'Pick firms still run by their founders'

Mr Ong Peng Tsin's Monk's Hill Ventures has invested in three firms, including logistics start-up Ninja Logistics.
Mr Ong Peng Tsin's Monk's Hill Ventures has invested in three firms, including logistics start-up Ninja Logistics.PHOTO: MONK'S HILL VENTURES

Established venture capitalist Ong Peng Tsin has hit on a theory that he reckons can meet the needs of two groups at either end of the investment spectrum - retail investors and high-end financial backers like himself.

"I think one of the best ways to invest in public tech companies is to pick those that are still run by their founders," he says.

"If you have a portfolio of those, I think you'll do fine simply because those founders have been vetted through trial by fire."

Venture capitalists invest in founders too, but before all that happens, adds Mr Ong with a laugh.

He formed venture capital (VC) firm Monk's Hill Ventures with fellow investor Lim Kuo-Yi last year.

It has invested in three companies, the most recent being Singapore- based logistics start-up Ninja Logistics. It received $3.5 million in funding led by Monk's Hill with input from regional corporations such as Malaysian investment house Insas.

Mr Ong, 51, is no stranger to start-ups, having founded three, including Interwoven, which was listed in 1999 in the United States, and Encentuate, which was acquired by IBM in 2008.

He moved to China in 2010 for personal reasons and joined Beijing-based venture capital firm GSR Ventures.

"My friend Richard Lim, who co-founded GSR, suggested I work with him to be a venture partner.

"I thought it was a great way to learn Mandarin and how the ecosystem works."

He did that for three years, guiding start-ups. "Even when I could not speak the language properly, I enjoyed it, so I thought if I'd enjoy it even more when I could actually speak the language."

Mr Ong likens starting companies to extreme sports with all the stress and strains but being in that environment has allowed him to hone his skills in identifying and helping start-ups with potential.

"When I first started as an entrepreneur, I built companies, and when you do that, you get a very good sense of what creates value and what doesn't.

"If you look at the seasoned VCs in Silicon Valley, almost all of them were former entrepreneurs."

He adds that the background and appreciation of the challenges that an entrepreneur goes through help in making "judgments as to whether someone can go through all that".

Mr Ong says becoming a venture capitalist for the region was an opportunity he couldn't miss.

"Asean looks like China 10 years ago. This is the first chance in my life to use my skills to make a difference in this part of the world. The stars became aligned and I decided to start the fund. The reason Monk's Hill is around is to build the next generation of Asean globals."

Q What captivates you about investing?

A My situation is like that of a professional football player. After a while they get older and slower (laughs), so they become coaches.

As a coach, you can affect a lot more players, your influence is a lot broader.

One of the things I enjoyed most about setting up companies was the people I developed.

My partner Kuo-Yi used to be my marketing and sales guy. Then I hired him in the next position as my chief executive, now he's my partner. Developing people is what I enjoy doing too, and as a VC, that's what you do, you help develop people.

Q How do you choose the companies that you invest in?

A I look at repeatability, scalability and profitability.

First, is the process and result repeatable? A company at some level is a revenue-generating engine. Do you understand how it works? When you describe to me your first, second, third customer and so on, I want to be bored after a while.

Second, is the company scalable - meaning is the market big enough? Typically, we're interested in well-segmentised markets. If you can sell only to a tiny market, it's really hard for you to be a big company.

The third is profitability, and this is where we say we prefer bits (software) to atoms (physical).

If you have got to spend a lot of your capital on atoms - stuff, inventory, even people, factories, warehouses, stuff like that - we tend to shy away from them. We like businesses with higher gross margins.

The fewer atoms you have, the more bits you have, probably means you're more profitable, especially when it comes to gross margins. Therefore, you have to grow the topline less to get to the valuations that we'd like to see you at, because your margins are higher.

Q What was your best investment? Which was the worst?

A We've done three deals, there hasn't been a follow-on yet, so there's no way to judge which is the best. Even if there is a follow-on, you don't make the money until there's an exit, so that's five years from now.

That's the thing about VCs most people don't appreciate. You can't get results in one year. But I guess you can judge progress in the follow-on rounds.

I did the Series A (first round of venture capital funding), at some point they'll do Series B.

My best decisions were around people, my worst decisions were also around people.

The point about investing, if you ask the Series A guys, is that every time you do an investment, you must believe that this is a half-billion, billion-dollar company, and maybe a third of them are going to go to zero.

It's like being a baseball player. A world-class baseball player strikes out six out of 10 times.

Venture capitalism is a little bit better, you strike out only three, four times out of 10, but it's really hard to tell which you'll strike out on beforehand.

Rachael Boon

A version of this article appeared in the print edition of The Sunday Times on July 05, 2015, with the headline ''Pick firms still run by their founders''. Print Edition | Subscribe