Tin Men Capital is a Singapore-based VC that focuses on B2B tech startups in Southeast Asia.
KrASIA had a chat with Jeremy Tan, co-founder of Tin Men Capital, who shared that there are bright spots in the region despite a rise in economic uncertainty.
This interview has been consolidated and edited for brevity and clarity.
KrASIA (Kr): Tell us more about what Tin Men Capital does.
Jeremy Tan (JT): Tin Men Capital is a venture capital firm that mainly invests in B2B tech companies at Series A. We provide funding, mentorship, and resources to help these companies scale and grow. Our philosophy can be summarized as “taking a private equity approach to venture capital.”
We build a concentrated portfolio of capital-efficient enterprise technology businesses: Tin Men Fund I invested in seven companies, and the recently announced Fund II will remain focused on about 10 – 15 companies.
Kr: What is your current assessment of venture capital investment globally and for the region?
JT: Globally, venture capital investment has been strong in recent years, with a large amount of money flowing into technology startups.
While 2023 is poised to be a challenging year for investors due to the increased cost of capital, startups with strong fundamentals will emerge under these conditions.
In Southeast Asia, we believe that the region offers high potential for successful startups due to a rapidly growing economy, increasing affluence (GDP per capita is 2x that of India), and increasing digital adoption.
Kr: Global venture funding in 2022 reached USD 445 billion—marking a 35% decline year over year from USD 681 billion invested in 2021, according to Crunchbase. Do you think venture funding will fall further this year?
JT: The past few years have seen venture funding rise to dizzying heights, and we view the decline as a return to reality. But even amid this decline, there is dry powder that has yet to be deployed, which is estimated at between USD 300 billion to 500 billion.
Venture capital funds have a finite investment period (3 to 5 years) to deploy capital, beyond which no new investments can occur. Fund investors (Limited Partners), particularly institutional investors, continue to allocate capital to venture capital funds each year, albeit at a slower pace.
In summary, while there are still capital-seeking investments, deployment will be at a slower pace and would be deployed in favor of companies that demonstrate high and repeatable gross profit with a clear pathway to profitability.
It is difficult to predict the exact trajectory of funding levels, but we believe that B2B tech companies, which are capital-efficient and demonstrate high unit economics, will continue to attract attention and investment from venture capitalists, particularly in Southeast Asia.
Kr: What challenges do you foresee for B2B tech startups in 2023, and what measures can help them stand out from competitors?
JT: What is top of everyone’s mind now is the scarcity of capital. In that regard, we would recommend that startup founders keep the following in mind:
- Start early: Fundraising will be a longer game. Form relationships with investors way ahead of the curve, not only at the point of fundraising. Time spent translates to familiarity and trust, setting the stage for smoother and swifter negotiations when the time comes.
- Stay agile: The pandemic was a shock that taught businesses to be robust, agile, and diversify to secure optionality. Don’t lose these disciplines, as there would be new shocks to navigate in the road ahead.
- Keeping hunting: As mentioned, there is dry powder with investors that has yet to be deployed, which must find its way to a startup, albeit with more realistic valuations.
Kr: The current investment slowdown has pushed companies to focus on building profitable companies, or ‘proficorns,’ signaling a shift away from unicorns. How do you see VC investment strategies moving forward?
JT: The decline in investment has been more prominent in late-stage funding rounds, especially for B2C companies that require large amounts of capital to sustain growth.
By contrast, early-stage B2B technology companies continue to be attractive investment opportunities, as they require less capital to grow and tend to have healthy financial performance.
There will be greater scrutiny as to how efficient founders are with their capital. It is well-known that the cost of capital has increased, and this has affected all companies, although some more than others.
Startups, which have traditionally relied on raising large amounts of capital at high valuations without healthy unit economics, will face challenges. On the other hand, companies and their investors that have been more financially disciplined now find themselves in a better position.
We found that B2B companies, particularly SaaS companies, are more capital-efficient and can weather funding cycles better. Venture-backed B2B startups return more capital to investors and raise less lifetime capital than venture-backed B2C startups.
In short, venture-backed B2B startups yield higher investment multiples (50% to 150% higher than that of B2C’s)—a trend that has lasted for at least the last couple of decades and through multiple cycles. That has been our strategy prior to this downturn and will continue to be through the uncertainty ahead.
Kr: Where are the next big opportunities for B2B tech startups in Southeast Asia?
JT: The region’s economy comprises various traditional industries, such as maritime, manufacturing, agriculture, and logistics, which are now seeing increasing digital adoption. We believe that even a small increase in efficiency, enabled by technology, can lead to significant financial gains for legacy businesses in these industries.
The pandemic has accelerated the need for businesses to digitize, and this trend was already taking place when we started in 2018. Technology is a deflationary force that increases productivity and reduces costs, and this trend has been observed over several economic cycles. As a result, during inflationary periods, which we are currently in, there is an increased demand for enterprise software and solutions.