XA Podcast 011 | Coffee Or Froth? Challenges In Finding Sustainable Businesses W/ Peng T Ong, Co-Founder And Managing Director, Monk’s Hill Ventures

Join us as we discuss some of the key challenges facing startups with Peng T. Ong, Co-Founder and Managing Partner at Monk’s Hill Ventures. Peng is a startup industry veteran with over 25 years of experience as an entrepreneur, founder, and investor in Silicon Valley and in Asia. After stints as an early employee in multiple startups, he went on to found successes like Interwoven and Match.com. Subsequent to those exits, he moved into VC, eventually co-founding Monk’s Hill Ventures, a leading early-stage tech venture capital firm in Southeast Asia and one of the first Valley-style VCs in SE Asia with entrepreneurs funding entrepreneurs. He is based in Indonesia.

Peng is interviewed by Belinda Ong, Managing Director of the XA Network.

XA Network was born out of the Google alumni network in 2018 and comprises senior leaders from global and regional technology companies, as well as founders of notable companies from across Southeast Asia. Our purpose is to foster inclusive innovation by empowering the tech community in Southeast Asia.

Discussion Topics: Coffee or Froth? Challenges in Finding Sustainable Businesses

• Matching people to the right jobs
• The burden of leadership
• Learning how to be a VC
• Market valuations
• The impact of Covid on the tech industry
• How tech-enabled efficiency is shaking up old-school incumbents
• Sorting substance from hype – coffee vs froth!

Transcript: Coffee or Froth? Challenges in Finding Sustainable Businesses

Belinda Ong: So good afternoon, everyone, and thank you once again for joining us at XA Podcast. My name is Belinda Ong and I’m the General Manager here at the XA Network. Today, it is our honour and privilege to host Peng Ong as our guest speaker for the final installment of the XA Fireside chat for 2021. Peng honestly doesn’t need an introduction. But sometimes it’s nice to have a refresher when you’ve had a career as illustrious as his.

So Peng, as you’re all aware, he is the co-founder and Managing Partner of Monk’s Hill Ventures. He is a leading early-stage tech venture capital firm in Southeast Asia. Peng is an industry veteran with over 25 years of industry experience as an entrepreneur, founder, and investor in Silicon Valley as well as in Asia. Peng was a venture partner at GSR Ventures in China.

The firm is known for its investments in companies like Didi Chuxing, and as an entrepreneur, Peng co-founded a series of successful companies including Electric Classifieds today known as Match.com, Interwoven, and Accentuate, which today combined, generate over a billion dollars in revenues annually.

So, Peng, I think it’d be great if you can start with your story. Monk’s Hill is known as one of the first Silicon Valley-style VCs in this region started by entrepreneurs to fund entrepreneurs. Maybe you could tell us a bit more about your entrepreneurship journey from Match to Interwoven and finally Accentuate. Specifically, how those experiences shaped your investment thesis and influence how you’ve interacted with founders you bet as the company matures. Peng, please.

Peng T. Ong: Yeah, I’m so glad to see our marketing kind of works. Are entrepreneurs backing entrepreneurs that’s what we do if you look at our partnership, I think four of the five of us are CEOs, Founders, the one that’s not was early on in the company that’s now public. So all operators kind of partnership. Why do we think that’s important? It’s not essential today, but we think it’s important.

Throughout my career as a founder, but first of all, even before Match.com, which was the first startup that I co-founded, before that, I was in three other startups after Grad school, employee number 21, employee number 150, and then employee number 30 to 40. So I would come in pretty early, and you get exposed to how a company is built almost from the ground, and I think that experience is just not easily reproduced in any other organisation. And then when you go and start your own company, it becomes that background that is really, really useful.

To me, entrepreneurship is a leadership problem, a challenge of how you go from nothing to something. And perspectives, that there is something you want to build, at least from what I’ve been doing needs at least to solve a ridiculous state of the world is how I used to describe it. You look at the world, and you go, this makes no sense whatsoever. And then you go and try to fix it. And you need to be passionate about it, etc. So that was Match. It didn’t make sense for people who did this on print paper to figure out how to buy something or sell something or get a connection somewhere that was Match, Electric Classifieds.

Interwoven doesn’t make sense for, you know, hundreds of people to try and build a website without any coordination tools. And that’s how Interwoven got created and then the last thing was essentially Karthik, I met Karthik there, he was one of our top engineers. And that was about requiring people to manage 20, 30 passwords in their heads. It makes no sense whatsoever.

It is a much more simple problem and from that perspective and this way, we started that. I don’t know if I’m answering the question, please feel free to be interactive, or a lot more interactive. I’m just going at it as best I see fit. But if you want to cue me to something more specific, please feel free to do that.

Belinda Ong: Yeah, I mean, we would love to understand a particularly memorable experience or example of how that irreplaceable training, you said working in a small 30, 40 person company, how did that translate when you were later on an investor.

