, and now you’re an employee, right? And so the good thing about being employees that you don’t worry as much stuff, right? You don’t worry about fundraising and all these other aspects. Yeah, exactly. Are you guys focusing on just the product? But yeah, it is, it does feel like a bit of a loss. Right. And so there’s, I think, definitely a lot of grief that happens there. I think that’s where I think for me, it felt like the sense of mission and stewardship is really important. Because I think, if you’re a little bit, identity is a little bit more closer to company, of being someone who’s in charge. I think that’s the hardest part. But if you think about it as like, Hey, this is really about a product and making sure that, you know, people continue to be able to access that, that we continue to work with regulators right across multiple states, right to legalize this farm and approach, right. Micro daycares, and learning pods, and eventually, you know, became a huge success in a sense that, you know, this was eventually became very pivotal during the COVID pandemic, right. Micro learning groups, you know, pods, we want to call them, but, you know, we were able to help legalize that with multiple states, right. And I think that was a beautiful moment, where kind of like, the legacy of our work continuing to do it. It was interesting, I think, what I think I also think about quite a bit about it was like, you know, I was home a lot more with my wife. And, you know, I think it was interesting transition, right? Because I think you’d have a professional identity. And now you’re suddenly having this personal identity, where, you know, you’re like, home, and you’re home, with your wife, and you’re home with yourself, right? So there’s an interesting dynamic, where you have all these conversations that you’re going to have

Michael Waitze 12:04
what inspired you to come back to Singapore, you know, you were educated in the States, you build something in the States, what was the inspiration that come home,

Jeremy Au 12:13
I think it was a function of both push and pull. Frankly, for me, you know, I always wanted to come back to Singapore, and Southeast Asia, is home, my family is here, many of my friends are here. So I think it was very much dynamic where I wanted to be home, right. And the second part is that I did want to kind of like, eventually raise my own family, and I felt like raising their families, obviously, Asia with family would be important. And, you know, honestly, it would be a joy to do that with my extended family, you know, with my sister were parents, you know, I didn’t want to do it by myself. Some artists city, I mean, you could, you know, but still, I think to me, in my mind, I felt like the ideal, right. But we do also have a push dynamic as well, you know, I remember the simple dynamic were in March, I basically, you know, had been checking in US and China, you know, across Europe. And then I remember, you know, had that stockpile in March. My wife is like, what’s going on? Right, you know, I had a surgical mask, I had the last stock on n95 masks. I had a toilet paper, I’d have food. And I was like, Yeah, you know, we’re in New York City. You know, we live near Columbus Circle, where the densest part of town in the densest city in the world. And, you know, 46% of New Yorkers don’t have health insurance. And in the apartment block with, like, 1000s of people in it, and the laundry is downstairs, you know, it, you know, and I was just like, I don’t feel like this is going to go, Well, my wife, and my wife was like, crazy. You know, my company, HR will tell me if there’s a problem. And I was like, This feels really bad. And so I ended up actually, frankly, convincing my wife to take a two week holiday in Singapore. You know, we, you know, we had two young kittens that will be taken care of by our neighbor, you know, so we did two weeks, they get an eye pack, though she packed like a carry on, and I pack a bit more to carry our stuff. And why no, not one luggage? You know, one, you know, that check in? And then obviously, things went terribly. Obviously in April, May, June. Yeah. And, you know, this, at some level was just like, hey, you know, we got to make a decision, right? We’re just, we’re back in Singapore. And our composition is, do you want to keep going in Singapore? Or do you want to go back to America? Right, right. And I think that decision to be had was like, hey, you know, we’re also gonna have a kid along the way. Now, you know, lets us make our decisions. And I think there’s a very deep and thorough conversation right because impacts like Korea impacts our life. Apex family want to build together Apex a kid’s life? So I think it was really a dynamic where we said, okay, you know, let’s just stay in Singapore and Southeast Asia. And I think it’s worked out tremendously. We’re very happy now as well.

