[Investor Talk] The truth about angel investing with Sam Gibb from Endeavour Ventures

05/06/20 • 40 min

BEYOND UNICORN: Private Investors' Knowledge Base

Today’s guest is Sam Gibb, founding partner of Singapore-based early stage VC fund Endeavour Ventures. We began our conversation with Sam’s personal investing experience as an active angel - how he got started, his view and recommendation on deal sourcing and network building. We then went on to discuss the five things that he looks for in a start-up, the reality of financial return and motivation of angel investing. And finally, on his recent transition from angel to VC and what are his key investment focuses for 2020.

Key highlights from our conversation

Getting involved with angel networks is a good way to get started in terms of building relevant networks and gaining investing related knowledge. However, deals listed on the angel networks maybe those that have been passed on by more experienced investors, so one has to be aware of the potential selection biases in these deals. For investors based in Singapore, BANSEA and AngelCentral are highlighted among other angle networks.

Being nice to people, being interesting and being direct when dealing with entrepreneurs help to create and build networks. One of the worst habits that investors have is just ghosting – try avoiding that.

In order to do exceptionally well, one has to be contrarian right because if it's a consensus good idea, then it's going to be well exploited and already priced into the valuation.

Investing successfully over the long run needs a very disciplined approach; some of the good disciplines highlighted include maintaining a due diligence checklist and writing an investment memo to document reasons for making a particular investment.

It is important to determine what one’s motivation is with angel investing; if financial returns are your key objective, you need to be realistic that investing your cash in equity may generate higher returns based on historical VC fund returns over the last 10 years; also you will need to do at least 20 investments to have a 89% chance of returning your original investment so portfolio construction is an important consideration.

Key investment opportunities for 2020: developer tools that aid collaboration in remote work settings; security token in the blockchain space and cybersecurity in general

Content at a glance with time-code

(01.17) Sam’s journey into angel investing (02.55) Channels for deal sourcing (04.19) What are the considerations with getting involved in angel networks? (06.50) Selection bias in deals listed on angel networks (10.00) BANSEA and AngelCentral are highlighted (10.56) How to build and maintain networks (15.30) The due diligence process and investment criteria (21.08) How the process of investing has changed over the last 6.5 years (23.30) How to overcome personal bias (24.40) The importance of being contrarian right (26.39) Discipline and long-term investment success (29.26) It is difficult to succeed financially as an angel investor (33.35) Transitioning from angel to VC (35.13) Investment opportunities in 2020 – Digital transformation in Southeast Asia (37.58) Unicorn discussion – potentially a good signal for legitimacy

Episode links

Endeavour Ventures: https://www.endeavour.ventures/ AngelCentral : https://www.angelcentral.co/ BANSEA : https://www.bansea.org/

Key highlights from our conversation

In order to do exceptionally well, one has to be contrarian right because if it's a consensus good idea, then it's going to be well exploited and already priced into the valuation.

Key investment opportunities for 2020: developer tools that aid collaboration in remote work settings; security token in the blockchain space and cybersecurity in general

Content at a glance with time-code

Episode links

Endeavour Ventures: https://www.endeavour.ventures/ AngelCentral : https://www.angelcentral.co/ BANSEA : https://www.bansea.org/

Previous Episode

[Expert Talk] Achieve long-term investment success through asset allocation with Freddy Lim from StashAway

Today’s guest is Freddy Lim, Chief Investment Officer and Co-founder of StashAway - an online investment management company headquartered in Singapore. We began with a market update focusing on the thought process investors can use to analyse current market conditions and the key reasons behind the decoupling of financial markets from the real economy. We then shifted our discussion to understand StashAway’s proprietary investment strategy, ERAA - namely the Economic Regime-based Asset Allocation and how ERAA can be applied to understand post-crisis recovery.

Top 5 Takeaways

Focus on aggregate numbers to make sense of what's happening in the market

A useful way to think about the combined economic impact of lost output due to Covid-19 and aggressive government stimulus is to look at how A compared to B in aggregate numbers. It is because the aggregate stock market and the aggregate multi-diversified portfolio only focus on the aggregate loss of output versus aggregate stimulus.

Money multiplier effect created through fractional banking explains the decoupling of financial markets from the real economy

A key reason behind the observed decoupling is the introduction of fractional banking which made "money multiplying" possible. When one dollar is deposited into the banking system, the bank is only required to keep a fraction of the dollar and can lend out the remaining, creating a multiplier effect in the real economy.

Asset allocation is the key determinant of differential portfolio returns

The majority of mid-to-long term return or loss is driven by the economic environment so the act of deciding how to allocate assets into a particular sector or industry is responsible for between 80% and 96% of a portfolio’s return profile. The remaining 10–20% of excess return (i.e. alpha) can be attributed to an investor’s superior ability to pick winners and losers but this is very tough to do successfully over a long period of time.

The importance of staying on course

For investors who have clearly defined their investing objectives and designed long-term investment plans, it is important to stick to these plans and not to make changes based on opportunistic movements in the market.

