No Fear Career

Are you doing what you most want to do with your life right now?

If the answer this question is no, then why not?

There are two types of answers to this second question: reasons and excuses. Here I will define ‘reasons’ as explanations for why things are the way they are and define ‘excuses’ as justifications for failure.

As in many situations, there is one reason and a thousand excuses for why you are not doing what you most want to do with your life right now. The reason is that you have chosen not to do what you most want to do and have chosen to do something else instead. All other explanations are then justifications for your failure to choose to do what you want to do.

This raises a third question: why have you chosen to do something other than what you really want to do with your life?  Once again there is a single reason and endless excuses. The reason is that you are afraid to fail at what you most want to do. Therefore you choose not to attempt to do it, guaranteeing that you will fail to accomplish that which is most important to you.

To see that the reason you have chosen not to do what you most want to do is fear of failure you just need to consider the opposite case. If you believed that you had an acceptable chance of succeeding at what you most wanted to do, you would definitely choose to do it. Since in reality you are choosing not to do it, you cannot believe you have an acceptable chance of success, which is equivalent to saying you are afraid you will fail.

Why are you afraid to fail?  In answering this question, people once again tend to conflate reasons and excuses. The reason is that fear is a powerful instinct that serves a valuable purpose in some situations but can also badly misfire in situations like this one. The typical explanations peope give for why they are afraid to fail are actually excuses for their failure to work through their fear.

So stop making excuses and start doing what you most want to do with your life right now.

I recently came across this definition of integrity, which I would like to share. It was quoted in The Myth of the Rational Market by Justin Fox (details can be found in my reading list) and attributed  Landmark Education.

Being “in integrity” means “honoring your word” which means you:

• Keep your commitments and promises on time or
• When you have failed to keep a commitment or promise you:
• Acknowledge that failure as soon as your realize it
• And clean up any mess you created for those who were counting on your commitments and promises.

Well said.

In 2009, Singapore is one of the best places in the world for a media or interactive and digital media (IDM) entrepreneur to start or grow their business.  Despite its small size,

Opportunities in

Singapore for early and growth stage companies

• Public policies promoting entrepreneurship and venture capital – Many initiatives have been made in areas such as education, facilities, regulations and financing to turn Singapore into a technopreneurship and venture capital hub in Asia.
• Public policies supporting the venture capital industry.  The private equity/venture capital industry in Singapore has grown substantially over the past 2 decades. Funds under management grew from about US$20 million in 1983 to more than US$10 billion in 2006, managed by 160 VC firms[i].
• A business friendly environment.  Singapore ranks #11 in the world for starting a business and #1 in the world for doing business, due to its positive regulatory business environment.[ii]  A new business can be established within six days (the average for the region is 46 days, and 16.6 for OECD countries) for less than 1% of average per capita income (the average for the region is 42.8%, and 5.3% for OECD countries)[iii]  Singapore is ranked #2 in the world as a Network Ready Country[iv], #1 in the world in Labor Force[v], #1 in Asia and #4 in the world in Investment Incentives[vi] and #2 in the world in Investment Potential[vii].
• Strong IP protection regime and corporate governance.  Singapore has been voted the most IP-protective country in Asia, with the best corporate governance and the least corruption for the last two years[viii]. IP protection is especially important for IDM start-ups, where content may form an important part of their competitive advantage.
• Strategic location.  Singaporean start-ups are uniquely positioned to address one of the world’s largest and fastest-growing markets, consisting of countries within a 7-hour flight-time radius from Singapore – including China, Indonesia, Korea, and Japan.