Michael Waitze 15:10
Yeah, I mean, look, I’ve already I made my bed 30 something years ago. Yeah. Every time I talked to someone like you, I just think my first time in Singapore was December of 1990. Yeah. Singapore was born in 1965. Yeah. And so was I. And when I think about it in those terms, if I were Singaporean, I would look at where it was in 1965. Right, where it is today and all the transitions that it’s been through, right. Yeah. You know, from really like a fishing village into manufacturing economy into a knowledge economy, and now went to one of the biggest financial centers in the world, right, you just must have this incredible pride of being Singaporean. And being able to come home to a place that’s that great. Must have been amazing. No,

Jeremy Au 15:57
I think is a privilege, right? And that is like, you know, I had a choice between America or Singapore, right? And look at GDP per capita, Singapore is the same as the US right, basically. And so I was in, you know, in a position where there’s a trade off or sacrifice in, in a macro sense, no, by became very much more decision on a personal basis. And so I think, I think people in Singapore really have it lucky, you know, in essence, because, you know, you can be in, you know, you can be a great person. But if you don’t have access to opportunity, or systems or resources, then you’re stuck. Right? Yeah. And I always tell people is like, you know, it’s a blessing to really have that, where you can be talented, and you can have access to the network, the community to make things happen. Yeah.

Michael Waitze 16:53
When I first moved to Bangkok, in 2011, and 2012, I became an LP in art and capital. And the ardent guys literally had just sold their company to LivingSocial, for what was back then a real decent amount of money, right. And they took some of that money and just created a fund. And they went out and tried to find out, they had a thesis about what they want to invest in what was necessary in Southeast Asia. And they were frustrated by the lack of great companies in which they could invest plus they missed the itch of building. Right? So you can see all these all these topics, right, that come together, when you go from being a founder, which, like you said, at the beginning is kind of directionless, there’s north, south, east and west, you’re in the middle of a forest, you don’t know what you’re supposed to do. The VC is kind of like the flip side of that as well. But I’m just curious, like, what that transition was like for you? And at the end of that, do you ever miss, like building something on your own? Do you ever see something and go, I can do that? You know what I mean?

Jeremy Au 17:48
Yes, you know, I do miss building. And yet, I think they’re also you know, the realization that there is different seasons in your life. So, I think, for me, what has been easy about a transition is that I’ve always loved coaching, right? I’ve always been someone that’s been focused on professional development. In the army in university, I was always the person who was, you know, coaching or teaching, I taught a class, you know, in undergrad, right. You know, I had been, I was helping out, as, you know, answering questions by the folks trying to be helpful, and so forth. And I think I really enjoyed, you know, when I was building out my first company, a social enterprise, you know, I built a whole syllabus, you know, I built a training, I was very engaged on the coaching side. And same thing when I was building my company, again, a second time around, I really enjoyed that dynamic of coaching. And so I think that’s been a skill set that, I think was somewhat value in the startup world, because obviously, it’s part of management skill set, but is valued in a much more external way in venture capital, right? Because, you know, in startup land coaching is one of the forms of leadership. But it’s not necessarily the only form of leadership to get the outcomes you need to have. Versus in venture capital coaching is actually the only modality that you really have to support founders. Right. And that attracts founders to come in. So I think that’s been nice and easy from a skill set perspective. But I think what’s been hard I would say is, you know, it does feel like the same spot by two different roles, right? I was give it like, kind of like playing football, like a player turn coach, like, like to be a great coach. You don’t need to be a player. But there are many great coaches who have been players, right. And they bring their skill set. Yeah, approach. But yeah, it does feel different, right, because of the same game. And I think what’s really important is that the transition from player to coaches, you miss the game, and you got to be very careful to not let your own personal experience or being a player be the only form of experience that a player can be right. So I think there’s that part that you have to shed. But yeah, you missed it. game but because you’ve missed the game, you love the game, because loving something and missing something at the same time is the same feeling actually, right?

Michael Waitze 20:07
I always say you can’t be great at something unless you really, really care about it. You can be good. Exactly. You can be good at it exactly. great at it. Yeah. So Sorry, I interrupted you go ahead.

Jeremy Au 20:15
Exactly right. And so I think there’s nothing wrong missing entrepreneurship, because then it also shows that you love it is just that you just have that, you know, take a step back and to say, like, what’s my season right now in life. And I think that’s how I think about it.

Michael Waitze 20:28
Right. So you also work at one of the most prominent venture capital companies in Southeast Asia, with some great founders of that firm as well, which means you get a real bird’s eye view of what’s happening in the whole region, maybe you can give us a little bit of an overview of just the whole VC landscape in Southeast Asia, and how it’s different maybe from some other regions in the world.

