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Cocoon Capital and the venture ecosystem in Singapore
Rachael Qualls: So welcome everyone to Venture360’s podcast, All Things Venture Capital. My name is Rachael Qualls. I’m Venture360’s co-founder and CEO and your host. Today, Will Klippgen from Cocoon is joining us to talk about venture capital from one of the hottest markets on the planet, which is Singapore. So, welcome Will. So first let’s start off by learning all about you. How did you get into venture capital?
Will Klippgen: Yeah, I guess that was kind of accidental. I was working in the U.S. actually before the dot com crash in the kind of happy nineties in Silicon Valley for a search company called Excite that some people might know. And I went back to Europe and I started the first price comparison B2C portal in Europe. Basically letting people compare prices. I sold that to Yahoo in 2004. We grew that to be a pretty big company. I think we had like 20 million monthly users. And in 2003, I happened to then wanting to do something else. And I think what really draw me into venture capital was probably being close to burnt out by starting my own company. I was really envious of the kind of venture capitalist of [inaudible 00:01:47] board meetings and they looked very happy and relaxed. They seemed to be doing very well while we were up at night and couldn’t sleep and so on.
Will Klippgen: So I thought that if I should do a second kind of job later, it should be to be a VC and not the founder. So after I sold to Yahoo, I became a Business Angel in Singapore. I did a few deals out there starting in 2004, probably around 25 deals. And then I met the fellow Business Angel called Michael Blakey and he had been doing the same thing out of the U.K. for a little bit more than me in terms of time and the same amount of companies. So we found out that we work pretty similarly. And we decided to start a VC company, a small VC firm to be able to spend even more time with the companies we were mentoring and and less time fundraising and syndicating the deals that we typically did both in the first round where we came in and also in the kind of following rounds.
Will Klippgen: And that’s what we did. So in 2016 we started Cocoon Capital Fund I. Did 10 companies there. And then just recently, I mean a few weeks ago we announced the closing of our second fund, which is the $30 million, again Singapore dollar fund, Cocoon II, with the kind of same mandates. We can talk about that later, but that’s basically what happened. So I kind of started my career in Silicon Valley in 97 and when I moved back to Europe, e-commerce in Europe at that time was still in its infancy and it didn’t exist in Asia. By that time, by the way, China was not allowed to access the internet if you can think about that possible.
Will Klippgen: So it was an interesting place to start because I had kind of seen how things were done in the more mature markets where more people were online. And when I came to Singapore to do my MBA, I saw that Singapore, definitely the rest of Southeast Asia was like ten plus years behind Europe. So a lot of the services and business concepts that were really valuable in Europe at that time and very profitable, hadn’t even been done in Singapore. So one of my first investments was a property listing portal called PropertyGuru that tried to disrupt basically the big market through putting apartment ads in newspapers and tried to go through 1,000 listings on paper, and nobody had done that before.
Rachael Qualls: Yeah, let’s start there. Because I was going to ask too anyway about how you guys structure your fund, what your investment focus is.
Will Klippgen: So for our first fund we had ten companies. And the interesting thing there is that five of them are what we would call global first companies and not really very much focused on Southeast Asia. And the other five are really focused on the region of Southeast Asia, which by the way, it’s a very interesting place with close to 700 million people and with a very, very high GDP growth rate, kind of similar to China’s, a little bit less. So the interesting thing is that for the five global first companies, we have like really stellar founders that could have ended up in Silicon Valley or in the U.K.
Will Klippgen: And I used to say we have like the five or so of our best companies are actually Iranian and they are not allowed to enter the U.S. At least it would be very, very hard. And they chose instead to go to Singapore and they set up their MedTech company, which is probably one of the best companies in our portfolio for Fund I, we can talk more about that later. So that’s interesting thing in the region like Singapore where you have this combination of region first and global first.
Rachael Qualls: So that is absolutely fascinating to me because I am personally located in the absolute middle of the United States. So I’m surrounded by nothing but English speaking and Americans. I’m fascinated with how the rest of the world works, especially as it relates to kind of the investment culture. So maybe we could talk a little bit the investment culture of Singapore. Is it risk averse capital, is it an aggressive capital? And then we definitely want to dive into the companies you’re funding and their global outreach and kind of the nuance of the cultures of that.