Opportunities in Singapore for media entrepreneurs 

Beyond these advantages for entrepreneurs in general, Singapore is especially attractive for media entrepreneurs.  The outlook for the media sector in

• Support for the development of the media industry by The Media Development Authority (MDA)
• A vibrant and growing private sector in Interactive and Digital Media (IDM)
• A strong educational and University focus on media and digital media including The Interactive and Digital Media Network at the National University of Singapore (NUS). 
• Extensive public sector research and development in interactive and digitial media, including the Singapore’s government’s National Research Foundation (NRF) investments in Interactive and Digital Media

The Media Entrepreneur’s Guide to Singapore

Despite the significant progress that has been made to date, the enterprise ecosystem for Singapore media entrepreneurs still has some gaps.  There are three sources of external financing for companies:  equity, debt financing and public-sector funding programs.  Privately held media companies in

Challenges facing media entrepreneurs in

Singapore

There are several challenges facing

1. Difficulty in finding investors focused on the media sector
2. Difficulty in finding the right public sector funding programs
3. Lack of general knowledge of the venture financing and fund raising process

Although there is a wide range of funding alternatives available for media entrepreneurs in

Most of this searching is currently done through generalized investor information sources without a focus on media and through informal channels, with mixed results.  Funding issues can be time-sensitive for companies; failing to acquire required funding in time can cause serious or fatal financial problems for the company.  On the other side of the coin, investors who are looking for media-related deals often find a lack of deal-flow.  It appears that there is lack of efficiency in the information market for both media entrepreneurs and investors. 

In addition to difficulties in finding private-sector investors, media entrepreneurs may have difficulty navigating the various public-sector support programs for which they might qualify and therefore may not be able to identify the appropriate or optimal programs for which to apply.  Each program will have a different focus, benefits and costs for entrepreneurs.  Selecting the right option is critical both for the entrepreneurs applying for funding and for the agencies administering the programs, as applications to the wrong programs are a drain on resources at both ends.

Media entrepreneurs’ search for investment may also be hampered by a lack of understanding of the fund raising process itself, or of some of the key skills required for successful fundraising.  These include understanding what investors look for in a business plan, the financial aspects of fundraising, and how to present effectively to investors once they have found them.  These gaps in their knowledge can stop their fund-raising process just as surely as not being able to find investors.  The Media Entrepreneur’s Guide to Singapore helps to address each of these gaps.

Raising funding in a crisis

In addition to the usual challenges facing media entrepreneurs, 2009 brings the additional challenge of raising funding and growing your company during a global financial crisis.   Reductions in demand, tightened credit markets, and potential investors who have suffered significant financial losses will all create additional obstacles on the road to entrepreneurial success (which is a difficult road even in the best of times).  However, like all crises, the current financial crisis can also create opportunities for new companies.  Market and industry disruptions tend to create favorable conditions for new companies; investments in new Asian companies at this point may look relatively better than investments in the US (although this could change quickly) , and media companies tend to do well on a relative basis in tough times.  Lower valuations are a double-edged sword – they can hurt entrepreneurs, but they can also make investments more attractive to investors who do have cash to invest. 

[i]

[ii] World Bank – Doing Business 2007

[iii] World Bank – Doing Business 2007

[iv] Global Information Technology Report 2005/06, World Economic Forum

[v] BERI’s 2005 Labour Force Ranking

[vi] IMD World Competitiveness Yearbook 2005

[vii] BERI Report August 2005

[viii] Political and Economic Risk Consultancy, June 2006

What do investors look for in a business plan?” is a bit of a tricky question.  The term ‘investors’ covers a very wide range of institutions and individuals, ranging from billion-dollar venture capital funds making multi-million dollar investments to friends and family putting a few thousand dollars into a new company.  For the purposes of this article, I am going to use what I consider the average venture investor – ranging from the sophisticated angel investor to a VC fund.  Although even within this group there will be some variation.  Some investors will weight some elements differently; some may ignore some of these, some may add in their own which are not found in the following list.  But if your business plan:

• includes each of the key elements listed below,
• follows the detailed business plan outline (available on this site), and

• answers the business plan questions (included in the business plan outline available on this site),

You will be well on your way to satisfying the requirements that most investors have for a business plan.  This in itself does not mean that you will receive investment, but it does mean that you are unlikely to be eliminated from consideration for investment because your business plan does not meet the investor’s expectations.

Key elements for success

Ÿ  Develop an innovative product – Innovation.  Have something proprietary, new and useful underlying your business plan.  This can be a technology, a business model, a process, etc.Ÿ  Solve a problem for customers – Value proposition.  Solve a painful problem for customers.  You want to have a “pain-killer” versus a “vitamin” value proposition, meaning you want to be a customer “must-have” rather than a “nice-to-have”Ÿ  Identify your customers – Market identification and analysis.  Address a fast-growing market, which will be large enough to support the required scalability of your business.