Jeremy Au 20:50
Yeah, venture capital, you know, it’s about building the future, right? So founders are building future. And venture capital is about financing and investing in these founders to take on their future. And so the question then becomes, what is the future to be built? Right? And I think, in Southeast Asia, there is a lot of future to be built. And what I mean by that is, you know, of course, you know, people looking at, you know, nuclear fusion and Chad GBT, there’s all these dynamics, obviously, in from a US perspective, that is at the cutting edge of science, right, and it’s gonna transform, not just America, but the rest of the world as well, is this that is obviously Asia, fundamental infrastructure, and things that we take for granted in developed countries that have not yet been built, right. And that ranges all the way from, you know, power infrastructure, all the way to b2b Software as a Service. There’s all these things that we know, I have already been happening in China, in the US and Europe that are currently still being built. And so there’s a lot of future to be built in Southeast Asia, I think, this exciting part. And to me, I think, that has been really kind of like Chicken Soup for the Soul here, which is that, you know, by being part of venture capital landscape and investing, you know, you’re really making and transforming millions of lives for the better, because now you’re gonna get access to technology, and a way of life that wasn’t available before. I think what the difficult part that’s come in is that, you know, Southeast Asia is not America as not the EU, right? It’s, you know, ASEAN, six, and, you know, Singapore, Malaysia, Thailand, Vietnam, Indonesia, Philippines, these are six different countries that are very different. We’re very different histories. Were very different economies. Right? Yeah. And I always have a little bit, you know, reminds me a little bit of like Europe before the EU, right, which has worked hard to harmonize regulation, and there’s free flow of people. So there’s a little bit of a homogenization process and a Europe that makes it easier from a single common market. Right. And that doesn’t really happen in Southeast Asia. Right. And so I think that makes it tremendous in terms of like market size, and how do you build a company that’s large enough to be able to have odd economies of scale? And that will effects to be successful?

Michael Waitze 23:06
Yeah. I mean, Germany still is not France, and France is still not Spain. Right. And the idea that they’ll ever be the same or actually even get along with it, I think it’s kind of anathema. I actually think we have a better chance. Like there’s no animosity history between Indonesia and Thailand. Right. Yeah. And the idea that both of those countries are growing, that the GDP per capita is are similar enough, right. Singapore is definitely the outlier. Yeah, that they’re similar enough, and that no one’s taking pie from other people. Right, that pie is just keeps getting bigger and bigger and bigger. And I think that’s one of the great things about being out here. I’m curious if you think that there’s some structural issues inside of the region as a whole, or in any individual country, that makes founding companies out here or scaling them harder than it might be in the United States. And one of the reasons why I ask you is because still some people will found a company here in this region, and then just go to Silicon Valley still happens, right?

Jeremy Au 24:05
Yeah. And I am often one of the people who recommend some founders to move to Silicon Valley as well. For example, there was a founder in medical tech, and very much focused on commercializing something that they’ve done. And at some point, I was just like, you know, Boston would be a great ecosystem for you to do this, because Boston has all the pharma companies, the medical tech companies, the VC funds that built for that you would do better, not necessary, do better. But I think you will find that the cost of capital is much cheaper in Boston for your category, for example. And so I think that’s kind of like the example but I think, you know, I can take a step back. The truth is venture capital has been around for like, you know, around, you know, 50 years right as a profession, and most of that honestly was in the US. Venture capital is very much been around in Southeast Asia for the past 10 years. So in, I remember that when I was a founder 10 years ago, for my first company, social enterprise, I was in the first co working space, which was the Impact Hub Singapore. And there was a incredible group, people had no idea who they were, but, you know, they had jungle ventures was their Golden Gate ventures was there, like everyone was just like, a bunch of focuses, figuring stuff out. And now let’s fast forward 10 years, you know, now they’re like, you know, the leading VC funds, and so forth. And just saying that there has been less time, less maturity and Ecosystm. And this is within Singapore, right? Compared to the US. And then you take a step further out, you look at countries like Vietnam, or the Philippines, then the venture capital field is even earlier, right, less, less mature. And so I think what I’m trying to say here a little bit is, I think it’s okay, to come into these ecosystems and be like, I’m willing to understand that it’s early, and I’m willing to have the patience for a long period of time, and I’m going to do the work to improve the ecosystem over time, I think that’s a very rational approach is, is that if you’re looking for something like you’re building something that’s like, I don’t know, nuclear fusion, how many nuclear scientists are there? It’s obvious Asia, which is, you know, that no nuclear reactors in Southeast Asia, right. So by agreement by politics, and everything, it was like, they don’t want you to react this year. And so if that’s happening, then you’re not going to have the talent, but you’re not going to have the venture capital, or the funding structures needed to support that kind of company. So putting that as, as like, you know, on one end of the scale, right. But I think as we work through this, I think we can see different industries where it’s easier to do in Southeast Asia. And sometimes it’s harder to do certain Southeast Asian countries.