Peng T. Ong: So I’ll give you one example that is far back enough that the people involved will probably laugh at it instead of feel pretty bad about it. When I was early on, in one of my companies Interwoven, I put a Manager in place to run engineering. And he’s a good intellectual, Ph.D. from Stanford, etc. But he is very focused on work. And halfway through version one, as we were building up version one, the engineering team came up to me and said, please replace this guy over the company.

This is half my team, and it was mostly engineering at that point. And I learned several lessons there. Don’t put people in jobs that they’re not good at or like doing and then you have to make tough decisions. So I had to decide which half of the engineering team I was going to lose. Because the other half was, well, the manager is fine. So I choose. So there are a few people out there that are still reasonable friends that I basically asked to leave about 20 years ago. And that small, I think, five, six people, and then you have to lose half the capability.

It sticks in your mind. So that’s an early lesson for people. And that lesson on people keeps coming back over and over again, you need to make very clear decisions for people and fix them if you’re wrong. So we did fix that engineering leadership issue, but we also lost two very good engineers.

Belinda Ong: Understand, and sounds like, you will be able to come from a place of empathy and being able to give very practical advice to the founders in your portfolio when you have to make equally tough decisions.

Peng T. Ong: Yeah, and just because you like people doesn’t mean that they’re suitable for the job. So making very, very crystal clear decisions, why person A should be doing job, B on job two. And it’s your job as a leader to make sure that the direct reports to you are all either improving or you need to replace that.

There’s never, you know, this person is fine and, I just leave them therefore ever, because the company is scaling. And if that person is not improving with the company, and scaling with the company, you need to replace them at some point. So that’s your job. And it’s a tough job. Some of you know this. I like to talk about the burden of leadership.

Forget about making the wrong decision. Sometimes even when you make the right decisions, you hurt people. That’s the burden of leadership, and there is a choice of hurting one person or maybe a small group of people versus the whole team. And that’s the burden of leadership, you have to get used to it if you choose to lead, and you cannot wiggle out of that responsibility.

Belinda Ong: Makes a ton of sense.

Peng T. Ong: The phrase that’s really helped me is, please make the call. There are a lot of things a lot of people ask me, CEOs ask me, what do you think of this? What do you think of that etc? This strategy versus that strategy and I’ll give them my opinion. And then I will say, is your call to make please make the call.

And the reason I’ve learned this over time is that if a leader comes to me with options and all that and then I say, yeah, go that way and they go that way, it’s no longer their decision, they didn’t make the call, there’s a certain lack of ownership of that decision. And I do this with my folks here all the time, too. It’s not just the CEO’s.

If you’re in charge of something, you need to make the call. And I learned this, not the hard way, actually, because, well, the hard way as an executive, because if you keep telling your executives, your VPs, and all that, do this, do that, do this, do that at some point, they don’t own the decisions anymore. So you’ve just got a lot of hands to do the work for you. So I am very clear on what I call Roles and Responsibilities. If you own it, you’re going to make the call.

And when I started being a VC in China, that’s where I actually first got into VC work with GSR. It was actually not that hard. It was less hard than I thought because I think your training as an executive prepares you to be a VC. If you’re trained properly as an Executive, well, let me back up. There are some command and control cultures that are present in our ecosystem, if you’re exposed to that kind of environment maybe you’re less prepared.

But if you’re exposed to much more of the Silicon Valley style, where the VP of Marketing owns marketing, alliances with the CEO and general directions, and they go execute with the budgets, etc., hiring. If you’re more used to that kind of management style, then you’re very prepared to be a VC. I don’t know if that answered the question.

Belinda Ong: Yes, it did and actually, I would love to build upon that and double-click on that transition you made from entrepreneur to VC. What do you wish someone had told you when you make that transition?

Peng T. Ong: So I got into VC almost by accident, because I wanted to go to China to find my roots. and Richard Lim, who runs GSR ventures said, hey since you’re going to find your roots and learn how China works, why don’t you come to do it with us as a venture partner? So I thought that was a reasonable idea, it turns out to be a great idea because there’s nothing like doing deals in China to understand how China works.

And so, what I didn’t realise is how much more knowledge, and history there is in VC to appreciate, why you need a certain percentage ownership in a deal for example, there’s game theory behind that. It’s a discipline that’s been developed over the last 30 or 40 years. And it’s not a lot written down. So, you learn this through almost an apprenticeship, kind of way of doing it. The best group that has documented some of this is the Kauffman Foundation. So, if you want to be a VC, figure out how to hook up with a Kauffman Foundation.

They have a lot of that material. But still, a lot of it is just learning. So, I didn’t expect that there was so much learning to do, because when I look at it, from my point of view as a founder, it seemed like an easy job, you just give up money and sit on boards. How hard is that? And I didn’t realise how much work there is and the depth of the strategy there is in being a VC. But it wasn’t this Oh! I wish I knew this; it is just incremental pieces of knowledge.