Ÿ  Reach your customers – Marketing strategy.  Have a strategy for reaching your market.

Ÿ  Compete when others enter – Sustainable competitive advantage.  Have IP and competitive strategies to create barriers to entry for followers and large potential competitors.

Ÿ   Make money – Business model and financial plan.  How much money do you need, what will you do with the funds, how will you make money, how much revenue can you generate, what type of returns can you deliver?

Ÿ  Team – A team or B team.  A strong team can succeed with almost any plan; a weak team will fail with the best plan in the world.  The strength of your team, individually and singly, needs to come through clearly in your plan.

But isn’t media different?

Many media entrepreneurs believe that their businesses are “different” from the typical businesses that equity investors consider, and that therefore they cannot raise equity funding for their business.  They are right and wrong at the same time.  Their business are different, but all businesses are different.  Media has typically not been a large percentage of VC and private equity portfolios, but that does not mean that they cannot raise equity investment.  The media industry itself is changing rapidly, and many of these changes make it more interesting to investors.

The media entrepreneurship community in Singapore has been divided into four segments:  traditional media entrepreneurs whose business are built around 1) content or  2) media-related services, 3) new media entrepreneurs whose businesses are built around emerging media content and 4) IDM entrepreneurs whose businesses are built around media innovation, including technology innovation and business model innovations.  The first three segments can be loosely described as “Content” entrepreneurs and the last segment as “Tech” entrepreneurs. 

Although there are many potential synergies among the four groups, to a large degree they operate in silos, and in the process miss out on opportunities to benefit from synergies among the groups.   New media and IDM are closer to the traditional industry segments that equity investors have focused on.  Content entrepreneurs too can increase their chances of raising funding and successfully growing their business by looking for opportunities to expand into less-traditional spaces and by partnering with companies in the non-traditional spaces who are looking for content.

Companies have four possible sources of funds:

• Equity financing
• Debt financing
• Internal financing
• Public-sector financing

Each source has its pros and cons.  Companies will often combine several of these sources together, and the mix will change over the company’s lifetime.

In equity financing the entrepreneur raises money by selling shares in the business to investors, thereby making them partners.  This is the typical form of investment for angel investors and venture capitalists.  Angel investors are usually individuals investing their own money, while venture capitalists are professionals investing a fund of other’s money.  (This situation is somewhat confused by the fact that some angels have organized into angel funds and some VCs do put some of their own money into their funds.)  The benefits of equity financing are:  relatively large amounts are available; it can be used to grow the business rapidly; the equity investor does not have the same rights as debt lenders to the assets of the company in a liquidation.  Equity investors earn their returns when the company is sold, so their incentives are to some degree aligned with the entrepreneur’s incentives – they both want the business to succeed.  The main drawbacks of equity investment are that it tends to be expensive, and that it entails a reduction in the entrepreneur’s control of the company.

Here is a diagram of a typical multi-stage equity fund-raising process:

A few points to note about the process.  The first source of equity capital for your new business will be your own money (

The next step in equity fund-raising is F,F&F or friends, family and fools.  The logic here is that if you cant even convince your friends and family to invest in you, there must be something wrong with your business idea.  On the other side of this one, people who are not your friends and family but who invest in your business anyway at this stage are the “fools” because the assumption is that your F&F are maingly investing in you because they love you.

After founder’s capital, the company will go through a series of equity financing rounds, which will likely include different investors at each stage, until the company reaches a successful IPO (or trade sale).  If all goes well in this process, everyone involved will make a very good return on their equity investment.

Debt financing typically comes from banks.  The company borrows money from a bank and promises to repay the principal plus interest on an agreed schedule.  The benefits of debt financing are that it is less expensive than equity financing and does not usually entail a reduction in control of the company by the entrepreneur.  The downsides of debt financing are:  it is often unavailable for companies without a history of operating results; if available it can be more expensive than other forms of debt; if the company defaults on the loan the lender may seize the company’s assets, including any valuable IP; too heavy debt obligations may deter equity investors who do not want to see their investment used to service or pay off debt.

