October 2014

The New Wave of Scalable Entrepreneurship in SEA

Vistage CEO Summit

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About the speaker

Wharton MBA

JP Morgan – Vice President IB Technology, GM Internet Marketing

Parallax Capital Mgmt – Co-founder and MD Venture investing

Extream Ventures – Co-founder and MD S$20 million seed fund

Expara & Expara IDM Ventures– Founder and MD Incubator, advisory, training

NUS – Adjunct Associate Professor, Business School, Entrepreneurship

Sasin - Visiting Professor, Venture Capital

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What is the relationship between risk and return?

Risk and return are highly positively correlated

You cannot increase return without taking more risk

Return

Risk

Potential outcomes

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Risk and return – small versus scalable business

Small business: limited scope, complication and risk. Slow growth.

Scalable business: significant scope, complication, and risk. Rapid growth.

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Product or service: which is more scalable?

Product-based start-ups – High risk of failure to achieve scale – High return if successful

Service-based start-ups – Higher risk of failure to achieve scale – Lower return if successful

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Additional returns to scalable business

What type of life do you want to have? – An average life or an extraordinary life?

What do you want to do with your life? – Create something of value from nothing or just make money?

Do you want to: – Make a difference? – Change the world in some way? – Leave something of value after you are gone?

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Returns to successful high-growth entrepreneurs

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Facebook: ROI to 1st round ~5,000x

Feb 2004: Mark Zuckerberg, 19, launches The Facebook from his Harvard dorm room, with ~10K investment. Half of Harvard signs up in the first month

June 2004: Facebook receives $500K funding from Peter Thiel

Mid 2005: Accel partners invests $12.7MM and Greylock $27.5MM

Oct 2007: Microsoft buys 1.6% of Facebook for $246MM

Nov 2007: Li Ka-shing invests $60MM

2009-10: Elevation partners invests $210MM at valuation $12 - 23B

2011: Goldman Sachs buys shares in the secondary market at an implied valuation of $50B

2012: Valuation after IPO $65B

2014: Valuation $190B

“The youngest billionaire on earth” - Forbes

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Instagram: ROI to 1st round ~200x

2010 - Kevin Systrom and Mike Krieger focus their multi-featured HTML5 check-in project Burbn on mobile photography

Mar 2010 – Close $500K seed funding round from Baseline Ventures and Andreessen Horowitz; est. val. $5 MM

Oct 2010 – Product launches on Apple App Store

Feb 2012 – Raise $7MM Series A funding; valuation $25 MM

Apr 2012 – Raise $50 MM at $500 MM valuation; sold to Facebook, val $1 B

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Millions of Users

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Google: ROI to 1st round ~1000x

1995: Sergey Brin and Larry Page, two Stanford University graduate students develop the technology that will become the Google search engine.

1998: Sergey and Larry raise $1 million in funding from family, friends, and angel investors to start Google in a friend's Menlo Park, Calif. garage with four employees.

1999: Google raises $25MM from VCs and angel investors

2004: Google goes IPO at a valuation of US$23.1 billion. Sells 7% to public for $1.67 billion.

2014: Market cap US$388 billion.

Value of shares at IPO: US$3.8 B each Value of shares now: US$14 B each

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YouTube: ROI to 1st round ~125x

Feb 2005: Chad Hurley, Steve Chen, and Jawed Karim found YouTube, Inc.

Nov 2005: YouTube receives funding from Sequoia Capital

Dec 2005: YouTube service is officially launched

Nov 2006: Google acquires YouTube for US$1.65 billion, 20 months after the company was founded

2013: Youtube revenue 3.5BB

Value of shares at exit US$760 MM

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Obstacles to scalable entrepreneurship in SEA

Lack of entrepreneurial skills

Attitudes toward risk

Cultural attitudes toward failure

Entrepreneurial success is difficult

Lack of an ecosystem

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Evolving cultural attitudes toward failure

Failure is bad; avoid at all costs

Traditional

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Evolving cultural attitudes toward failure

Failure is bad; avoid at all costs

Failure is acceptable; leads to learning

Traditional Current

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Evolving cultural attitudes toward failure

