Carmen Yuen is a seasoned investor with a unique perspective. Her experience working with both government-backed venture capital initiatives and private funds has cultivated a more nuanced approach to investing, influencing her work at Vertex Ventures Southeast Asia and India. She serves as a general partner of the venture capital firm and has spent the past decade investing in and collaborating with some of the region’s most promising companies.
Yuen’s considerations as an investor span multiple facets, ranging from growth dynamics to the significance of business sustainability, gender equality, and more. In a recent interview with KrASIA, Yuen draws from personal experience to share her approach to investing and how the venture capital landscape has gradually evolved over the years.
The following interview has been edited and consolidated for brevity and clarity.
KrASIA (KR): You’ve worked in both government-backed venture capital initiatives and private funds. How do these experiences influence your approach to investing and supporting startups?
Carmen Yuen (CY): How we work with people and founding teams is quite similar in both instances. However, the government is set up to serve its citizens. This means that they are usually not driven purely by financial considerations, but also other factors such as job creation, value generation, and opportunities to benefit the future of the nation.
That being said, even though government-backed venture capital funds may not necessarily prioritize financial returns, they still need to ensure that the businesses they back can operate sustainably. This means conducting all due processes appropriately, and adding value and providing resources when necessary. Whether these have been done correctly will show in the financial returns over the long term.
My past experience has been influential in the way that I evaluate and support companies. Identifying great companies and funding their growth towards an eventual exit is fantastic, but that journey can require a lot of assistance. Tapping into my experience to guide them on government schemes and grants that they can leverage is one of the ways I employ to provide such assistance.
KR: What does Vertex Ventures look for when deciding whether to invest in a startup or company?
CY: Investors are always on the lookout for moonshots, which refer to ambitious, groundbreaking projects with huge potential for growth. But finding one is tough. You need to have a solid team, a visionary who is caring yet particular enough about the quality of deliverables. In our region, the key considerations boil down to whether or not we’re able to identify the right founders, whether the proposition that these founders have is big enough, and if they are ambitious enough to persevere even if it turns out to be a resource-intensive endeavor.
An example is Jeffrey Tiong, the founder of PatSnap. When we first met him, we knew that there were several investors who had already passed on the company. Why? Because no one had envisioned an IP platform emerging from a region where patents are not really respected. But we like contrarian ideas, so we decided to bet on Jeffrey and the hard journey of trying to convince others why we can make a business out of patents.
Backing an idea can be easy, but the journey isn’t easy at all. PatSnap had to contend with the fact that fundraising is extremely challenging in Southeast Asia because it wasn’t able to show growth at the development stage they were on. He set up teams in Europe early on to serve the community there as well as some of the US communities because he realized these are the people who do care about patentship. That’s how we landed our US-based investor and turned things around.
KR: How should startups balance the pressure for growth with the need to adopt sustainable business practices?
CY: In the second half of 2020 and the entirety of 2021, startups were chasing growth as if tomorrow did not exist. We told our founders that a business running on government subsidies is never a good business—don’t grow for the sake of raising the top line and forgetting about the bottom line. Some were distracted by the idea that money was easy to raise and burned more cash than they should.
Quick wins are great, but growing a company is usually a slow process akin to a marathon. For us, it’s about operating sustainably and that is what we preach to our founders. Sustainability can mean a lot of things. It’s about learning when to cut loose if it helps narrow losses, treating staff, suppliers, and customers with respect, and more.
One commonly overlooked aspect is collections. A team has to be conscientious of collections and ensure that their accounts receivable is not dragged for too long. If clients aren’t paying, then they must have a workable fallback plan.
Today’s fundraising climate is more challenging than before, so startups must eventually turn profitable to survive. They must learn how to price their products correctly by factoring in appropriate margins, ensuring operational efficiency, and not just price themselves to be the cheapest in the market.
KR: How do you see the role of women evolving in Southeast Asia’s venture capital and startup ecosystem?
CY: When I first entered this industry, women primarily took on supporting roles such as receptionists or backend work. But fast forward to the past three to four years, I’ve started seeing more women in partner roles. Some people used to say that venture capital is an all-boys club. But for us, seeing more women in these roles is a sign that men have decided to step out of their comfort zone.
I’ve got massive respect for partners who have brought women into their inner circle, and credit is due to our managing partners because I think they were one of the first to have women join our partnership since 2016. To date, we have three female partners in our partnership of eight. We just have to be patient and trust that this industry will change.
KR: Do you envision the same level of growth with the number of female startup founders?
CY: This is a general statement, but when it comes to raising children, the responsibility usually lands on the laps of women. Women step out of the workforce temporarily for a few months to several years for this reason. Some will decide to stay home and take care of their children while running side businesses, but such businesses aren’t usually investible.
What we have learned is that startups with a gender-balanced team tend to perform better. It’s quite stereotypical to think, for example, that men are best suited to be CTOs. The founder of StoreHub, one of our portfolio companies, will admit outright that he’s poor at tech development. He’s glad to have a co-founder who’s good at it and if that person happens to be female, so be it. StoreHub’s CTO was eventually landed by a woman, and well-deservedly.
Gender equality is less about pushing the agenda, and more about ensuring we are hiring for the best talent regardless of gender.
KR: What challenges do your portfolio companies usually face and how do you help them overcome these hurdles?
CY: We tell founders that they are in a privileged position because they are responsible for the lives of the people they hire and their families. Therefore, their roles should not be taken lightly. We have identified three areas that we advise them to take action on, and to do well.
Firstly, they need to have a lifeline, and cash is their lifeline. Fundraising is a continual journey and founders tend to underestimate how long it takes to close a funding round. Fantastic presentation slides serve no purpose if their data is scant, delaying the completion of due diligence. Along the way, investors could even drop them altogether if they start feeling uncertain about the prospect of investing. There’s a lot of pre-fundraising work that founders must therefore put in.
Secondly, companies need to approach team management responsibly. Some founders tend to lay off their employees as the first option, which is terrible because they were the ones who sold them the idea of working together in the first place.
During the financial crisis in 2007 and 2008, Mediacorp’s chairman at that time, Lucas Chow, was concerned about the number of people he had on his payroll. Instead of laying them off, he suggested job sharing. Implementing that helped them meet their reduced budget—everyone took a pay cut, but they kept their jobs and had a reason to show up for work. When the economy turned around, the company was among the first to get moving again because it didn’t have to rehire. Its people were already present.
Lastly, we encourage startups to expand slowly. Start with partnerships to establish a foothold, then gradually build a team before deciding whether to commit. Aggressive expansion burns a lot of money, and if things go wrong, their confidence takes a hit.
Take TurnKey Lender as an example. The company was based in Singapore when we invested in 2017. They had opportunities in the US, but we were hesitant to pursue them since the US was far away. When the pandemic hit, one of its co-founders relocated to the US partly out of fear that Singapore might close its borders, but also to validate the market.
The move paid off because they managed to validate the market for two years, realizing that offline banks in the US needed a digital solution amid the pandemic, before finally relocating the team to Texas where they have been operating from for the past two years. This is the kind of measured approach we expect from our companies.
A delay of a few months will not kill the business. Mistakes made from rushing into a new market might.