Will Klippgen: Yeah, so that’s an interesting question. I would say that Singapore, if you go back to 2000, had a very conservative set of investors. There were a few exceptions of course, but I think what happened was that the Singapore government had this really, really strong drive and an established policy after 2004. So that means that 15 years ago to transform Singapore into an entrepreneurial hub of sorts to kind of create the next wave of business for the country to make it survive as a country without any natural resources and only 5 million people. So part of that drive also set some schemes in motion that attracted a lot of venture capital, both early and later stage, through tax breaks, through the government investing in venture funds, SNLP, and a lot of co-investment schemes.
Will Klippgen: So that has brought a lot of people from outside Singapore to Singapore. It also has helped I think creating more Singapore based funds that are more kind of in tune with how you need to kind of be in a tech environment when you invest in your founders in tech and be less conservative. And of course a lot of the wealth in Southeast Asia comes from very traditional industries like construction property and what you would suspect. Singapore is the first world country, if you can say that. This is the developed market and the rest of Southeast Asia, of which is the remaining 690 million are in emerging markets where people are still trying to solve basic problems. So it’s a very diverse region also between the countries in terms of how they stand in terms of GDP per capita and growth and so on. But definitely the kind of effort by the garment to kind of bring in outside capital, outside managers. I think that that’s really helped to transform capital to be much more in line with what you see in similar setups in Silicon Valley or Europe.
Rachael Qualls: Again, I think that’s a similar story around the world because traditionally and historically money was made differently than it is now. Not exclusively. I mean, you can still make money in real estate and physical goods and things like that. But I mean, so you have the mentality of how I made it yesterday is how I should make it today. And that takes a behavioral shift in capital, right?
Will Klippgen: And a huge [inaudible 00:08:46] comes from second generation founders, right? So it’s founders that exit and go back and become angels or venture capitalists. And until you have a set of successful founders that exit your companies, you won’t have that impact. But in Singapore you’re now starting to see that and there are numerous founders that now have solar companies and go back and go into venture capital as a kind of next stage for them, which is great for the whole ecosystem.
Rachael Qualls: I think that’s the single point at which an ecosystem can see the hockey stick and start to see something similar to what we all look at as the valley to spearhead, which is that entrepreneurs are making money a certain way that they then turn around and invest in the next generation. And that generation isn’t 30 years behind, that generations five years. So it’s a shortened loop and when that capital’s recycling to the next innovation.
Will Klippgen: Yep. Very true.
Rachael Qualls: So let’s talk a little bit more about Singapore and then we’ll move on to some of your portfolio companies stories because those are always my favorite. But you were telling me how Singapore is a declared sandbox. Can you explain what that is and why that is such an amazing thing?
Will Klippgen: Yeah. When we talk about sandbox, it’s a sandbox in terms of FinTech startups. So what happens here is that the financial regulator declared Singapore sandbox for new ventures. That means that you can start basically anything you want. You can lend money, you can do financial engineering, and you do not have to worry about complying with any kind of regulations or apply for any licenses. That is part of the effort to make Singapore a very attractive place to move for global founders because you can get to market faster. And what the financial authority also has committed to is that they will of course know which startups are declaring that they take part in the sandbox scheme and they will sit down with them as they grow bigger and see how they can actually change the legislation, instead of having the startups change themselves to kind of adopt to existing legislation.
Will Klippgen: And I think that’s a very progressive and very smart move by Singapore. So that has attracted a lot of cryptocurrency people as well. I mean the founder of Ethereum, for example, has taken up his office in Singapore after kind of reviewing all countries in the world. At the same time, the monetary authorities extremely conservative and legislating cryptocurrency for the general public. But you can kind of do two things at the same time because I think that’s a really, really, really smart move by the government to do that. And ideas and execution power, those are limited resources in the world of tech if you go into niche. And any country needs to compete for those best resources. And I think some of the founders that have moved to Singapore, I mean any country in the world would be extremely happy to have them in their country. It’s just that they happen to go to Singapore because of what Singapore has done in terms of making it attractive.
Rachael Qualls: I think it’s one of the coolest things I’ve heard of a government working with kind of the innovation population. So let me get this straight. They kind of give you a rope to do basically whatever you want and open a dialogue of if you get traction with that or if you prove that the financial markets need and wants and can run on whatever you’re innovating, then you have a direct dialogue with regulators to then change things?
