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Qualgro (Quality & Growth), a leading venture capital firm in Singapore, focuses on tech startups excelling in Data/AI, Software, and B2B sectors at Series A and B stages. Founded in 2015 by Heang Chhor, an experienced investor and former Senior Partner at McKinsey & Company, Qualgro has played a crucial role in the Singapore startup ecosystem, supporting several startups in their early stages.
Qualgro has invested in 31 companies across two funds over eight years. The firm has backed three unicorns and three soonicorns, identifying and nurturing high-potential startups. With a keen focus on Data/AI, Software, and B2B, Qualgro has facilitated the growth of numerous portfolio companies into regional and global leaders across various verticals.
Weisheng Neo, a Partner at Qualgro, leads the investment team, focusing on the SaaS, FinTech, and EdTech sectors. With a background that encompasses consulting, tech, and startup leadership roles, Weisheng is a mover and shaker in the startup industry.
Before joining Qualgro, he led an EdTech startup in Southeast Asia and worked at Alibaba Group in China. He also has a strong foundation in strategy, having worked at the Parthenon Group in India and Singapore.
In his role at Qualgro, Weisheng oversees investments in early-stage technology firms in Southeast Asia, particularly targeting companies that aim for high-quality, sustainable growth. His journey from consulting to tech and finally to venture capital has equipped him with valuable insights into the world of startups and investments.
AsiaTechDaily had the exclusive opportunity to interview Weisheng Neo, co-leader of Qualgro, delving into his insights and experiences in the tech investment landscape.
In the interview, Weisheng Neo provides deep insights into Qualgro’s investment philosophy and success stories, shedding light on the firm’s strategic focus on tech companies specializing in Data/AI, Software, and B2B sectors at Series A and B stages.
Furthermore, he shares valuable advice for startups and new investors, offering practical guidance on navigating the dynamic and challenging landscape of venture capital investment.
Given Qualgro’s focus on Data/AI, Software, and B2B at Series A and B, what specific qualities or potential do you look for when evaluating startups in these sectors?
We have an internal framework at Qualgro that helps us qualify startups. One of the key criteria is our assessment of founder quality. Below is an excerpt from the memo, edited for brevity:
“Value Proposition – By this, I mean, what value does the company bring to the user? In this, there are three elements that I would like our investment team to articulate:
- Who is the intended user? Are there different personas? Does the intended user have decision power? If not, who does?
- What is the intended use? At least, what does the founder have in mind?
- How does the product work?
If you cannot speak to the above with some level of depth, do not move on to the rest of the framework. The above should be asked and answered on the first call (at most second call). Even if it’s in a highly technical space, and we are unsure of the validity of the assumptions behind the intended user and/or intended use, as an investor, you can still ask these questions and see how the founder responds.
We can always check on these assumptions, but we need to know the value proposition (and usually it can be distilled if you follow the above 3 points).”
An insistence on understanding value proposition insulates us (to a good degree) from jumping onto the hype train and following the crowd into investing in absurd business models.
In your experience, how do you strike a balance between assessing short-term financial returns and the long-term strategic growth potential of startups? What advice would you offer to founders navigating this balance?
I find Steve Blank’s definition of a startup instructive: “A startup is a temporary organization designed to search for a repeatable and scalable business model.”
There is much to unpack from this simple statement, but if we do take time to do the unpacking, one may rephrase the above dichotomous question to something to the tune of: Is this startup making headway to become a scalable business that has a set of known, repeatable, hopefully, automated processes? That short term financial return – does it hinder or detract from the task of searching for a repeatable and scalable business model, or does it serve as a proof point of product-market fit?
I am the last advocate for burning cash carelessly and without good reason. I am also not a fan of achieving short-term profits without a vision to scale. I would like my cash investment to be used in the search for Steve Blank’s allegorical startup, nirvana. I can live with the failure of not reaching that promised land, but I cannot accept the lack of trying.
I have a soft spot for founders who do not see short-term financial returns and the long-term strategic growth potential as a rigid dichotomy. Founders who can inform their short-term decisions with long-term thinking have my vote.
Considering Qualgro’s impressive track record of exits and achievements, can you share a particular investment success story that stands out to you and why?
In venture capital, only exited companies fall within my narrowly constructed definition of success. Public markets or rational acquirers vindicate exited companies. They are subject to higher scrutiny and represent a level of confidence that non-exited companies (no matter how highly marked-up) do not enjoy.
Wavecell’s exit to 8×8 is memorable. It was the first exit in Qualgro’s history. We returned half of our fund with this exit, achieving a 10x return on investment over four years. We were almost prescient about how this company would exit. Our investment memo laid out the projected profile of the company at exit (scale, profitability, geographic scope), the profiles of potential buyers, the timing, and the valuation – and it all came to fruition four years after our initial investment. This first exit gave us confidence that our strategy works and paved the way for our fund’s seven more exits (and counting).
As an investor with a focus on Southeast Asia, what unique opportunities and challenges do you see in the region’s startup ecosystem, and how does Qualgro navigate them?