Internal financing means that the company reinvests its earnings to grow the business.  This is sometimes referred to as organic growth.  The benefits of internal financing are that it is less expensive than either debt or equity,  it entails no reduction in control of the company by the entrepreneur, and it does not create a liability for the company that can result in insolvency or loss of assets.  The main drawback of internal financing is that it is usually relatively slow to acquire and may not allow the company to grow as quickly as competitors who are using alternative funding methods.  This can be a significant drawback in hot and contested markets.

Public funding comes from government sources.  It generally takes several different forms:

Direct equity investment – looks just like private equity investment, but relatively rare.

Matching equity investment – requires a matching private investor.  Usually the public equity will be priced the same as the private equity and will be issued on the same terms.  Most public-sector equity programs are done on this basis.

Grants – generally these are non-dilutive, meaning that no equity is given in exchange for the grant.  Some grants may be done a reimbursement basis for expenses.  Reimbursement grants may be disbursed only after the funds are spent or may include some portion disbursed up-front.  Some grants may be conditionally repayable; meaning that they must be repaid upon certain pre-agreed conditions being met.  The non-dilutive aspects of grants make them very valuable. 

Loan guarantees – the government guarantees some or all of a bank loan that the company is taking.  This encourages the bank to make riskier loans than they would otherwise make.

Fund-of-fund investments – the government invests in venture funds, which then invest in companies.

The pros and cons of public funding include the same pros and cons of the underlying funding class listed above.  The additional benefits of public-sector funding are:  the government is a credible investor and therefore the company’s credibility can increase after a public-sector investment; public-sector programs may invest for developmental purposes or a mixture of developmental and financial purposes, which makes their funding available to a wider range of companies than private sector funds; acquiring government funds can increase the company’s likelihood of raising private sector funding.  The additional cons of public-sector funding are:  some programs may incur significant administrative overhead; investments may take longer than in the private sector; some programs may be mutually exclusive (“double-dipping”) so you need to carefully consider which program or programs best meet your needs and which ones are mutually exclusive.

As you can see, each source of funding has its own special benefits and challenges.  As an entrepreneur, you will need to navigate the financial markets as well as navigating your customer market if you want to successfully scale your company.

Dangerous point or turning point?

This Chinese character (pronounced “Wei Ji”), like many Chinese characters, is composed of two individual characters, each one with a different meaning. The first character means “danger” and the second means “opportunity.” When combined, they mean “crisis”.

The word “crisis” is commonly associated with “a situation that has reached an extremely difficult or dangerous point” with special attention paid to the element of danger in the situation. However, a key sense of the word crisis is that it refers to a “turning point for better or worse.” In this way, “Wei Ji” encapsulates the essence of venture capital investment. Further, I believe that these two subtly different definitions of the meaning of this word can help to explain the fundamental reasons for investing in venture capital.
 

Risk and return

To better understand the relationship between “Wei Ji” and the essence of venture capital investment, it will help to substitute “risk” for “danger” and “return” for “opportunity” to relate the concepts more closely to finance.  Investors must deal with risk and return on a daily basis; these concepts may become so familiar that we take them for granted.  This familiarity can become dangerous as making accurate assessments of risk-adjusted returns is critical to success in venture capital investing.  The individual’s propensity to take risk – their level of risk aversion or risk seeking behavior, can also play a significant role in decision-making.  In situations like these, it can be useful to take a step back and look afresh at risk and return so as to make sure we are seeing them clearly.  Answering some basic questions about risk and return can lead to a greater insight into this fundamental area of investment decision-making.  These questions are: 

1. What is risk?
2. What is the relationship between risk and return?
3. Why does this relationship hold true?

What is risk?