Will Klippgen: Yeah. And the regulators have a direct dialogue with us as well as investors. The Singapore government has a very consultative kind of method of operations that includes speaking directly to the players in the market and having a very open door policy. So that’s quite remarkable. It’s a way of working that I haven’t seen. I have another example. I mean one of my first investments back in 2006 that then Deputy Minister of Trade and Industry came to the product launch of this company because we had, part of the company was based on a license from a local university system. The guy basically went to the U.K. after and promoted the product to this company. And when I met him a few months later, he kind of recognized me and said, I actually went to U.K. and I promoted some of the products from that company. I mean, no public official would do that in any normal country. And that kind of really, really inspired me.
Rachael Qualls: Absolutely. I don’t know anything else like that either that I’ve heard of.
Will Klippgen: Yeah.
Rachael Qualls: That’s really cool.
Will Klippgen: So yeah.
Rachael Qualls: I’m going to find myself a co-founder in Singapore and start doing some cool new financial and tech stuff.
Will Klippgen: [inaudible 00:13:53] at some point. Yeah, why not?
Rachael Qualls: Right. All right. So let’s talk a little bit about portfolio companies then and their story. So I want to hear more about this Iranian company. So you have a couple of founders and Iran who want to be able to do business globally, especially with the U.S., but you have political hurdles to that. Right? So tell me the story. How does that work?
Will Klippgen: Yeah, so that last story actually came out of the very close cooperation we had with a very famous accelerator. And this and Europe and Asia now called Entrepreneur First. I don’t know if you heard about them. But it’s an accelerator started basically from the premise that good founders should meet and then good ideas for companies would come out as a result of good founders meeting. So it’s an accelerator that you join without necessarily having a clear idea about what you want to do. You just know that you want to do something and you have a certain skill. A high percentage of people in that program have PhDs.
Will Klippgen: The two Iranians that started this mentor company that we ended up investing in actually joined the program to start something and they were actually married then. They are still married. And they have very different skills and they have no idea that they would ever be … They had no intention of working together. So one is an expert in AI and one is an expert in fluid mechanics. They actually sat down and they figured out that they could use those combined skills to actually detect strokes, or more correctly, determine the chance of a second stroke for a patient that has undergone treatment for his or her first stroke.
Will Klippgen: And one of the biggest markets for that kind of software is the U.S. Obviously they were not able to go there and instead they chose to then join, or stay back in Singapore to then launch a company fully after the end of the Entrepreneur First Program. Very interesting company. Lots of traction. The company has kind of moved into using neural network AI, analyzing assisting imagery, and basically if this is launched and all the licenses and approvals are given, obviously a software that can save a lot of lives going forward, including in the U.S.
Rachael Qualls: So they’re mapping neurological transmissions through artificial intelligence to accurately predict the next stroke after you have one?
Will Klippgen: Yeah, well they’re actually mimicking the way a surgeon will evaluate a second stroke chance in addition to doing something else so they scan the existing ultrasound imagery that’s being already recorded by the hospital. They are interpreting the images to see how the classification of the plaque, which is gathering in the veins, right? They’re the ones that the kind of substance that comes loose and blocks the arteries at some point and causes the stroke. So it basically consists of three products, I don’t want to go into too much detail, but it also includes mapping out and understanding how blood flows through the entire brain, how the pressure of the blood affects like every kind of cell more or less in the veins.
Will Klippgen: And then combining that with the knowledge or where the plaque resides in the veins and then the composition of that plaque and then calculating based on the pressure of the blood on that particular side of the wall was the chance that that might come off. So it’s a kind of software that does something that no one else can do today in addition to mimicking and interpreting and doing things that it’s already done today, but they do it in five minutes instead of hours. Or actually probably less than five minutes. But yeah, so the whole point is saving time for hospital, but also kind of creating a much better quality decision on what to do with the patient.
Rachael Qualls: Well health tech VCs who are listening to this now know that they have a deal flow coming out of Singapore they’re probably going to be [crosstalk 00:18:21].
Will Klippgen: [inaudible 00:18:24] so please get in touch. Yep.
Rachael Qualls: Yeah. Right.
Will Klippgen: That’s true.
