MALAYSIAN tech entrepreneurs are very familiar with venture capitalism. It provides much-needed seed capital to those keen to take their ideas or business to the next level.
But Andrew Tan, venture partner at TBV Capital Sdn Bhd or better known as TinkBig Venture prefers to carry out “impact investing” as his core consideration.
Through impact investing, Tan touts value creation and fostering entrepreneurial growth as his key investment philosophy.
The most important consideration when it comes to investing, he says, is the positive impact an investee company has on society.
In line with his investment philosophy, Tan’s venture capitalist (VC) firm insists that investee companies must have a product or service that solves a real problem in the market and make a difference to the people around them.
“I’m not looking for disruptive businesses or technology that will potentially change the world.
“My focus is on impact investing. I want to invest funds in companies that can make a difference,” says Tan.
He says his vision was developed when his mentor trained him to repay good deeds via the “pay it forward” idea.
“It comes back to how my mentor helped me out when I was young. The only thing he wanted was for me to pay it forward. That’s the whole reason I started this VC,” he says.
Tan says while all sources of capital may at first seem equal, he stresses that smart capital is what makes or breaks a company.
When deciding to invest, it boils down to what value the VC can provide or add to the company.
Mentorship and guidance
Entrepreneurs usually seek to access resources, networks and talents which a VC can provide, to help drive the business forward.
Additionally, entrepreneurship also requires mentorship and guidance when it accepts smart capital via impact investment.
“Before I make the final decision [to invest], I grapple with how we can add value to the investee company.
“We also study how we can take the investee company to greater heights by leveraging the resources and networks we have. That’s usually the final part of our investment decision-making process.”
Having made the decision to invest, TinkBig Venture immediately gets to work by restructuring the company’s legal processes.
Tan says most companies he has worked with lack a legal structure which can provide sufficient protection from a business perspective.
And while it may be surprising, some companies that do not even have employment or founder agreements.
Worse are those companies that do not have sufficient intellectual property protection in place.
“The moment we go in, we tighten the legal assets and framework. After looking into this, TinkBig will focus on the business model to study various options on ‘scaling up’.
“A lot of entrepreneurs have the ‘feel good’ factor about themselves. They often quip that customers ‘like my brand’ or ‘my company is growing’.
“However, it rarely translates into actual revenues. When one talks about growth, the big question is, at what rate are you growing?” Tan asks.
Managing expenditure is also a key focus for him. Entrepreneurs, he says, must ask themselves if expenses are also growing in tandem with their claims of revenue growth.
If so, it can only mean that the business is expanding but it is not “scaling up” in the right direction,” Tan says.
TinkBig also studies various hiring econometrics, to ensure that the process makes business sense.
“I believe you’ll have a good company only with the right team. It’s not just about paying salaries,” he says.
Routine work is also an option entrepreneurs could consider when seeking to hire additional resources.
“Whether the company should outsource or hire is a decision that needs to be streamlined.
“We only hire when the economic metrics make sense and when it is impossible to achieve maximum efficiency with existing resources. We only scale up when we’re ready,” says Tan.
Once all the streamlining of proper business processes and governance is done, Tan says he sets his eyes on monitoring the founder’s activities.
This ensures that the founder keeps his or her eyes on implementing the strategy and sticking to the forward-looking vision.
“As investors, we put money in people and ideas. People run the systems, systems run the business and we, the investors, manage the leadership of the CEO/founder. So we focus on the strategy and vision,” he says.
Tan recalls the case of a trading company he helped turn around, several years ago.
The business was sizeable with a RM50 mil turnover. Strangely, instead of generating profits, it was facing a deficit of RM2-RM3 mil yearly.
“The company was in very bad shape in terms of negative cash flow. The order book was there but it was heavily over-geared with costly overheads,” says Tan.
When Tan’s team brought in financial modelling experts, they realised that nepotism was the core issue impacting profitability.
Some of the business owner’s relatives were paid rather handsomely, causing the deficit. The situation, Tan says, was resolved in due course.
There were also bad credit issues that needed to be dealt with. This was resolved by making arrangements with the company’s suppliers.
Finally, Tan’s team re-audited the cost of goods in the company, and also cancelled some purchases.
Within eight months, the company turned in a profit of RM4 mil and Tan proceeded to an initial public offering on the Hong Kong’s Growth Enterprise Market in 2014.
Shifting the needle
There are several elements that lead to business failures, but two of the key concerns are linked to the founder or leader of the company, says TBV Capital Sdn Bhd (TinkBig Venture) venture partner Andrew Tan, who is also CrowdPlus.asia CEO.
Most importantly, business owners/founders must have strong financial literacy and keep an eye on cash flow management.
He says: “I always advocate that every business owner must learn to read numbers, instead of depending on others.
“People tend to look into numbers only when the business fails, and that post-mortem is already too late.”
He points to the importance of account receivables and performance mechanism for sales staff, which should be based on collection rather than invoices issued.
Apart from learning to delegate, it is important for leaders to understand each employee’s character and strength to place them in the right position.
“CEOs/leaders always do the wrong job by trying to do everything themselves when their focus should be on the vision and business expansion. The key challenge is putting the right people in their forte,” he says.
He suggests using tools such as the DiSC personality profile, for instance, to assess how an employee can improve work productivity, teamwork and communication.
Tan says: “It’s a given that start-ups and SMEs have to run lean, but you need to understand your employees’ job scope.
“A lot of leaders focus on people’s weaknesses, but it’s really about putting people in the right places, understanding their characters and always reviewing their performance on a quarterly basis.”