Belind Ong: Makes a ton of sense and the Kauffman Fellowship, I know that it’s been slowly expanding internationally. It has quite a number of people in Southeast Asia. So I know you’ve been in the VC sector for over a decade now. And I am quite curious now, based on your perspective, like, how has the ecosystem here evolved since you started Monk’s Hill? Like, how have the terms changed, how have the founders and the problems and look to solve changed, and how has the face of investors changed?

Peng T. Ong: I think the good news is the ones that started early there’s a whole bunch of us that started in 2012, 2013, 2014, 2015 most of us are still there and I think we’ve all matured, you know, a lot of us. I think the interesting thing is there are a lot of different strategies out there, VCs with different strategies, and valuations have gone up which is obvious. And so it’s much more of a founder’s market now than before, which is great. And the VCs are more mature, but I still see a lot of what I call transaction chasing.

Not transaction as in VC deals but revenues, buying revenues, burning to buy revenues, that kind of thinking, because I think I started seeing that in China with DST and Tiger and then Softbank giving lots of money to companies to burn. DT you can see the burn. And then I thought, okay, I come back to Asia, that will be gone, and it started in Asia.

I think it’s a very transaction-based sort of systems-based way of looking at building businesses, that is taking a lot of risk on the locking of the market, you’re assuming once you get to a certain scale, you become insurmountable. And you can see the consumer response to this in Grab and Bukalapak IPO. There’s a certain view of where all this will go that might be different within the private equity sector versus the public market.

I don’t know. It’s hard to tell when the unit economics are not positive when businesses are not really fundamentally making money how people look at these businesses. So that’s very different across the different VCs in Southeast Asia. There are those that will fund this, what we’ve been calling negative Blitz scaling. And forsake us we went to some reasonable unit economics before we invest or some factory to a reasonable unit economics.

Belinda Ong: So, actually, I’m quite curious to know, Peng because you were actually talking about the Grab IPO, like the largest US debut. Where do you see the Southeast Asian region headed from here and how’s it going to dovetail with the fallout from the COVID pandemic?

Peng T. Ong: I think COVID is actually, I hate to say this, but it’s actually good for Tech because it forces everyone to drive to a more efficient economy where you can get the goods and services more easily, etc. So, generally, it’s done more good than bad for the economy. If you’re in travel, if you’re in hotels yeah, okay it’s not so good. But other than that, it’s generally been good.

So my partner talks about coffee and froth. So the challenge is obvious: Asia is anything you look at has froth and coffee. So, what is the coffee, and what is the froth it’s a tough problem. So let me take a step back, if you look at China, and you look at it 15 years ago and compare that to today, today is about 6 trillion in GDP in services.

That’s about half the GDP of China. And almost all that profit pool goes to companies that didn’t exist or didn’t exist 20 years ago, these are all Tech companies that own the technologies that service China all the way from retail to logistics, to headhunting, to real estate, everything. So if you take the Sic code, and codes for all the different industries, and you line them up, term wise, you’re gonna see a nice, long tail kind of services, set of services businesses.

And I would argue China’s services sector is the most efficient service sector in the world, because it’s new, and it’s all AI, software-driven, etc. So what’s happening in Southeast Asia, we are about 10 to 15 years behind China. But it’s happening here. You see it in retail, you see it in transportation, logistics, and down that TAM stack of values. We’re in a company called Glens, and that’s doing incredibly well.

It’s a Tech recruitment company. And it’s multiple times more efficient than the average recruiter. I’ve got an accounting company that is doing three times more productivity than the average SME accountant. So they’re gonna win in that service sector. So, fundamentally, our services economy, which is about $1.5 trillion in Southeast Asia, that’s being taken over by Tech companies.

The Tech companies are not making technologies and enabling the services companies to be more efficient no, the Tech companies are actually services companies using tech to compete with the old-school folks. So we’re taking over, we’re actually destroying a lot of businesses by being much more efficient. The old inefficient businesses are going to die out. This is true in banking, this is true in lending, this true in everything.

So if you look at it, from that point of view, there’s a lot of value being created in Southeast Asia Tech companies, regardless of fraud or no fraud, there’s a lot of value being created. And the challenge is to look at each one of these companies and go, you know, are you fundamentally creating value or is this spin and hype? And that’s why we get paid as investors, we get to see through all this stuff and go, yeah, this is real, this is hype. And the unfortunate thing is, because there’s so much money being flushed into the system today, that there’s a lot of froth, there’s a lot of foam on the coffee.

So you could potentially be investing in foam and then find that the foam dissipates in a few years’ time. And I won’t go into specific examples, but you can see it in the marketplace. So if you have a solid business at some point that will show through, and there’ll be valuation associated with it. For example, one of our company’s first investments in our fun one is Ninja Van. They’re pushing a billion in revenue single go, they break even before they go public. That’s a real business. So there’s no argument it’s a real business. And so the valuations will be there.