Rachael Qualls: So why was the U.S. their first choice of launching a health tech?
Will Klippgen: I think for MedTech software, the U.S. still is the biggest market as far as I know.
Rachael Qualls: Well yeah, we’re super unhealthy. So there’s that.
Will Klippgen: Well, it’s also about the willingness to pay and then the kind of ability to pay. I think in terms of pricing that makes the U.S. very attractive. So that’s all I know about that. I think the underlying point is that we see that people come to Singapore that they wouldn’t have expected to see. And that makes it a very interesting place to be because you’re kind of in the position where you are in kind of a world city that in many ways are like Shanghai or New York or London. But at the same time you have access to an enormous kind of what you can call home, a market that is emerging and has 700 million people. So you’re kind of running two funds in one in a way if you think about it that way.
Rachael Qualls: Yeah. That’s pretty uniquely incredible.
Will Klippgen: Yep.
Rachael Qualls: So what is your fund’s actual focus then? Because you go from being early in Excite in the pre dot com era to funding AI, MedTech. So obviously you’re a deal junkie like me, but what do you guys focus on as far as funding in your fund?
Will Klippgen: So the way we work is that we invest in really very few companies. We see probably around 1500 companies every year and we invest in six. Our focus, I think as Individual Angels before we started Cocoon was a lot towards B2C consumer tech. I think we realized that that is kind of an over-invested area, even in Southeast Asia. Cocoon has almost exclusively gone after enterprise tech B2B deals. I would say we are quite open for anything enterprise tech. The more deep tech it is, the more defensible longterm barriers you can create are great. I think all VCs say that. We like InsureTech, we like MedTech of course, we like FinTech, we like the SaaS business model. We think that businesses in Southeast Asia, when we look at the original market, they are extremely inefficiently run. There’s a absolute lack of technology across the entire market.
Will Klippgen: So we think that’s a big opportunity. But of course also when we see global companies, we deal with that on a global basis. And then tech I think becomes even more important. Because when you look at an emerging market, it’s all about execution power. You can take existing business model and you just execute them really well. For the second half of the business, I mean historically, when you look at global first markets, it’s much more about technology and being unique and inventing something in addition to having execution power.
Will Klippgen: So we think that for both of those, enterprise tech is the most interesting area. If you look at Southeast Asia, I think we found that only 7% of capital has been invested in enterprise tech. The rest in consumer tech. Part of our history is driven by a few unicorns that are emerging in transportation or e-commerce of course. That kind of skews these numbers heavily towards B2C because they happen to be B2C companies. The first unicorns in emerging online markets tend to be B2C focused. But there’s definitely cleared up B2B enterprise tech is severely under invested in that region. So that’s the opportunity we’re going after.
Rachael Qualls: Interesting. And so what are some of your favorite deals? Can you tell us a little bit about those?
Will Klippgen: Well, in addition to I guess [inaudible 00:22:31] that is predicting the second stroke, we have another favorite deal, or I think all of our deals are favorite deals. But I mean if you look at traction, the fact that we invested in them quite early. We have another company called Sensor Flow that’s really interesting. Also racing around soon. What they do is that they save energy in hotel rooms. So they have created a stack, electronics that monitor room and controls the air con or kind of central chiller system, integrates with the hotel management system.
Will Klippgen: And so by saving around 30% of electricity for hotels basically immediately after installation. So that’s a very interesting model. It’s a SaaS based model or … Not SaaS, but what do you call it? I don’t know what kind of, you would put in front there, but basically we release the whole system to the hotel and hotel pays a unique price then per room per month and it’s really, really popular. Power, electricity is very expensive actually in Southeast Asia, which is interesting for this business. You would expect that in the emerging markets everything is cheap, but power is actually quite expensive. So this is a really, really good thing to do. And it also, of course, I mean in the end helps the climate and saves CO2. So it’s a good thing.
Rachael Qualls: Very cool. And are you seeing as far as new deal flow, are you seeing any emerging trends like things that are kind of popping up that you can sort of … Because as VCs we can kind of start to feel that groundswell of okay, this is going to be a next emergent things. What’s happening over there?