Michael Waitze 26:44
Do you ever do this? Right. I think one of the things that founders do, and I think you said this earlier, if there’s a problem, let’s go fix it. Then because we’re in Southeast Asia, I don’t want to say there are plenty of problems. But again, there are a lot of infrastructure, things that need to be solved. And you must see problems and think there’s got to be some gal out there who can fix this. Do you ever do this in reverse? Do you know what I mean? Where you find that we see a problem instead of someone should definitely fix this and then try to go out and find that person?

Jeremy Au 27:13
Yeah, definitely. I think we do that. I think there’s an underappreciated art of venture capital that some research papers have talked about. But it’s basically the concept of knowledge sharing, which is that at the end of the day, you know, what VCs and founders are doing in aggregate is like how, like a discovery engine, basically is like, everyone’s is like this, you know, organism symbiotic, where in general, we’re trying to figure out what the problems are, figure out a sustainable business model, and then put a capital together to build it, right. So it’s a little bit of a symbiotic dynamic. And sometimes the founders discovery first, or sometimes the VC see the problem. And then they guide founders, right. I mean, obviously, if a founder doesn’t want to do something in agricultural tech, right, there was no way they don’t do it, right. But what you could be is like you were looking at an agricultural tech company, and they’re tackling it in a way that’s optimal, right? Maybe the Go to Market is a bit off, adding a founder, a VC can very much be like, Hey, can we just test this other experiment, this hypothesis that this other approach might be a better way? And the founders, the one doing all the legwork of actually testing it? But I think that’s where the knowledge sharing is hard to quantify. But it’s part of the work of a VC to help founders do well,

Michael Waitze 28:28
I think so too. Can we talk a little bit about not just the advice you give to the local founders, basically, in any country in the region, but also some of the things you see over and over again, whether they’re mistakes made, or successes that you’ve seen, but these patterns that you’d like to talk about? And then what you would do to disintermediate? them?