First, we do not subscribe to the simple notion that “Southeast Asia is ten years behind China.” That notion is dangerous because it is extremely reductive, nebulous and promotes lazy thinking. If one subscribes to such a notion, the logical thing to do would be to invest in what China was investing in 10 years ago. I start with this disclaimer because that is the common refrain often heard among Southeast Asia startup circles. Once we accept that Southeast Asia is its own animal, with characteristics distinct to the region, we can then target the right opportunities and not blindly follow successful models from elsewhere.
Most observers would agree that Southeast Asia is attractive for many macro reasons – growing, stable economies; hungry, educated young talent; rapidly developing infrastructure encouraging adoption of technology; large population size etc. I’m largely in agreement. If you look globally, Southeast Asia and South Asia are probably the only regions to have this many tailwinds, currently and for the foreseeable mid-term.
The challenges are also well-documented if not always well-considered, by founders and investors alike. Geographically, culturally, linguistically, and economically, Southeast Asia as a region is not homogenous (this lack of homogeneity is true even within countries). This leads to friction in scaling businesses regionally, fragmentation of talent, and differences in regulation – all of which are pitfalls to building a scalable business in Southeast Asia. Nevertheless, fortune favors the bold, and founders who can overcome these issues will be handsomely rewarded.
We insist on always going beyond “Level 1 Thinking” (e.g., Southeast Asia is 10 years behind China) and considering the critical success factors of any deal or opportunity. Coupling that with our collective global worldview and deep local insights, we think we can regularly put ourselves in positions of success.
For someone new to the startup investing scene, what are the fundamental principles or strategies you would recommend for successful and informed investing?
I subscribe to the tenet “Strong opinions, weakly held.” You should have a point of view, but you should keep updating that point of view with new information. Strive to be well-informed but not easily influenced.
Keeping in close contact with like-minded individuals who share the same values but have wildly different professional skills is a boon professionally and a greater joy personally. I am a big basketball fan, and some of the greatest players pride themselves on being “students of the game”. LeBron and Kobe are well-known for being able to recite specific plays and obscure historical facts, devour film, and absorb knowledge. There is a strong correlation between successful people in their crafts and their dedication to learn everything there is to learn about that craft.
The venture is about investing in people, with insights into the macro environment and the micro-human psyche. The Chinese have a term: 三观: 人生观,价值观,世界观 (3 views: View on Life, View of the World, View on Values). Developing and strengthening one’s three views elevates one’s condition and perspectives on the three views of others – I think it also makes one a better investor.
Given the dynamic nature of the startup landscape, how do we approach risk assessment and management in the investment strategy?
The Power Law is well-understood in the venture business – you make returns on the portfolio on the back of a select few outstanding investments. Qualgro also subscribes to it but probably not to the extreme extent that our Silicon Valley counterparts can and should aim for, given the maturity and depth of their ecosystem.
Given this skewed dynamic, it is more important for VCs to optimize for Type 2 errors (reducing false negatives) than for Type 1 errors (reducing false positives). In most of the investment world, you want to protect the downside as losses are disastrous (optimizing for Type 1 error by reducing false positives – Think about the lending business). In venture, it is the opposite – you are trying to shoot for the big wins. Understanding this intimately will significantly improve portfolio construction, impacting your eventual returns.
Drawing from your experience, what common pitfalls or mistakes should early-stage founders avoid during the fundraising process? How can they navigate these challenges successfully?
The trifecta of fundraising is valuation, dilution, and fundraising amount. Most founders have a rudimentary understanding of how this affects the company and their economics. Most early-stage founders will also optimize in this order: valuation, dilution, and fundraising amount.
I recommend reversing that order: the fundraising amount should be most important by a large margin, followed by dilution, and thenvaluation. Valuation should be an outcome, not an input (unlike what finance purists might say about multiples).
Why is the fundraising amount the most important and worth the extra thought? It shows you have a good grasp of the company’s resourcing requirements to hit milestones (remember the startup is still in search of that repeatable and scalable business model.), which will provide the best chance for the company to succeed. All startups have valuations that run ahead of their existing tangible value.
The more you raise, the more the valuation is ahead (assuming constant dilution), and the harder you set yourself up for the company to grow into that valuation. Too much money also compels founders to spend in search of growth, sometimes irrationally. The image of Icarus flying too close to the sun is a suspicion for those who overstretch and raise too much money.
Talk to investors about how you intend to use the money and to what end.
Can you share a specific instance where you witnessed a startup effectively manage limited resources and budget, and what lessons can early-stage founders learn from such examples?
The best founders always clarify how much money they need and to what end. They clarify these things upfront and early so that investors understand the intent when things go awry (Murphy’s Law) and are more likely to help when the chips are down. Transparency, intent, and early communication.
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Weisheng Neo’s invaluable insights shed light on the intricate dynamics of tech sector investment in Asia. As startups and investors navigate the landscape, Neo’s words of wisdom guide them towards sustainable growth and impactful innovation in the vibrant tech sectors of Southeast Asia.
In addition to his professional endeavors, Weisheng Neo finds immense fulfillment in his role as a father to his son, who serves as a constant source of motivation and inspiration. Beyond work, Neo attributes much of his balanced perspective to his relationship with his wife, whose contrasting personality and superior cognitive abilities keep him grounded and focused, he adds.
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