COVID-19 has been hammering the world, with many companies facing tremendous challenges amidst risks and uncertainties beyond their control. But many startup teams demonstrating their prowess at the recent Demo Day held by SparkLabs Taipei have seen double-digit growths.
Edgar Chiu, founder and managing partner of SparkLabs, explained what it takes to overcome the adversities of the pandemic and how mature companies can remain open-minded and create the best ways to work with new businesses.
Q: At SparkLabs Taipei Demo Day, you mentioned that 2020 is a year when many startups will be severely impacted by the pandemic. But the teams at the event stage have had brilliant results and rapid growths. How did they make it?
A: For entrepreneurs, the unknown is an everyday occurrence, but during an epidemic, it is double uncertainty, and some entrepreneurs may be blaming bad luck, as they were ready to soar, only to be hit by an epidemic. I tell them the same thing: Be patient, keep your feet on the ground, and reexamine what your users need. Has it become a different form? Has it translated into more demand? For example, our investment in teams working on cloud kitchen, online education and Internet of Things (IoT) devices around year-end 2019 and early 2020 have all seen rapid growths because of the pandemic.
The best example is the cloud kitchen team Just Kitchen. In early 2020 it was a team of only only 10 people but has now expanded to 70, opened eight satellite kitchens, and expanded to Taichung (central Taiwan). It will enter Hong Kong in the first quarter of 2021. Few would understand what cloud kitchen was in later 2019, but the pandemic has sparked strong needs for food delivery.
Innovation teams should not only see whether there is demand in the market, but also whether their services and products deserve the money that people pay for them. Innovation is not just about satisfying demand, but also about establishing loyalty among customers would want to use them again and again, as if a habit.
In addition, FunNow, which announced in late October its acquisition of Malaysian restaurant reservation startup TableApp, was supposed to be a company that would solve the problem of consumers making last-minute decisions to book hotels and local leisure trips for overseas travels. The pandemic has completely shut the door on cross-border travels, so FunNow has turned its business focus to domestic travel, and moved all of its overseas team members to Taiwan. In second-quarter 2020, FunNow's sales grew 60% year-over-year.
Q: We saw a very mature team, Kneron, on Demo Day. Why would such a successful team need the help of an accelerator? When training such a mature team, what are the goals you want to help them achieve?
A: Most of the SparkLabs teams are in fundraising rounds of Series A or Pre-A. It is worth noting that the definition of fundraising rounds in the US is that Series A is when the team has readied the app, wants to expand or has already entered one to three countries, and wants to become the market leader. Series B is for teams that are market leaders in more countries and want to raise funds to widen the gap with competitors those in second place. However, many startup teams in Taiwan are not adhering to the definition, and they move up one notch in the fundraising rounds every time they raise funds.
Back to the essentials, these seemingly mature teams are actually at a stage where they are either expanding rapidly into international markets, or want to expand even more so. SparkLabs can help at that stage, and some of the partners have had experience in expanding internationally from the time when they started their own businesses. The biggest challenge in expanding internationally is how to modularize and replicate your products and services in other markets. The challenges of international recruiting, business development, and fundraising are new to the Taiwanese teams, but they are critical to the success of the expansion.
How can we help new startups? Once we decide to invest in a new venture, we go back to the basics and do a 2-3 hour interview to find out what the biggest bottlenecks are for the new venture. Then it's a matter of prioritizing these challenges, looking at what needs to be accomplished in the next 3 months, and then setting for the schedule weekly progress accordingly. You need to do weekly reviews and tailor support and assistance to individual teams.
But the hardest part is corporate culture. People are the heart and soul of a company, but many companies seldom think about how to build a sustainable culture and spirit. How do you design an incentive program that motivates your employees to be proactive and take action to achieve these goals? And while business founders take this for granted, they should also examine whether their actions are consistent with their words. So we have a lesson in corporate culture for these new entrepreneurs to figure out where they want to take their companies and how to implement the corporate culture.
As an accelerator, we help companies get back to basics - setting goals and implementing user feedback surveys. Next, we continually tweak the products, release updates in between, and then work on growth in the third month.
Mature entrepreneurs come here to reset, or unlearn, to go back to the basics, review their status and improve their products, and make a transformation before a breakthrough growth. Even though a startup may have already raised a lot of money, they often say that they are most afraid of sitting down with us to reformulate their business strategy, re-examine the needs of their customers, and push forward plans to expand their business to overseas markets. Because if you don't meet your goals and get the traffic you want, you won't be able to attend Demo Day.
Our role is not only as investors, but also as coaches, mentors, and friends, following the process. What we often tell new entrepreneurs is that even if they encounter a major setback, it's better to encounter it now than later. The psychological quality of the founder can be seen in the two weeks before Demo Day, when he or she has to prepare the presentation in English and promote business growth.
Q: There are more and more companies willing to work with startups. There have been many unsuccessful cases in the past. What advice would you give to CVCs?
A: There are a variety of ways for companies to connect with new ventures and gain access to innovative energy. One of them is to create their own acceleratos, either by setting up a corporate venture capital to invest in external startups, or by setting up a special department to support them.
However, there is a practice in the US that is worthy of reference for Taiwan, and not many Taiwanese companies have done so yet: investing in several venture capital funds at the same time to see if the solutions of the portfolio teams are suitable for their own company's problems, or even to combine the technologies of different teams to form new applications. They are constantly scouting for innovations and investing a portion of their R&D funds in venture funds.
Many Taiwanese companies fall into the strategic trap of trying to find external partners when they want to innovate, that is, to build on existing products and technologies to improve product specifications and performance, or to drive down costs.
These companies often start from a profit/loss (P/L) perspective, concerned about how much room for growth they can bring to their existing business, but rarely look for new applications in the "blue ocean" market to bring in new revenue streams; nor do they pay attention to whether there is new demand in the market, or even the next big trend.
It is usually too late to invest in new ventures because there are more and more competitors, and then it is too late to chase after them or enter the new ecosystem. At present, Taiwanese companies are still thinking about this kind of cooperation, but they are still very single-minded, only looking for potential partners in Taiwan, when they should be also looking outside to see if there are suitable opportunities overseas.
Before co-founding Whoscall with my partner, I worked as a consultant at IBM to help the manufacturing industry establish new business mechanisms. Why do so many large foreign companies come to Taiwan to work with SparkLabs? It is because Taiwan's technology capability is very strong. When more and more enterprises come seeking support for their needs, SparkLabs can help match them, and very often, Taiwan's technological innovation may be most suitable for foreign application.
Q: How do you form partnerships with the foreign companies?
A: There are several ways. The first is to come to our Demo Day, and then choose from our "menu," namely which projects or teams you're interested in. Companies in Northeast Asian countries have been unable to go to other countries to see new innovations or technologies because of the epidemic, so they are keen to communicate clearly what they want to achieve. These are overseas and foreign investors who have done their homework and have figured out how to work together before the conversation.
The second way is to tell SparkLabs what their most important task for 2021 is, and see if SparkLabs can match a team to that. Most companies set their goals for the year in October or November each year.
Some companies are very focused on their own field of business. For example, banks only look at FinTech, while manufacturing companies are much interested in AI-related solutions. Companies usually start with partnerships, investments, and acquisitions. Some companies will partner with SparkLabs directly, or their senior executives will become SparkLabs' mentors to foster rapport and synergy by coaching startups.
Companies can also choose to invest in SparkLabs' startup fund. Because of this financial relationship, it is possible to see early on which teams SparkLabs has brought in, and to collaborate with them at an early stage of the new venture.
SparkLabs Taipei founder Edgar Chiu
Photo: Judy Lin, November 2020