Jeremy Au 28:49
Yeah, I’m happy to share about what I think is the biggest success pattern. And I’m also happy to share but one of the biggest failure patterns I see in Southeast Asia, go for it. I think in terms of success patterns, I think the best ones are able to explain the problem very well, and be able to rally capital talent. And you know, sponsorship for that. What I mean by that is that, obviously, you know, I say that everyone’s like, Oh, you know, every entrepreneur must be good at pitching and selling. And that’s true. But I think what’s really important is in Southeast Asia is still an emerging market, from the eyes of US and global capital. And so being able to say like, this is not a theoretical problem. This is a problem for a specific type of person in a specific country. And being able to translate that well, where you’re able to describe clearly the customer, but also the magnitude or problem to an audience that does not live in that country actually makes it something that is worthy to emulate, right. So what I mean by that is that even the US and you say something like, childcare sucks. Everyone’s like, Yeah, we all are Right. It’s like, it’s like consensus is there, everybody knows that this thing is a problem, right? But if you’re saying like, Okay, I believe that rice farming in Indonesia, for example, I’m gonna give an example, is tremendously stressed and difficult because of that. Someone who is in a different country is going to be like, Well, I don’t understand rice, or farming or this country, right. So why should I care? Right? And so then the founder has been able to translate that and explain it well, and I think the best founders are able to explain it well to themselves, to their stakeholders, to their employees, and then, you know, you know, it’s easy for them to rally that capital from wherever it is in the world. So I think that’s a big success pattern is being able to explain the problem, while also translating it is really important. Got it? I think one big failure pattern I’ve seen is I think unit economics has been a challenge across the region. So what I mean by that is that I think that two aspects of it right, the first part of it is that, you know, Southeast Asia’s most emerging markets sort of willingness to pay in general, is tight. Yeah, there’s low. And so margins are always really tight. So it’s been compressed, which is totally normal. But you still can build a sizable business as long as you’re doing something transformative in terms of productivity, or efficiency, or just a value proposition or serving somebody who’s never been served before. So that is doable. But I think we just have to be self aware that this is where the market is, and this is not Southeast Asia problem. Does this every other country in the world that has a GDP per capita, at this at the same level, right, which is, you know, and so I think, for example, historically, b2b SaaS is difficult, because as a concept, the concept of not paying for performance, but paying on a monthly basis, because you’re so advantages, like, you know, it’s hard, right? And, and, you know, is good is not as obvious Asian problems, like Indian founders are saying that Chinese founders, were saying that 10 years ago, like everybody have, like, is this a dynamic market? I think where the trickiness has come in is that I think, I think where the problem comes in, is that the choice about how to think about that margins in terms of accounting standards, USA, but also how what you’re optimizing for, as a founder leadership team, and as a board, really could do with some work. Frankly, I think one of my biggest pet peeves I’ve seen so far, is I think the definition of gross margin and contribution margin has, you know, cm, one cm, two cm three cm four? Is this a really, from my perspective? I find it a very difficult practice. Because I find like, there’s a certain dynamic, which is like, how much do I actually earn from this? No, not the GMV, the gross merchandise value? Now this theoretical flow through through my platform, what am I actually earning on a per customer basis that is due to me, that’s my revenue. Right? Now, the flow to staff. And then my contribution margin or gross margin is, they should be quite similar ish. But this basically is like, you know, after taking away all the variable costs, how much do I have left to cover my fixed costs? Right, but not right. And I think I would say, I know, it sounds very simple when I say it. But this the number of teams, I feel, we’ve gotten into a tricky part where they define that badly, because they’re looking for, you know, big number good, small number bad. So and they end up optimizing the company in a way to optimize the result, right? So they’re like going for GMV growth? Are they saying that we’re going for top line revenue growth that’s actually just flow through revenue, but not thinking through? Like, what does it take for the economics of the business, and as a metric is tuition, because again, suddenly, you’re running a business that is losing a lot of money, perhaps, or losing quite a bit of my barn or money, which is a function of the fact that on a per customer basis, the unit economics are not working out well. And then you take in money, you scare it out. And suddenly you’re not losing a little bit of money per customer, you’re losing a lot of money across many customers, and maybe even on a per customer basis, the unit economics can get even worse, right? And there’ll be survivable if we were in a high capital liquidity environment, but Southeast Asia does not have that capital liquidity. And so you’re very fragile companies where founders are very dependent on investors to give them the bridge round the extension round. And I think there’s so suboptimal for the founders in terms of control in terms of economics. And it’s optimal for companies.

Michael Waitze 34:27
Do you think that and not just in Southeast Asia, do you think that venture capitalists themselves are culpable at some level for that type of attitude? I mean, I don’t think most founders understand finance at all, because they’ve never been educated. You know, they didn’t go to Wharton, most of them. And they’ve been encouraged at least three or four years ago, for sure, just for top line growth. And you look at the biggest companies in the region that have raised the most money. They’re not even close to being profitable, nor do they have paths to profitability, at least from my view, right? And the original business that they’re running have cause them to merge with other businesses that weren’t making money for the exact reason that you just said, because their unit economics are just aren’t there? Yeah. But because they’ve raised so much money, they’ve also had to hire a ton of people. So their cost structure is completely out of whack. No.

Jeremy Au 35:15
Yeah. VCs founders and a boards are 100% responsible for the strategic leadership of every company, right? I think venture capital is an asset class exists, because there’s an understanding there’s a certain amount of fixed upfront costs, there has to be invested in a good unit economics business model, that eventually makes sense. And I think the best example of that would be Chad GPT. Right. And open AI, right. So you know, it took them hundreds of million dollars of venture capital investment upfront, and for many years was at zero revenue. And then year one, they got $21 billion dollars of revenue. And then year two, they have a billion dollars in revenue. Right. And so do you think about it pay for it? Yeah, I do. Yeah, same. And, you know, I’m like, amazing, right. And that tremendous network effects. Because when we pay for LGBT, we’re also training LGBT, for sure. You know, because so they’re making money. And they’re getting free people to be the mechanical Turks to train them and make the model smarter, right. And so I think that’s a great example of a type of venture capital investment, where it’s okay to not be profitable for many years, and then eventually kind of like have that path. But I think the phrase that you said is very key, the path to profitability, right. So that requires a unit economics, we’ll look at some level, but there’s an understanding there’s a part of that overall profitability. And I think the truth of the matter is that I think that that experimentation to get there, like every founder to start, like, if you’re a seed stage founder, of course, you figure stuff out, right? We had to figure out how to profitability like, Sure, of course, nobody, no, I’m

Michael Waitze 36:56
not talking about seed stage companies, just experiments. That’s it. When you raise money from angel investors, even from seed stage investors, yeah, they know they’re investing in an experiment. Exactly. But what is that a Series A, B, and C, these are growth aspects. Right? And it shouldn’t exact growth to profitability.