Will Klippgen: Yeah, I would say I could see more of clear trends before, especially because the variety of deals was less so we had a lot of coupon companies or a lot of blockchain companies. Actually in the last 12 months, I think our deal flow has been really, really varied. There have been really no trends. There’s just so much more innovation happening and so much more interesting ideas. So it’s kind of hard to see trends. I mean you have in the FinTech space, the people that really make money, at least in the beginning, would be the kind of payment processing companies.
Will Klippgen: So that’s definitely a trend that we can see across Southeast Asia that there’s this drive towards more cards being issued and more payment processing happening. We have a population where I think on average probably nine out of ten people do not have a bank account or credit card. So that remains an amazing opportunity that results in companies trying to address that. Every week we see a company trying to profit on that or do something with that. Apart from that, I have to say there, I don’t really see any clear trends. I see a lot of different ideas coming.
Rachael Qualls: Interesting. Yeah. Maybe that’s its own trend right there is that the problems people are is that the problems people are trying to tackle are much more varied than oh, here’s a problem, let’s all rush to it at the same time. So now that we’ve talked a lot about kind of your big wins and your favorite deals, is there anything you can leave us with as maybe your biggest mistake or a lesson you learned that the rest of us could benefit from knowing and understanding?
Will Klippgen: Well, I think my biggest mistake, I think if you ask VCs is always if you lose out on not doing a unicorn deal. I was one of the first investors that the founder of TransferWise spoke to. It’s hard not to regret that when I kind of look up his emails to me. [inaudible 00:26:26] he basically wanted nothing for his startup in terms of pre money at that time. And he ended up, I don’t know how many billions he’s worth now. But I think that mistake came from how I invested in the beginning where I really look too much at the tech and everything else and not enough on the people being there. I think what I’ve learned is that, and it’s a cliche that you know, people are the most important thing. And in the beginning, I didn’t believe that.
Will Klippgen: I thought that was something people told to be politically correct, right? But it’s actually very, very true. And I guess what I’ve learned is that if a really great founding team does something and they might be doing the wrong thing, but if they do the wrong thing, they will figure it out. If a really not so great team do something really, really smart, they might not even figure out how to execute that really smart thing they want to do. So I think that what I really learned is that focus on the people behind the company and that’s also where we spend the most time on in terms of due diligence, not so much on the exact business plan and the exact product these guys say they going to make because they will figure it out in the end.
Rachael Qualls: That is absolutely fantastic. And one of the reasons that I think that’s so fantastic is that’s a trend I see in VC is we’re kind of split between the historical fund managers who are still running all of these complex financial models and looking at, and this is probably indicative too of an earlier stage investor, but we spent so much time doing due diligence on the marketplace and competition and financial modeling and revenue production, all of these things. But at the end of the day you need people to execute on. And the number one biggest factor in success is typically the thing we’re spending the least amount of time on and due diligence, just the people. And sure we’re meeting them and we’re doing a sniff test of whether or not we like these people. But none of those things really matters.
Rachael Qualls: And we’re all also coming to the deal table with personal bias, which is also inhibiting our ability to potentially pick the right founders at the right time, which goes into the point that you made, which is looking too much at the deal and not about the founders. We did another podcast that I’ll give a plug to in this one. And then for anyone who wants to kind of learn more about that VC trend of people not product is the podcast we did with Kinetic Ventures. So they’re strictly what’s called a quant fund, a quantitative based fund. And they don’t even care what the business is.
Rachael Qualls: They just invest in founders because they know, like you said, whatever the product is, they’re going to pick the right one and figure it out because it’s just in their genetic makeup. So they spent tons and tons of money and time building artificial intelligence for funding the right founders. So it’s cool times. All right, well thank you for your time, Will. Thank you for giving us an insight into the incredible market that is Singapore and what you guys at Cocoon Capital are doing over there and how I hope that someone listening to this knows what a great resource you guys are locally for great deals. So thank you.
Will Klippgen: Thanks for inviting me on. And also, thanks for creating Venture360. We have really enjoyed using Mandatory 60 I think all the way from 2016, we’re still using it, and it’s really making our day easier, reporting better. You guys have been awesome in following up on all the kind of requests we have sent to you over the years, so thank you very much.
Rachael Qualls: Oh, you’re the best. Thanks for the plug. We’ve always enjoyed working with you guys too, so great. And hopefully we’ll get to do another podcast soon, but until then, thanks again Will.
Will Klippgen: Thank you. Bye-Bye.