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ask a VC: Cocoon Capital

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We’re speaking to Singapore’s leading VC funds to find out about their thoughts on the current state of the Southeast Asian startup and venture ecosystem, and what they currently are looking for in companies. This week we’re speaking with Michael Blakey from Cocoon Capital.

how is the Southeast Asian startup and VC ecosystem looking in 2019?

The ecosystem is looking good, but it feels rather lopsided. When I first came over to Singapore six years ago, most of the startups had a B2C focus, and I was seeing one good deal only every couple of months. Now, I am seeing a good company every week, and there are also more B2B opportunities emerging. The quality and volume of startups are clearly trending upwards.

What makes it lopsided is that the money is congregating around Singapore and Jakarta rather than throughout the region. In many other markets, the progress is much smaller and there is not a lot of early stage capital.

If you look at Singapore’s startup ecosystem, the government is providing a lot of funding to a high number of startups, and this has definitely stimulated a greater interest in the space. With this support, it gives more people the opportunity and confidence to try their hand as an entrepreneur.

the number of VCs seems to grow each year. Will this continue and do you see more large US funds setting up shop in Singapore?

There are more VCs entering the market, but I think the gaps in terms of funding size are changing. When I first came to Singapore, there was an abundance of seed funds, and not so many Series A and later stage funds. Now, there are a plethora of Series A funds with a reduction in active seed funds, and while there isn’t a huge number of later stage funds, more international funds are turning their attention on the region.

Typically, Series B or later stage funds have a more global investment remit. So what is happening is that seed funds are local and invest locally, Series A fund are becoming more regional and Series B and later are turning global.

what other countries in Southeast Asia are producing amazing startups?

Outside of Indonesia and Singapore, Vietnam is the next one on the list. A lot of that is attributed to high quality tech talent, and the market is clearly underserved. Vietnam has a population of 95 million people and you can probably count the number of VCs there on two hands, so there is a great opportunity there.

At Cocoon, we made our first investment into Myanmar this year, and we have been amazed at the growth. It is still very early days for the ecosystem there, but I see a growing appetite in the younger generation. With a population of over 50 million, the opportunity is clearly massive. The country’s infrastructure is becoming more developed and the internet is now stable enough for people to experiment and get their hands dirty. Currently, a lot of the activity is being driven by expats and returning locals, which is kick-starting the ecosystem. We expect to see more and more locals coming in soon.

Across Southeast Asia, Cocoon is really committed to getting to know the ecosystem. We support them through office hours, workshops, and building relationships with the entrepreneurs. It is a very raw and underdeveloped scene but we anticipate it will mature and grow fast, and we are excited for that.

what kind of startups are catching your eye, and how has that changed in the last 12 months?

The companies we invest in are very diverse since we base most of our investment decisions on the founding team. The quality is improving. For instance, we see more people leaving well-paying jobs to go into startups and we also see more second and third time founders.

any tips for founders pitching to you?

We have hundreds of applicants coming to us a year, so the most challenging step for them would be getting that first meeting with us. The best way to do so is to try and get someone to refer you. Reach out to people in our portfolio companies. That is a guaranteed ‘we will meet you’ – we have backed them because we trust them. It is all about reputations and relationships in this industry.

For example, we recently turned down a founder when she sent us her deck, but then took a meeting when one of our portfolio companies said we should connect and we ended up offering them a term sheet.

When you get that meeting with us or any investor, the most important thing is to make sure your deck is targeted to investors. They might see 1,000 – 1,500 companies a year. Be very clear on the problem you are solving and how your exceptional team is going to deliver the solution.

Lastly, not every founder can do this, but if you are going to try the cold approach, try to do something that makes you stand out. Once, I had a parcel sent to my office and when I unwrapped it, I found this awful rainbow coloured shoe. It was disgusting. There was a note in the shoe that read ‘Dear Mr. Blakey, I couldn’t find anyone to introduce us, but I wanted to get my foot in the door. You’ll find my business plan underneath.’ I mean the shoe still gives me nightmares but you had to admire the founder whom I called for a meeting!

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Are you looking to raise funds for your startup in Southeast Asia? Our team of lawyers are market experts in tech and VC. We’ve gained this experience the only way that works – by doing deals (hundreds of them) and by immersing ourselves in the tech ecosystem.

If you need help with your term sheet or have questions about raising your round, book a time to speak to one of our lawyers.

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