Jeremy Au 37:15
Exactly. And I think that’s the awkward reality then is, that’s where the responsibility is, is that did you not understand the path a path for profitability? Because there isn’t one at all? Or is it because you were looking for it? Or because he thought that was one. But it turns out that, you know, your definition of path to profitability is this accounting standard, different from what the actual path to profitability is? So there’s a lot of self inflicted mistakes that can happen as you imagine if you’re just not be thoughtful about it. And it’s so sub optimal, because everybody’s like, yeah, not all of us are like sitting around a table. And everyone’s like, Yeah, we all didn’t want this to happen, but it happened. And then you’re like, well, because what I mean, if a pandemic happened, that’s a totally fair reason why it didn’t happen, exogenous event, but yeah, exactly. Exogenous events. And I think of the many startups where you happen to them. They had to pivot or they shut down. And it’s like, totally fair, right. But I think that it kind of goes back to like, Did you exercise that fiduciary duty and stewardship, to be like, really thoughtful about that. And I think that’s where I think a good board, you know, a good VC and a good founder working together can do something amazing, because they make each other better.

Michael Waitze 38:24
which they should do,

Jeremy Au 38:25
As they should.

Michael Waitze 38:26
Yeah. So what? What is the status of companies actually exiting? Right? I mean, if you’re a venture capitalist, this is where you make most of the money, right? You invest in a company, whether it’s at the earliest stages, or even at the later stages, pre IPO investing, whatever it is, the expectation is that somebody will come along and buy it. Right, that’s at least what happens in the United States. We haven’t seen really that many exits here yet. And like you said, we started 10 years ago, it’s not as mature as it is in the US. So fair enough. What do you think the status of that is? And where do you think it’s going? And are we going to start getting more exits here? And to get there? What do you think we need to do?

Jeremy Au 39:07
I was sitting and walking with a VC. And the VC said something that I felt was a great way to describe it. And what a VC said was, I think we are too optimistic about Southeast Asia over the next 10 years. And we’re too pessimistic about Southeast Asia over the next 50 years. And I was like, Oh, I felt it was really resonated with me. You know, obviously, that may not qualify for you. Maybe you’re, you know, optimistic or pessimistic in different dimensions. But I think what struck me was, I think if we look at it over the next 50 years, I think like you mentioned earlier, I think the countries are focused on growth in general, people have figured out that there for now, there’s a certain element of stability, trade, free flow of talent, that gives very strong macro economic demographic dynamics where if we keep doing what we do need to do, all of us will continue to have economies that grow at 567 percent. And countries around a row will Europe and America that will kill us to have that amount of growth. This kind of organically from people just working hard with each other. And, you know, imagine if all of us had great government as well, then, you know, you could even have better outcomes, like real infrastructure, spare real stuff, right? Yeah, go even go higher. Right. So I think all 50 years, you know, if your economy is already growing 7% year on year, that’s tremendous. Right? And you know, you know, rising tide lifts all boats, and over 50 year timeframe that compounding advantage is huge. I think the tricky part is that within a 10 year time frame from a venture

Michael Waitze 40:42
capital perspective, right, because most funds are 10 year lifespans, you have basic exactly right,

Jeremy Au 40:46
exactly. And so you’re trying to like, so can you grow a company that fast within 10 years? I think that’s where a lot of powerfulness needs to happen, which is, you know, you know, I always remember this, you know, there’s a Chinese idiom to say, right? You know, it’s like, you know, all the rice was growing, right? And then the farmer was impatient, right? So he said, So why he goes, you go to all the plants, and every day, he would like, pull up the rice plants a little bit, because he wants him to grow taller. Right. And he will do that every day. And then one day of the diet, right? Because really shouldn’t be pulling your rice paddy rice plants out right, early. Right. And I think there’s a good example, which is like, you know, I think, for me, my perspective is I think there will be more ACEs over time, because an exit is a function of healthy companies growing organically with a discipline executive team that’s solving real problems, right. And so I think that will naturally happen as these companies grow is that the growth of these companies, there’s a certain level of organic growth level, and we can accelerate it somewhat. But I think we just have to be thoughtful about which those situations are. So for me, I’m quite optimistic over a 50 year timeframe. So I just think, let’s not rush for the next 10 years, right? Because then we end up in situations where companies implode because they actually solving a real problem. But then, you know, there’s this mismanaged or you know, goes in the wrong direction, or way too capital inefficient.