Failure is bad; avoid at all costs

Failure is acceptable; leads to learning

Failure is desirable; necessary for innovation

Traditional Current Future

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Startups and ecosystems

Coral reefs – 10% of earth’s surface; 25% of known species

Cities 10x larger than neighbor are 17x more innovative

Residents of city of 5MM are 3x more innovative than resident of town of 100K

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Factors that drive innovation require ecosystems

Liquid networks

Slow hunches

Serendipity

Error

Exaptation

Platforms

Where Good Ideas Come From – The Natural History of Innovation

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Networks in the enterprise ecosystem

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Strengths of Singapore’s enterprise ecosystem

Public policies promoting entrepreneurship and venture capital

Public policies supporting the venture capital industry

A business friendly environment

Strong IP protection regime and corporate governance

Strategic location in Asia

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Launchpad at One North – Block 71

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Asia VC increasing exponentially

2014 VC investment in Asia $10.5B up from $6.3B in 2013

New VC/PE funds raising $113B targeted at Asia in 2014

Venture capital investment in Singapore went from 27.9 MM in 2011 to 1.71 B in 2013, a 60x increase

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SEA deal flow pipeline is full

S$90MM invested in Singapore seed stage in 2013 alone

Deals Amt (USD MM) Population GDP (USD B) Total SG 264 71.8 5.312 274 Total US 908 361.4 314 15000 SG / US 29% 20% 1.7% 1.8%

[1] Crunchbase Jan 2014, Wall Street Journal Feb 2014

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US and Singapore public sector VC

The US federal government alone invests as much in small businesses as total VC investment through SBA/SBIR

Federal contracts to small businesses dwarf total VC investment

Start-ups are also funded at state and local levels

Both US and Singapore invest about 1% of GDP into programs supporting start-ups and small businesses

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Who are the players in scalable business?

Entrepreneurs – Lifestyle entrepreneurs – High-growth entrepreneurs

(scalable business)

Venture investors – Venture capitalists (VCs) – Angel investors – Corporate VCs and investors – Banks – Government

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What roles do they play?

Identify opportunities

Provide funding

Oversee finances

Assist with growth

Generate returns for themselves or their investors

Venture investors

Create opportunities

Raise funding

Manage finances

Increase value

Generate returns for investors

Entrepreneurs

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Why do ventures seek investment?

A big piece of a small pie?

A small piece of a big pie?

Risk and return?

Founder

Investors

Investors

Founder

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How to fund growth?

Internally generated

Debt

Hybrid

Equity

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Cost, control, growth and risk

Internal

Debt

Equity

Source of funds

Cost Lose Control Growth $ Risk

Impact of funding

Low Somewhat High

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Financial leverage and firm value

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Companies founded with venture capital

www.nvca.org

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Industries created by venture capital

www.nvca.org

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Why invest in venture capital?

As of 31-Mar 2014 The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,494 U.S. venture capital funds (962 early stage, 163 late & expansion stage, 363 multi-stage and 6 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2013. 1Pooled end-to-end return, net of fees, expenses, and carried interest. Sources: Cambridge Associates LLC, Barclays, Dow Jones Indexes, Frank Russell Company, Standard & Poor's, Thomson Reuters Datastream, and Wilshire Associates, Inc. *Capital change only.

Case Shiller Real Estate Index 4.1

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What is the scalable business funding process?

Founder’s Capital

Seed/Angel

Series A, B, C

Mezzanine Pre-Exit Exit

VC hurdle rates 60-100% 40-60% 20%

OM F,F&F

Incubators corporations government

Customers, suppliers, strategic partnersVCs, Banks for VC loans

R&D Establishment GTM/Rollout Accelerated Expansion MaturityEnablement growth

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How do VCs make money?

