In Entrepreneur First’s podcast, Bernadette Cho (General Manager, Entrepreneur First Singapore) was joined by Paul Santos (Managing Partner, Wavemaker Partners).

Paul shares how the role of a founder evolves as startups scale, Wavemaker’s deep tech focus, and why Southeast Asia’s ripe for innovation.

Listen to the podcast!

Entrepreneur First founders Wavemaker Partners have invested in include: Transcelestial, Microsec, Ackcio, Hydroleap, Medo.AI, Portcast, Privyr, Pencil, Konigle, Musiio, Atomionics, and Entropica Labs.

Here are some excerpts and highlights from the podcast.

Founders, first

What comes first, a good founder or a good idea?

Ultimately you have to say a good founding team. A good founding team should be able to figure things out and make the best out of a golden opportunity. You’d have to say team before that idea. Some people say don’t do business with your friends, some people say do it, I’ve done a combination. I’ve had my share of falling out and it’s not fun.

If I look back, if you genuinely trust and respect your partners, you will figure it out. The best ventures I’ve been part of are marked by mutual trust and respect that leads to natural chemistry.

What happens if a founder can’t scale as CEO or CTO?  

There are three hats: you’re a founder, an employee, and a shareholder.

Being a founder means you started a company. When you form a team, based on your budget and who’s willing to join, you will play different roles.

But as the business scales–this happens for any position–the team that got you from point A to B might not be the same players to take you from point B to point C. Unfortunately, that happens to founders as well.

Here’s where your third hat is important, where you are a shareholder, and hopefully you are aligned with your investors and employees in your ESOP. You say, “you know what, there’s probably someone who can play this role a bit better. If I move to this, I could help a bit more.”

This is tricky because there is a level of self-awareness, market feedback, and a belief in yourself versus skepticism of others.

There is no right or wrong answer. Ultimately you have to make a decision. You can create a lot of value, or you can get in the way of value creation.

What’s at stake? Founders’ vision and their time spent building the company.

I’ve had founders say, “I really don’t care about the title, I only care about the mission, product health,” but when push comes to shove, they don’t want to let go. In those cases, it’s better for me to walk away.

Perhaps we already had this conversation at some point in time when the results didn’t seem to be going the right way, and I think the founder is not able to get these results for some other reason, I might not be the right person to be helping. Maybe we find another director who might be more helpful. We’re not pushing anyone out of the door.

It’s a dialogue and it’s helpful when founders recognize it themselves. When the moment comes, nobody’s laughing and nobody’s enjoying it, but it’s real.

Wavemaker Partners seem to take a collaborative approach with founders. What are your thoughts on perceptions that investors can be adversarial?

Another way I like to think about it is “aligned”. The reality is everyone is after their own self-interests — it’s human nature. To the extent we can set up terms or work arrangements where our interests are most aligned, we have the best chance of working together well and forming a long-term partnership. Part of that is leaving stuff on the table for the other side because you genuinely believe you’re better together. Dialogue, mutual trust and respect

Why it feels adversarial is when your interests aren’t aligned. When you feel like you’re on the opposite sides of things. You certainly shouldn’t be there when you start off. If you start off and that’s already your relationship, that’s very tiring. Building a startup is tiring enough.

If we start out aligned and somewhere along the way we are misaligned, then that’s where dialogue, mutual trust and respect can come in.

Investing in deep tech

Your thesis that’s unique in this region is deep tech. Why invest in deep tech?

I’m interested in entrepreneurship. I like the idea of people coming together to solve a problem and try to do it in a value-creating way that builds something scalable and sustainable.

More often than not, enterprise and deep tech startups are solving a problem. There are many consumer startups that create fresh, addictive delight. If it’s not fresh, it’s hard, if it’s not addictive it’s not scalable, and if it’s not delightful, people get bored and try something else. My personality is that there was a point where it became consumerism to me — I don’t know if this is my personality quirk or interest.

As I invested in enterprise and deeptech, I also found that a lot of VCs didn’t care for that space either. (In consumer stuff you see more competition for deals.) I get fascinated by the founders’ insights and how they want to do it in a novel way that could really move the needle. That’s part of what attracts me. They’re usually more capital-efficient. I can imagine real revenues, and profit at some point.

We often hear this for deep tech. When is patient capital too patient?

As an aside, one of my LPs who’s a successful VC himself would tease me. He would say, “Your strategy is audacious. You like to chew on the tough nuts. You better make sure you are good at chewing or your digestion is really good.”

Anyway, this is all about perspective. The way I think about it is all VCs is patient capital. You have to choose what you want to be patient with.

In the consumer stuff, you want to be excited by visits to your site or downloads or engagement or gross merchandise value. Those things excite you and keep you in the game, the spectacular growth across metrics.

• You would need to be patient with churn because consumers are fickle or you have competition.
• And because of that, you need to be patient with bad unit economics because sometimes you may not have revenue.
• Multiply bad unit economics with spectacular growth, and you need to be patient with the high absolute burn. I found I’m less patient with those three.

With deep tech, what do you need to be patient with?

• Product development, because the product you’re developing needs to be 10x better than the market. Maybe even cutting edge where no one has seen before.
• You need to be patient with the sales cycle because you need customers to give you the pilot and you have to negotiate with them. There are multiple stakeholders, and just trying to get through that takes time.
• If you put these together, you need to be patient with almost no growth or slow growth.

Now, what’s the reward for being patient?

The reward is potentially a product that is cutting edge. If it works, you can almost charge anything for it. You know the value you can capture. You can imagine wonderful unit economics. If you breakthrough, you have a scalable and defensible business.

And so, in both cases, as an investor, you need to be patient with something.

Redefining our world

What are you most optimistic and pessimistic about for our region against the backdrop of a global pandemic?

I try not to get too carried away with things, good or bad. We have moments of sheer emotion, whether good or bad. Either way, I try to put a time limit and move on.

I love this book by Peter Drucker, Innovation and Entrepreneurship, and the basis of innovation is change. As long as things are changing, there is an opportunity to innovate. If you think about Southeast Asia, the rate of growth of the population, economy, and technology adoption, people coming into the region, it’s a massive change. The ground is shaking!

What’s the “new normal” anyway?

If I were to distill the “new normal” into two ideas:

• Maybe we’ve tried some things and didn’t pay attention to it, or want to do it before COVID-19. Maybe we’re forced to do some things now due to COVID-19. We will decide after this that, “You know what, that wasn’t so bad, that was good, I didn’t think it was possible but it was actually possible!” These things will stay with us even after.
• Another side would be regulations, such as for travel.

I’m sure there are more ideas, but these two are the main ideas that will create change or new opportunities.