Michael Waitze 42:07
I mean, my real strong belief here is that if you grow a company deliberately, yeah. Right. As opposed to just trying to scale, this is why I hate this whole idea of Blitzscaling. And I really wish those guys would stop talking about it. Because a cool, it’s cool when it’s not cool at the same time, right? Because it’s like the market that we’re building into is not the market that exists today. And the dynamics are completely different, both from a financial standpoint, but also from a market development standpoint. And every time they tell somebody to blitzscale, they’re doing exactly what you just said, the Chinese have the best proverbs by far, right. And in Chinese, it’s probably so subtle and so short. But this idea of pulling up those rice plants to try to get them taller, because you’re impatient to eat and then killing them in accidentally. It’s just bad for every startup company. Okay, the last thing and then I’ll let you go, what’s the most fun part of your job? What’s the thing that rewards you the most when you come home, you had such a great day. And you really just want to like sit with your family, your wife and your kids, and you’re just happy.

Jeremy Au 43:15
I grew up as a kid loving science fiction, and I’m still a giant ice fishing nerd. You know, I, you know, my wife and I was watching foundation last night. And I was like, man, so cool to see Isaac Asimov, you know that it gets translated to big screen. And, sure, you know, it’s not the most people retelling of the foundation series. But its foundation is by I got, I got that feeling of like, different dynamics. And it was just amazing to see a future, right. And, you know, for me that the best science fiction has always been about not just obviously, the technology, but also the people who are living with it, right, the dilemmas they’re doing and how they’re building it as a human story, right. And what I enjoy most as a result of our job is, you know, feels like sci fi every day. Right? You know, what I mean by that is, I’m sitting on phone, and if I was like, Yeah, you know, I want to build this that transforms this using that, right? And I’m like, this is sci fi, right? Everyday, I’m just dealing that sci fi nature. And, you know, you know, individually is incredibly tough, also human, psychological, relational challenge, that you get to be there for someone and help them think through that problem. Right. And I think I’m a big believer in is facing, you know, well, you pass the Chinese idioms, but you know, the English one is iron sharpens iron, right? Yeah. So I think when you’re able to sit down with a founder, you know, they are at the top of their game and you’re at the top of your game and you’re having that very deep conversation about the business and we’re just saying like, okay, and I realize that this conversation was like, okay, so what I’m hearing is that you’re assuming this, this, this, therefore, that will happen and he’s like, okay, and you’re assuming this is this, therefore, he won’t happen and I’m like, okay, so we agree to disagree are these assumptions, how will we figure out whether this assumption is true or not? But like, what will be the fastest way for both of us to figure out whether or not who’s right who’s wrong because there’s no value for being right or wrong. But, you know, whether that goes left or right, changes the direction a company of what you need to build, right? Yeah. And you know, and I was just like, is this so fun? Because it’s like, you know, if this works, then lives we change and, and I come home to my kids, and my kids are three years old, a one year old girl, and I’m like, you know, you’re gonna live in a world that your dad helped invest in and help coach right, you know, and because that’s what I benefit from, right? I’m using video calls. Mike’s you know, my shirt, everything was built by a founder, 1020 years ago, that received some level of capital from somebody who believe in them, and then they went off to build a company. And so, you know, I think it’s interesting where, you know, I think to myself, like, you know, I’m voting with my own time, and dollars, about a future that I would love for my children and grandchildren to live in.

Michael Waitze 46:00
Yeah, building the future. It’s the most fun thing in the world to do. Jeremy Au, an investor and the Chief of Staff at Monk’s Hill Ventures and the host of the Brave Southeast Asia podcast. Thanks for doing this today. I hope you had as much fun as I did.

Jeremy Au 46:14
A lot of fun.

 

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