Why are VCs now focusing on monetizing startups?

The past few years have seen a dramatic change in technology and the rapid growth of many startups – crypto companies have attracted huge amounts of attention, while others Ride-hailing giants like Grab and Gojek have gone public with their IPOs.

However, what goes up must also come down, and with the crypto winter, the Russia-Ukraine War, and the worsening China-US relations, the optimism that global capital represents for investment investment seems to be on the decline.

Many have wondered if this signifies a change in the investment landscape, where investors and founders have had to put aside the popular optimism of the past few years and replace it with something else. that’s different.

At the 11th annual Tech in Asia conference today (September 21), Jenny Lee, Managing Partner at GGV Capital, guided her through the investment landscape and offered advice on how Startups should overcome the upcoming challenges.

The world is changing and startups must change too

In response to the question of whether the world is currently at an inflection point, Lee strongly agreed with that. In fact, she suggests that we could soon see a new world order, as economic winds shift and companies scramble to cope with these new changes.

In order for companies to adapt to these changes, Lee advises that the same methods that have worked before may work again or may not work again, especially when it comes to fundraising for small businesses. start-up company.

When I first got into the VC business in 2001, it was a different time. We all face a different set of problems and challenges, with our heads bowed and working on the business areas we are building. Today, we are faced with even more complex challenges.

– Jenny Lee, Managing Partner at GGV Capital

Jenny Lee, Managing Partner at GGV Capital
Jenny Lee, Managing Partner at GGV Capital / Image Credit: Screenshot of TIA Conference 2022

For Lee, this means companies will face more challenges building their businesses. Interest rates are on the rise, and this means that VC firms like GGV Capital are tightening their belts when it comes to lending money and investing in startups.

This is what will impact startups in many areas – not only are capital dwindling, but consumers are also more hesitant to spend money. As a result, companies can face an uphill battle when it comes to actually monetizing their businesses.

As such, monetization is an important aspect that startups today cannot ignore. In the past, the startup scene was characterized by a ‘growth at all costs’ mentality, but now, investors are looking for startups that can grow sustainably and profitably.

Cash is king again

So why should companies and VC partners like Lee care about making money?

In a word, the ability of a company to make money on its own is an indicator of its success. According to Lee, valuations for companies are becoming less and less important. While in the past, growth and valuation were strongly correlated, now the main correlation seems to be valuation and cash flow with growth.

As a result, the cash flow and thus the self-monetization of a business is now becoming something that investors pay particular attention to.

For Lee, the reason for this is simple. In a world where funding is becoming more and more difficult to secure, companies hoping to do well must be able to do so without said funding. Therefore, “it’s never too early to make money,” according to Lee.

Jenny Lee, Managing Partner at GGV Capital
Jenny Lee, Managing Partner at GGV Capital / Image Credit: Screenshot of TIA Conference 2022

While companies may continue to worry about the market fit of their products, Lee suggests that part of this is also about finding the right product to make money from – experimenting with what. efficiency and what not when it comes to making money from a startup or business.

Businesses should find out where their money will come from in the end. When the opportunity cost of cash is high, companies with cash to burn will be able to switch from defensive to offensive.

– Jenny Lee, Managing Partner at GGV Capital

As part of this, Lee suggests that companies should have substantial cash reserves, regardless of whether it comes from funding through investments or monetizing products.

“Valuation is never the most important. What is important now is that companies can operate without new capital for a period of three years,” emphasized Lee.

Competition for talent is tough and it’s a double-edged sword

While companies compete for capital and market share, the competition for top talent remains unabated. For Lee, the upcoming story for the talent show will be China and Chinese talents.

Investors tend to go after talent, and top talent has decided to make their home country international. These entrepreneurs love to move, and when they move to Southeast Asia, they bring capital with them. But these are also very powerful entrepreneurs who have fought the cruel market. When they come to Southeast Asia, they will compete with our own startups.

– Jenny Lee, Managing Partner at GGV Capital

At the same time, she also points out that “it’s not just how much top talent you can hire, but who you can keep.”

Singapore's workforce
Image and data credit: Nikkei Asia

Lee said that Southeast Asian startups must be able to compete with these startups and entrepreneurs, and with the changes the world is witnessing, she believes there is hope.

In particular, she pointed to food technology transformation and clean energy as key areas where Singapore could become a hotspot for exciting business models.

The key to this is the scalability of startups, not only within Singapore but also beyond Singapore. According to Lee, “capital will always find the best markets, the best entrepreneurs, and the best business models. But to get noticed, startups also have to be big enough to compete in the global market.”

As the investment landscape evolves, it seems likely that VC firms like GGV Capital believe that to some extent, the days of easy money and growth at all costs are over. Instead, the path to profitability is now in focus.

Entrepreneurs would do well to be aware of the changing sands and adapt accordingly. After all, if the marketplace is a battlefield, one will not succeed by fighting the final war. It must constantly learn and adapt to new situations in order to rise to the top.

Featured image credit: Screenshot of TIA 2022 Conference

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