Angel investors – William Klippgen and Michael Blakey – who recently launched Cocoon Capital, a US$7 million venture fund in Singapore, believe they are uniquely positioned to fund early stage B2B companies in the region.
For starters, Klippgen and Blakey say that with over 30 years of early-stage investing experience with multiple successful exits, they bring far more experience than many of the other VCs in the region.
“Will and I’ve had a great deal of success over the years as angel investors, so we’ve tried to take the best practices that we’ve used as angels and combine them with strengths that having a fund brings,” Michael Blakey said.
“One of the main reasons that Michael and I decided to set up Cocoon Capital, is that we found that we were spending a great deal of our time reacting to problems that our portfolio companies were having rather than proactively helping them avoid them in the first place. This is because we were spending a lot of out time supporting companies raise the seed rounds that we were investing in. By being able to now not have to fundraise for the companies, we can spend more time supporting the entrepreneurs,” added William Klippgen.
Cocoon’s model involves working closely with few founding teams annually, to ensure these companies get the maximum amount of traction to make the next funding round much easier, the duo told this portal in an interview.
Against the traditional and conservative approach in this region, where often multiple VCs come together, even for early stage rounds, Klippgen and Blakey said Cocoon preferred to take the full round. As a VC, it takes no management fees, and caps the number of deals it undertakes annually to five, adding that it was the only fund in this region to follow this approach.
Cocoon’s cheque size, which ranges from US$250,000 to US$700,000 in Southeast Asia, is not a handicap, due to multiple factors they argue. Rather, they point out that in the first place, startups in the SaaS (software as a service) space don’t have many VCs interested in the segment to even reach out to, which gives them an edge to addressing the requirements of such firms.
Edited Excerpts.
You plan to back software-as-a-service, ecommerce, and fintech startups – but you give cheques ranging from US$250,000 to US$700,000 even at seed/pre-Series A and Series A levels, most startups in this sector require a lot more capital. How do you address this issue?
MB: When we invest in an early-stage company, we ensure that they’re raising enough funds to last them for 18 months. For companies in SE Asia they shouldn’t require more than USD700k to achieve this. Also, with the structure that we’ve used for Cocoon Capital and the investors that have backed us, we’ve got the ability to continue investing to Series A and beyond if we so desire. Also, as we’re focusing on B2B companies, they normally don’t require as much funding to achieve profitability as their margins are much better than those of B2C companies.
WK: Early-stage companies can do with less funding, if the funding is spent wisely. Our model is to work closely with the few founding teams we support each year to ensure that they get the maximum amount of traction to make the next funding round much easier.
For a start-up, why should they consider Cocoon Capital, against a slew of VCs and other options that are now available in the region?
MB: I would argue that there isn’t a huge amount of funding options available for early-stage and/or pre-revenue companies, especially outside of Singapore. Also, many of the funds that are in this space are only looking to invest a part of the round (up till $200k), whilst we prefer to take the full round. Also, between Will and I, we’ve got over 30 years of early-stage investing experience with multiple successful exits, which is a lot more experience than many of the other Venture Capitalists in SE Asia.
WK: Also, much of the funding that is available, is still looking more at B2C opportunities, while our focus is on B2B. In regards to other sources of funding like government grants and crowdfunding, I believe that they have a place in the eco system, but don’t see them as competing for the same deals that we’re looking at. One reason is that grants and crowdfunding financing rarely come with any founder support post investment.
In terms of sectors like Software-as-a-Service, how do you see this region shaping up? What are the trends that you are seeing here?
MB: Over the last 12 months, I’m beginning to see some very good SaaS companies being built in the region. Companies like PlusMargin and Nugit are building technology that is more for the global audience than just local or regional. We’re still quite early in the developments of SaaS businesses in Southeast Asia, but I believe that over the coming years the region is going to build some global companies in this space.
WK: We see that most SMEs in the region have an enormous potential to drive more efficiency by adopting SaaS business software. As salary levels increase, this potential will be more apparent, and the big question is now how local SaaS providers will stack up against the global ones.
Overall, how are deal flows in this region looking like? A common complaint that most VCs say is that while the dry powder is available, but the region is not producing requisite deal flows for deployment – do you agree?
MB: I think that for early-stage companies, there is a growing number of good deals, but your catchment area must cover the whole region rather than just one country. At Cocoon Capital, we’re receiving many applications for funding every day, and we’re coming across many good deals this way. I believe there is a lot more money available than good deals at the pre-Series A stage, as companies are really struggling to progress from Seed to Series A.
You have said that you won’t take the traditional VC approach? What exactly does that mean? In the startup world, there is a lot of scepticism when it comes to VCs stating stuff like ‘intensive business support and mentorship’ – it is often viewed as a tactic that VCs use when the ticket sizes they want to commit are much smaller – how do you fight this perception? In terms of business support and mentorship, what is that you bring to the table?
MB: We’ve structured Cocoon Capital…