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As part of AsiaTechDaily’s exclusive Innovation Exchange Program held on April 22nd, we had the privilege of interviewing Dr. Daniel Swan, our esteemed Investor of the Month. Renowned for his contributions to the Asian startup and investment landscape, Dr. Swan captivated our audience with his profound insights into entrepreneurship, investment strategies, and the pivotal role of innovation in driving success. In this multi-part interview series, Dr. Swan delves into the intricacies of what makes a tech startup truly compelling and sustainable in today’s fast-paced market. Here, we present the first part of this enlightening conversation.
Drawing from your experience, could you elaborate on what constitutes a truly compelling vision for innovation for tech startups? Especially given the role of innovation in driving investment decisions?
Yeah, that’s a great question. So what drives innovation? What’s our investment thesis around innovation? Two very, very important questions. I think the key point with innovation is that just because it’s unique doesn’t make it necessarily investable. And what do I mean by that? It means that we need to see if it’s unique, but it has to be not just incremental. It has to be something that’s fundamental. We always look at investments from the point of view of what is the status quo and what’s the order of magnitude of improvement. That will also tell us whether or not that company can grow into that size of market. Market size is also super, super important. And then, of course, is there a sustainable business that we can invest in? Venturing is very, very different as an asset class compared to private equity or non-dilutive loans.
So, we look at things from a return multiple perspective, and those return multiples, believe it or not, are very, very high. We’re not just trying to look for a 1x or a 2x. We’re looking for 20x, 25x, even up to 100x in terms of return multiples. Just to reiterate, just because something is unique doesn’t necessarily make it investable. The difference between an invention and innovation is really that innovation is something that gets into people’s hands. The size of the market and the more hands it gets into, the better. That makes it really exciting for us as venture capitalists.
In the context of tech startups, longevity often refers to their ability to sustain or stay relevant amidst technological advancements and market changes. From your perspective, what key factors contribute to the longevity of tech startups, particularly those with a strong focus on innovation?
Dr. Dan: Yeah, great question. You know, the one that gets bandied around all the time is “team.” We very much look at the team and the founders because we’re mostly an early-stage investment company. We look at pre-seed, not all the time, but we do look at seed and Series A. So we’re very much early-stage.
First, we start by looking at the team, and that’s very important to us. One of the nice things about having come from a founder background is knowing that if you are a founder who has previously done something, that actually carries a lot of weight. So we really like that. It doesn’t matter the level of success; if you’ve founded a company previously, that helps a lot. Obviously, if you’re someone like Jack Dorsey, VCs get their checkbooks out pretty quickly. But even if you’ve done something and previously raised money, that really helps you.
So, of course, we start with that, and then we go deep into the fundamentals. What’s the status quo? Is it an exciting market? Is it a big market? Is it something that can get into everyone’s hands? Is it going to be impactful? Can we really build conviction around it? Once we do all that, we actually come back to the team again. Is the team really exciting? Are they going to be able to raise their next round of capital? That’s important to us as VCs as well.
So, yeah, it’s a big long bell curve of how we look at early-stage companies. Market size, can they carry the ball over the line? Are they looking to change the world and the status quo in some way, shape, or form? That’s a big one for us.
Are there any common challenges you’ve observed in startup efforts to articulate their innovation vision? What advice would you offer to aspiring entrepreneurs in this regard?
Dr. Dan: Yeah, that’s a really great question. Common pitfalls—venture and startups continuously try to balance aiming for the stars with being realistic. It’s about getting VCs and yourself motivated and excited. What’s your North Star? We always want to know that. Are you just looking to sell a company fast? VCs aren’t necessarily always excited about that since we’re trying to create relationships that last between five and seven years on average.
A common pitfall is the ability to storytell. Often, if the idea isn’t well-grounded, it’s very hard to articulate it. Life is very easy to complicate, but it’s actually very difficult to simplify. The more you can simplify your messaging around storytelling, the more exciting it is for us. When it’s complicated, it’s much harder for us to understand. We have up to ten calls a day on anything from the latest space tech to DNA changes, quantum computing, and biotech. It’s a fascinating world, which is marvelous and exciting. What we want startups to do is to really explain things simply. Even Einstein said, if you can’t explain something simply, you don’t really know what you’re talking about. You should be able to explain even the most fundamental ideas as simply as possible so that people can understand them.
So, storytelling and simplifying your messaging are two common pitfalls we see a lot with startups. The very best ones can explain things so simply that we can then explain those ideas to our investors, LPs, and partners in our business. We need to be able to pitch it too.
From emphasizing the importance of a compelling and clear vision to understanding the nuances of market potential and team dynamics, Dr. Swan’s advice is invaluable for aspiring entrepreneurs. Stay tuned for the upcoming parts of this interview series, where we will delve deeper into the world of venture capital and innovation with more expert insights from Dr. Swan.
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