Accelerating Asia is one of the few fully independent accelerators in Southeast Asia, with no parent company or sponsor influencing the organization’s decisions to fund and coach early-stage startups. It specifically works with startups that are taking their first steps, offering guidance as entrepreneurs build new businesses.
Currently working with its sixth cohort, with a demo day slated for the end of June, Accelerating Asia is now also reviewing its track record to refine its evaluation process. The organization is building a tool that evaluates founders by tracking 15 attributes. Co-founder and general partner Craig Dixon recently spoke with KrASIA to unpack this approach as well as discuss how early-stage startups are working through the economic downturn.
The following interview has been edited for brevity and clarity.
KrASIA (Kr): How has Accelerating Asia been adapting to the pandemic? Has the experience from the past two and a half years shaped new ideas about operating an accelerator?
Craig Dixon (CD): We’ve invested in startups based in around 12 countries across Southeast Asia and South Asia, with a few beyond these regions. Previously, founders who were selected for our program had to be in Singapore for 80% of the program, or three months. The obvious benefits were that they were able to meet people in person with investors and the rest of the community. But the negative part is that they had to spend time away from their own market, customers, and companies.
Organizing online eliminated those negatives. Moving forward, we plan to move to a hybrid model. Having an online component creates many efficiencies for us, so we want to try to capture the best of both worlds.
Kr: In 2018 and 2019, you took some of the founders in your program to San Francisco. Will that become part of Accelerating Asia’s program again?
CD: We’re still evaluating that, but I don’t think so. And the reason isn’t because of the pandemic.
Over the past few years, we’ve seen the development of a much more dispersed global startup ecosystem. Knowledgeable technical talent is everywhere, including in Southeast Asia. We see less need to head beyond the region to seek expertise.
We may organize trips that are within Southeast Asia, such as to Singapore because it’s like the Silicon Valley of this region. There’s no longer a need to go so far afield to gain benefits that are available here.
Kr: Accelerating Asia formed in 2018, so now is the first time for your accelerator to experience a macroeconomic downturn. Is this changing your investment mandate, or is it business as usual?
CD: It’s business as usual—but we always take into consideration the macroeconomic factors. We work very closely with the downstream investors—meaning larger venture capital investors who come in at a later stage. We’re constantly talking to them to understand what they’re after because we essentially are supplying startups for their deal flow.
While we aren’t changing our strategy, we’re still considering market demand. For example, within a cohort, we may change our focus and move away from a focus on hypergrowth to a stronger emphasis on unit economics and the ability to generate cash flow.
Kr: If we consider the needs of startups in three phases—pre-2019, during the pandemic, and during the current economic downturn—have those needs changed? Are early-stage startups asking for help from Accelerating Asia in different ways?
CD: I don’t think their needs are changing. As our portfolio grows, I’m working more with portfolio companies that have been out of the program for up to three years. Their needs change because they are at a different stage of growth. The needs of startups change as they mature, rather than based on macroeconomic dynamics.
We’ve observed that there are different market demands for different products. In the past 12 to 18 months, there has been a big pivot toward the demand side for fintech that wasn’t there before. But in general, startups come in looking for a mixture of funding and expertise. That hasn’t changed. I can say that we’re doing less fundamental, “lean startup” kind of work, and we’re doing a little bit more content earlier on for our portfolio companies.
Kr: Did Accelerating Asia have to have serious conversations about runway management with its portfolio companies?
CD: We did. Our messaging was similar to Y Combinator and Sequoia’s, I think—to focus on the economics and stretch out the runway.
With that said, we haven’t seen any major changes in our portfolio companies’ ability to raise money. I think that is a problem mainly for startups that are closer to the public markets and growth stage.
Valuations in the US have been hugely inflated. We did not see the same huge increases by multiples where we operate, except in Pakistan. In our other markets, it hasn’t quite hit the early-stage companies yet, but we’re starting to feel a little bit of pressure.
When we consider the valuations of startups in our past two cohorts—which were accepted over the past year—valuations have not changed much.
Kr: Do you anticipate any macroeconomic factors changing the operational conditions for startups in Southeast and South Asia?
CD: They say when the US catches a cold, the world catches a fever. We are starting to see things like the US dollar appreciating against emerging economy currencies, which is affecting some of our portfolio companies. I’ve had a number of calls with our portfolio companies to ask them to communicate with their stakeholders, potentially raise smaller rounds at lower valuations to extend the runway, and think about slowing down hiring in the next six to 24 months.
Kr: What do you see as some of the more noticeable effects in Southeast Asia in terms of fallout from the US?
CD: Fluctuations in currency will have a big effect on many countries. When people in the lower parts of the economic pyramid have rising costs for their necessities, their disposable income for nice-to-haves will decrease. We’re already seeing customer pullbacks.
There will also be an impact on balance sheets. Let’s say we’re looking at a startup that operates in Indonesia. Their revenue is normally in rupiahs. If the rupiah falls to the dollar, then the numbers on their balance sheet [reported in US dollars] will look worse, even though they haven’t experienced any decrease in business. This could impact their valuation.
As the US raises interest rates, then that will increase the value of the dollar against many currencies in Southeast Asia, and that will have many follow-on effects that need to be taken into account.
Kr: Do you think there will be more competition for Accelerating Asia if more investors hunt for deals with early-stage startups?
CD: Maybe, but we haven’t seen it yet. We have encountered a few examples where a VC came in really early, but we just worked together with them. We’ve had portfolio companies take VC investments at the same time as when they joined our program. I think VCs usually see the advantage of a company going through Accelerating Asia’s program to make it better. But the stage we operate in is much less crowded.
It’s hard for VCs to invest at our level. They rely much more on metrics, but we work with startups that are at an early stage, they may have just three to six months of revenue generation, and sometimes they’re missing a key member who’s needed for growth. Our evaluation criterion is whether a founder has the business ability to be what a VC expects in six to 12 months. It’s difficult for VCs to change their model to do what we do.
Kr: Does Accelerating Asia have a framework for due diligence, or is it based on experience and knowing what type of founder has the formula for success?
DC: Recently, we’ve been building a framework for this. Step one is standard: you look at the market opportunity, the problem that is being solved, and whether people might pay for the solution. We’ll look at the team’s CVs and do all the standard evaluations that an investor should do.
What makes us different is that we work with less tangible materials related to the founders themselves. A lot of that is driven by life experience. I was a founder; I have been mentoring and investing in other founders for the past ten years or so. I’ve been part of accelerators for six years.
We are turning qualitative criteria into quantitative measures. We’re using a more data-centric way to evaluate startups, with 15 data points—Y Combinator uses something like this too. An example is that one indicator for successful founders is how quickly they return communications. We have data that says founders who respond to emails within a certain time frame have a much, much higher chance of success. There are other seemingly not-so-important indicators that, when combined, create an algorithm that can score individual founders, comparing them on a continuum. This is combined with a quantitative approach that includes market analysis and other evaluations.
Kr: How do you balance the qualitative and quantitative element?
DC: I have always tried to turn the qualitative into quantitative, but I hadn’t written it down as a math problem on paper. For this decision-making process, I’m creating a more formalized version of it, and then making sure that it’s transferable. It also needs to be analyzable by third parties for defects.
One of the things we’re doing now is going over the past—we’re now on cohort six—and examining the data we have. We’re asking questions such as, “Who did well after we didn’t let them in? What did we miss there?”
Part of the objective of developing this data engine is gathering that information from historical datasets and finding out what we can do better.