Expert Insights: How To Spot A Unicorn

Entrepreneur

Expert Insights: How To Spot A Unicorn

We speak with one of the leaders in startup investing in Southeast Asia to get his insights into what it takes to pick a winner.

Published on 16 October 2017

A unicorn is a beautiful thing. Any company that can grow to over US$1 billion in such a short period of time like most of the top ones in the world have done is no small achievement. However, as an investor, how do you identify a startup that’s going to become a unicorn? What are the key signs to look out for? Which industries are going to spawn the next big thing?

Here we speak to David Gowdey, Managing Partner of Jungle Ventures, to get his investment insights. As someone with more than 20 years of experience in company investments and acquisitions across Asia, he knows a thing or two about spotting a unicorn.

David Gowdey
Managing Partner of Jungle Ventures

WEALTH (W): Which characteristics do you look for in a company, that indicate you may be looking at a potential unicorn?

David Gowdey (DG): Some of the ingredients for a potential billion dollar company would include a large addressable market, solving a clearly defined pain point or market gap, rapid market adoption and a solid experienced team.

(W): How do you know when is the best time to buy in and do you always have an exit strategy?

(DG):   Early stage investing is inherently high risk, since many businesses do not survive, however, we try to de-risk investments by having a deep understanding of the space, which also lets us bring more than just capital to a founder. We also try to define our exit paths prior to making any investment, but have a strong corporate development function within the firm that can help with downstream fundraising or creating liquidity.

(W): What’s more important, the company’s leader or its product plan and business plan?

(DG):   I would always prefer to invest behind a strong team over a product or business plan since a strong team will tend to evolve towards the most compelling outcome.

(W): Are there any common warning signs that a particular startup will be a flop?

(DG):   All successful businesses require a sound financial model. Some startups may take time or require a certain level of scale in order to make the model work, but a start-up without that sound financial underpinning will most likely fail.

Expert Insights: How To Spot A Unicorn

Observe The Common Warning Signs

(W): Which sectors are most likely to produce unicorns over the next 5 years?

(DG): Blockchain and artificial intelligence will likely produce billion dollar companies over the next five years.

(W): Will China and the US still lead the way in the foreseeable future?

(DG):   Clearly, the US and China are the largest technology ecosystems in the world and have the deepest talent pools, so I would expect them to continue to lead the way, although perhaps China will overtake the US in terms of innovation and thought leadership. However, as GDP per capita (and consumption) increases across the emerging markets, I would expect to see some exciting companies coming out of Singapore, Indonesia, Thailand, etc.

(W): Any startups you’ve missed the boat on?

(DG):   All of the unicorns in Southeast Asia raised their Series A rounds prior to August 2015, which is when we held the first close of our fund, so we haven’t missed any. None have been born within our investment window over the last 2 years. We did invest in the seed round of iFlix, the largest digital pay TV service in the emerging markets, headquartered in KL, but now in over 20 countries around the world.  We expect iFlix to be the region’s next unicorn, so it’s great to have it in the portfolio.

(W): What advice would you give someone looking to invest in a startup?

(DG):   Successful investing is about building pattern recognition over time and knowing which businesses have the greatest chance to succeed. My advice is to stick to themes and sectors that you know very well.

Jakarta Skyline

(W): Any companies you’re especially excited about in Southeast Asia and Hong Kong?

(DG):   I am very excited about a company called Kredivo, based in Jakarta. As e-commerce buying increases in Southeast Asia, especially with Amazon and Alibaba going head to head in the region, many consumers, most of whom are underbanked today, will look for credit options so that they can pay for their purchases over time.  Despite Indonesia not having a central credit rating agency, Kredivo can effectively credit score a user via their mobile phone and then provide credit while they are shopping online. The team has built a product that is uniquely suited to the cash-based economies of Southeast Asia.

(W): Among the top ten unicorns, which do you think will be the most valuable in 10 years?

(DG):   Uber. Although I am excited about the vision that Elon Musk has for SpaceX, but we’ll have to wait and see whether his plans for interplanetary space travel materialise.

(W): If given the choice between a “Unicorn” and a “Cockroach”, which would you choose?

(DG): In nascent markets, like Southeast Asia, where there are relatively few unicorns (versus the number of startups), I would prefer a cockroach, which is able to build a sustainable long-term business based on sound fundamentals. If their addressable market size is large enough, then there is no reason why they couldn’t transform into a unicorn. I think it’s harder to envision it going the other way (i.e. a unicorn becoming a cockroach).

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