Staying invested is very key for long-term success

Markets are very dynamic and very hard to be predicted accurately. All investors want to buy low and sell high but many end up buying high due to FOMO or selling low due to the fight-or- flight response. Dollar-cost averaging is a great strategy to smooth things out during periods of high market volatility and help you stay invested in the game. Staying invested is very key for your long-term success. Ultimately you got to do everything you can to not get KO’d by the market.

Content at a glance with time-code

(01:27): Freddy’s professional investing background and what led him to co-found StashAway (03:15): Focus on aggregate numbers to make sense of what’s happening in the market (07:20): The decoupling of financial markets from the real economy explained (14:06): Why didn’t we see the much-anticipated inflation happening during the recovery phase post 2008 financial crisis? (15:46): StashAway’s proprietary investment strategy, ERAA — Economic Regime-based Asset Allocation explained (19:54): Do the causes underlying each economic regime matter in asset allocation decisions? (23:00): Asset allocation is the key driver of differential asset returns (25:50): What does StashAway’s asset universe look like? (36:52): Has StashAway’s investment strategy changed due to the crisis? What are the in-built mechanisms to respond to crisis situations? (41:59): Answers to the most asked questions on StashAway 1) do I switch my portfolio from a low risk to the highest risk portfolio to take advantage of the market draw down? 2) should I invest more, accelerate my investing plan now? (49:21): The unicorn discussion — StashAway’s decacorn potential

Episode Links

StashAway: https://www.stashaway.sg/ StashAway’s Asset Allocation Framework: https://www.stashaway.sg/r/stashaways-asset-allocation-framework

Next Episode

[Expert Talk] The business of fashion and retail with Stefaan Le Clair from Berenike Global Fashion Management (Part 1 of 2)

This episode kicks off a mini series of industry specific expert talks. The objective of industry talks is to help investors to structure their thought process when evaluating companies operating in these industries. It also helps entrepreneurs who are looking to start a company in these industries.

Today we begin with fashion and retail industry. And our expert guest is Stefaan Le Clair, the Managing Director of Berenike Global Fashion Management. Stefaan’s past industry experiences include being the VP of Retail Europe at Espirit Group, the CEO of denim brand Lee Cooper, the General Manager of Hudson’s Bay Benelux which is also the parent company of Saks Fifth Avenue, the CEO of Galerie INNO which is a department store chain in Belgium.

Our discussion is divided into two episodes. In this first episode, we begin by working through the different stages of the value chain in fashion and retail. Starting with product development, looking at how brand positioning influences design and manufacturing arrangements in a business; and how supply chain efficiency became the new norm, so shifting value differentiation to other elements. We then went on to discuss Sales & Marketing considerations, such as revenue mix between wholesale Vs retail and the importance of being present in multiple channels.

Key highlights from our conversation

The cost of a product today is influenced by factors beyond the direct cost of production In today’s world, the actual cost of a product is no longer the key determinant of the price of a product. The cost is often influenced by the pricing power of downstream sales and distribution channels and how a product enters such channels (e.g. the number of middlemen and their commissions). Increasingly, consumer demand and price sensitivity also play a big role in determining the cost. So, we often have to turn the box round and calculate margins and costs backwards.

Efficient supply chain is no longer sufficient to drive and sustain value Supply chain efficiency is an important value creator in the past. But by being more efficient and better controlling the cost are no longer sufficient in driving and maintaining value for today’s brands. What are more important for value creation are the speed of bringing products to market and the process that followed.

Greater emphasis placed on consumer feedback in product creation In the past, products were created by product managers within the company. And today there is a greater emphasis on customer centricity with an increasing trend of product co-creation using consumer insights captured through data.

Achieve growth by widening assortment is a better strategy as compared to creating sub-brandsWidening product assortment under one umbrella brand is a strategy that will deliver more value than splitting one brand up in multiple sub-brands as that will dilute the core DNA. It is better to focus on your core customer and surround them with a 360-degree product assortment.

It is important to adopt a multi distribution channel approach

We have seen traditional wholesale business venturing into retail to seek growth and manage risk. At the same time, vertically integrated retail brands are selling via wholesale channels too in an attempt to further broaden its customer base.

Content at a glance with time-code

(02.06) Stefaan’s personal background story (04.21) Compare and contrast different business arrangements of product development (09.18) How supply chain efficiency is no longer a key value creator today (12.03) Can luxury brands still create value through unique designs? (18.31) How to balance the need to stay true to a brand’s core and respond to ever changing consumer demand? (25.26) The future of fashion business is a conglomerate structure with multiple brands under one company (30.34) How value has been shifted away from supply chain to later stages such as sales & marketing (32.52) What does consumer centricity mean? (35.26) Wholesale Vs Retail distribution channels (43.45) How franchising and licensing can help brands succeed in areas that are outside of their core strength

Episode linksBerenike Global Fashion Management: https://www.berenike-gfm.com/bio/ Galeria INNO: https://www.inno.be/