Trade sale – sell to another company

IPO – sell to the public through listing on an exchange

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Trade sale or IPO?

www.nvca.org

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Exit markets at an inflection point

Exit activity in SEA, especially in Singapore, exploded in 2013 • Increased investment in startups since 2007 is beginning to yield results

• Number of exits increased from 6 in 2010 to 20 in 2013

• Singapore alone has had 30 exits since 2007, 13 in 2013

• Value of exits increased from 51 MM in 2010 to 400 MM in 2013

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Recent exits in SEA Company Country Acquiror Price Year

ZopIM Singapore Zendesk US$29.8MM 2014 Non-Stop Games Singapore King US$ 100MM 2014 sgCarMart Singapore SPH S$60 MM 2013 DS3 Singapore Gemalto S$50 MM est. 2013 Asian Food Channel Singapore Scripps Networks Undisclosed 2013

Reebonz Singapore MediaCorp and Existing investors S$250MM 2013

Yfind Singapore Ruckus Wireless Undisclosed 2013 Techsailor Singapore TO THE NEW Undisclosed 2013 travelmob Singapore HomeAway Undisclosed 2013 Catcha Digital Media Singapore Opt Inc Undisclosed 2013

GridBlaze Singapore Undisclosed Silicon Valley Startup Undisclosed 2013

Viki Singapore Rakuten US$200MM 2013 SGE Singapore Tech In Asia Undisclosed 2013 ThoughtBuzz India To The New Undisclosed 2013 AyoPay Indonesia MOL AccessPortal Undisclosed 2013 Tongue in Chic Malaysia PopDigital Undisclosed 2013 Ocision Malaysia Star Publication US$ 4.36MM 2013 Glamybox Vietnam VanityTrove Undisclosed 2013 PaymentLink Singapore Wirecard US$41.2MM 2013 Dealguru Singapore iBuy S$34.28 MM 2013 Buy Together Hong Kong iBuy S$21 MM 2013 Dealmates Malaysia iBuy S$10 MM 2013 PropertyGuru.com Singapore ImmobilienScout24 S$60 MM 2012 HungryGoWhere Singapore Singtel S$12 MM 2012 AdMax Network Singapore Komli Media Undisclosed 2012 TheMobileGamer Singapore Singtel US$1.5 MM 2012

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• EIDMV I portfolio of 16 companies 19% success rate 2008-2014

• First exit in Oct-2013 at 36x ROI and 2.2x on total invested capital

• Second (partial) exit in May 2014 at 250x ROI and 5.13x on total invested

• 42% IRR 2008-2014; 5.13x; two live companies in portfolio

Expara venture capital returns in SEA

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How does a venture capital fund work?

Fund Investors

VC

8

$ 10 mm

2

$ 10 mm

$ 58 mm

25%

75%

Fund size 10,000,000$ Life of the fund 7Management fee 2.5%Investable 8,250,000$ Investment size 1,031,250$ Companies 8Fail 4 50%Break even 2 25%Exit 2 25%

Investor's required ROI 35%Fund multiple return 5.76Fund size at exit 57,600,000$ Carry @ 20% 9,520,000 Distribution 48,080,000$ Fund return multiple 4.81Fund ROI 35%Required return per exit 28 times

Equity per company F/D 15%Required value of equity at exit 28,800,000$ Required co value at exit 192,000,000$

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GVMs for all first-round investments

10 years after investment. Data from Sand Hill Road Econometrics. Companies received first financing before 1 January 1999. First non-seed round investment. Returns are gross - before fees and carry

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What makes a scalable business?

Develop an innovative product – Innovation

Solve a problem for customers – Value proposition

Identify your customers – Market identification and analysis

Reach your customers – Marketing strategy

Compete when others enter - Sustainable competitive advantage

Make money – Business model and financial plan

Team – A team or B team

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Key elements of a VC deal

Board of directors

Protective provisions

Drag-along agreement

Conversion

Control

Price-per-share

Valuation

Amount of financing

Liquidation preference

Vesting

Options pool

Anti-dilution

Pay-to-play

Economics

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Contact us

Douglas Abrams

Expara Pte. Ltd.

dka@expara.com

www.expara.com

65-6323-3084, 65-9780-5381 (hp)

Block 71 Ayer Rajah Crescent, #02-10/11 Singapore 139951