Sramana Mitra: The question that I’m constantly intrigued by as I talk to many investors is that how can so many investors find unicorns. It’s just not mathematically viable if you’re obsessed with just investing in companies that have the potential of being unicorns. There aren’t that many of those.
Alan Chiu: That’s very true. That said, we’re seeing companies go international earlier in their life than perhaps previous generations of companies. While the absolute size of these markets are growing at the pace of GDPs, the ability for startups to reach these markets have increased over time. Growth has a direct correlation with valuation. That helps to create more highly-valued companies. That’s still rare.
Sramana Mitra: Hypergrowth is a rare phenomenon and there are very few management teams that have the skills to be able to pull off hypergrowth or unicorn-level growth. That’s another limiting factor as well. At the same time, I do think that there are lots of smaller opportunities – $100 million TAM opportunities where you do some level of execution, get to a certain amount of revenue, and then sell to the companies who have the channel adjacent to yours and what you’re looking for. Don’t invest in building the channel. You could get very nice multiples on small, capital-efficient deals. Everybody makes money in that scenario.
Alan Chiu: Very true. Having multiple of those kinds of exits could make up for one unicorn or half unicorn.
Sramana Mitra: That’s right, instead of one unicorn and nine failures. It works for a smaller fund. It doesn’t work if you’re trying to do very large funds. That’s just not going to cut it.
Alan Chiu: Exactly, which explains the proliferation of smaller funds.
Sramana Mitra: What else do you want to convey to the audience who would be interested in working with you?
Alan Chiu: Surprise us. The general notion is that we don’t know what the next big platform will be. Is it ICO? Nobody knows. There’s a sense of uncertainty around what will be the next big wave that will usher in the next generation of world-dominating tech companies. I would argue that this is precisely the time where the best and most insightful entrepreneurs are already identifying the non-obvious opportunities that are invisible to most investors.
I would love to talk to you if you’re working with one of these opportunities. If we’re that smart to predict the future and come up with opportunities on our own, we would be entrepreneurs ourselves.
Sramana Mitra: The entrepreneur always has to know more than the investor. Thank you for your time.