For the past few years as Cofounder and General Partner at Accelerating Asia, I’ve had numerous moments where I’ve acutely felt like I was missing out on something. I previously felt this during the dot-com crash and during the run up to the Global Financial Crisis, when real estate prices were rising massively and I didn’t own any property.
These all turned out to be bubbles of course, but at the time I really felt like there was something important going on and I was stuck on the sidelines.
More recently, I’ve been feeling this fear of missing out (FOMO) with crypto and web3 startups as well as startups with business models where the unit economics make no sense to me, such as hyper local delivery.
Really smart people were building and investing in these types of businesses and I just couldn’t understand why… That really hits my confidence. I thought to myself: What am I not seeing? Am I missing the new thing? Am I getting too old for this?
Startups that make no money or that seem to be “selling dollars for dimes” - many with opaque business models, negative unit economics, and decks full of opaque jargon - have been raising massive funding rounds and growing their topline numbers at a blistering pace.
Friends of mine minting money in crypto and investing in firms like FTX were ecstatic about becoming crypto multi-millionaires. Meanwhile, I’ve always focused on investing in startups that solve a defined problem for a specific customer base and generate revenue, with a clear path to generating positive cash flow. Am I missing a new paradigm? Am I stuck in an outdated mental framework?
As I see it, there are three possibilities:
What has so far proven out is a mixture of all three. On one hand, I’m glad we didn’t get deep into startups that don’t have solid business fundamentals, but purely from an investment perspective, we could have made money by jumping into some of these deals and then exiting before they crashed. But that’s just not the sort of thing we want to do.
Models like hyper-local delivery have never been able to turn a profit, or even make a positive gross margin, but some early investors have been rewarded when they exit in spite of the business having no clear path to ever making money.
At Accelerating Asia, we will most likely pass on these types of businesses, knowing full well that they will sometimes reward their early investors handsomely. We just need to accept that that’s not our cup of tea. We’re in it for the long game and we believe that the vast majority of startups without solid unit economics will fail before offering an exit to investors.
This is often due to strategies that focus on growth at all costs and discount sustainability, with a reliance on never-ending investment - investment that props up this strategy when it works, but pulls the rug out from under them when it dries out. I’m glad we didn’t - and still don’t - partake in this.
We now know that FTX and many many companies in the crypto space were either bad businesses or outright fraud… So missing that train has turned out to be completely fine. I have nothing against the crypto/web3 industry, and I suspect there are some real businesses to be made there, but at the moment it seems like the industry is filled with nonsense and needs time to regroup and re-prioritise.
Accelerating Asia has always focused on investing in businesses that have a working business model today, meaning they generate revenue and have a foreseeable path to being cash flow positive in the not too distant future.
So over the last few years, we’ve passed on numerous opportunities to invest in companies that didn’t fit this framework only to see other (often well respected) investors put money in and their valuations skyrocket quickly.
As of now, it seems that our strategy is working. Our portfolio startups are raising funds and growing their valuations at a similar pace to recent years, bringing our total portfolio value to over US$500 million, and investors continue to believe in us as well - our second fund is closing quickly with the vast majority of our fund one LPs joining us in fund two.
We’re lucky to attract amazing founders with businesses that are making the lives of millions of humans better while generating the cash needed to make these initiatives sustainable.
The investment sage Warren Buffett is an inspiration of mine and I try to keep this quote in mind when I feel the FOMO itch:
“You don’t find out who’s been swimming naked until the tide goes out.”
Well, the tide is out.
I’m wearing my swimsuit.
Come join me for a swim.
You can do so by investing alongside us or directly backing one of our high growth startups.
Accelerating Asia invests in startups with scalable technology solutions and revenue generating business models that combine purpose with profit.
In making an investment decision, investors must rely on their own examination of startups and the terms of the investment including the merits and risks involved. Prospective investors should not construe this content as legal, tax, investment, financial or accounting advice.