One common definition of risk is “probability of loss.”  This type of understanding of risk can be useful in the physical world, where the potential returns to many types of risk are heavily shifted toward the downside.  For example, the risk of loss through a serious head injury incurred by riding a motorcycle without a helmet so far outweighs whatever potential gains might accrue that it makes sense to analyze this risk just in terms of the probability of loss.  However, in the financial world, this type of common-sense analysis not only ceases to make sense, it is highly likely to lead to suboptimal investment decision-making.  In the financial world, “risk” is better understood as the variance of the potential returns from an investment.  An investment with a low variance of its potential returns would be considered a low-risk investment while an investment with a high variance of its potential returns would be considered a high-risk investment.  The key difference in defining risk as the probability of loss versus defining risk as the variance of potential returns is that a high variance of returns can create both high loss and high gain.  The common association of risk with loss treats only downside risk while ignoring upside risk.  In a world with only downside risk, all rational people would be risk averse.  In a world where there are both upside risk and downside risk, rational people can be risk averse, risk seeking or risk neutral. 

What is the relationship between risk and return?

Risk and return are highly positively correlated. This correlation is often expressed as “High risk/high return; low risk/low return. These two statements may seem to be perfectly parallel; in fact they are not parallel at all, but are making two very points about risk and return.

This difference can be clearly seen if we rephrase each statement in the form of an If/Then proposition. When we transform the statement “low risk/low return” in this way, it becomes “If I take low risk, I will receive low return,” which is essentially true. However, if we transform the statement “high risk/high return” in the same way, it becomes “If I take high risk, I will receive high return,” which is clearly not the case. This is not the case because of the nature of high risk, which means that the returns will have a high variance, so that we would need to transform this statement to say:  “If I take high risk, I may receive high return, low return or no return at all.”  However, a more meaningful transformation would be:  “If I want to receive high return; I must take high risk.”  This is true because as much as we might wish that there were, there are for all practical intents and purposes, no low risk/high return investments.   

Why are there no low risk/high return investments?

How many people have ever found coins in the street? Almost everyone. How many people have ever found a $100 bill in the street?

I have asked this question of several thousand people, and only one or two have ever found one (or the equivalent amount note in another currency).  Why is it that you are likely to have found coins in the street but you have not found a $100 bill?  At first you might think it is because people are very careful with their $100 bills and do not drop them in the street, but are careless with their coins.  This is true and the supply of $100 bills in the street is therefore extremely low.  But since some people have actually found these $100 bills, they do exist in the street from time to time, but chances are you still haven’t found them.  The reason that you haven’t found them is that on the rare occasions that they do appear on the street, someone else always finds them first.  Finding a $100 bill in the street is a low risk/high return opportunity.  Like all low-risk/high-return opportunities, if they do appear for a fleeting moment, they are immediately erased by market forces (in this case the market forces are people picking up the bills as soon as they appear).  

In an investment market, the mechanism would be more complicated but the end result would be the same.  Take for example, an investment in a particular company that was mis-priced so that the return on the investment was not correlated with the risk of the investment; the return was too high relative to the risk of the investment.  The result would be that investors would flood into this investment.  In an investment market, investors are selling capital and investees are buying capital.  The return that the company is paying to its investors is the cost of capital for the company and the price at which the investors are selling their capital.  If a company is paying too high a price for their capital (i.e. offering a return that is too high), many investors will be willing to sell them capital at that price.  The supply of investment capital for the company will increase.  Assuming that the company’s demand for capital does not increase at the same rate, the price that the company is willing to pay for their capital will decline, as this is a cost from the company’s perspective.  Lowering the price they are paying for capital means that from the investor perspective, the return on the investment will be decreasing.  This will continue until the investment’s return is correlated with its risk.  The forces of supply and demand act inexorably to enforce the correlation between risk and return.  Another low risk/high return investment will have disappeared. 

This correlation between risk and return and the consequences of this correlation are the fundamental driving forces behind venture capital.  Since chasing low-risk/high return opportunities is a losing proposition, investors seeking high returns must take high risk.  For almost all time horizons in the last 20 years, venture capital has been the highest returning asset class available to investors, outperforming the public equities markets by a wide margin.  Within the venture capital market itself, early stage venture capital investments which are more risky have consistently yielded higher returns than later stage venture capital. As long as the relationship between risk and return continues to be enforced by the laws of supply and demand, there will continue to be demand for venture capital investment by investors seeking the highest possible returns.