Photo taken during a panel event in Jakarta, where Sophie discussed the current fundraising winter with industry peers. Panel speakers including Tania Shanny Lestari from Openspace and Chelsea Hartanto from Alpha JWC Ventures joined us on the VC panel, while Steven Wongsoredjo from Aplikasi Super (YC W18), David Setyadi Gunawan from EdenFarm, and Moehammad Ichsan from Octopus Indonesia participated on the founder panel.

Sophie Chiu, Principal (邱敬媛 / 協理)

Sophie is a Principal leading the Southeast Asia Arm, that is responsible for meeting, helping and investing in great founders in the region. She joined AppWorks as an Associate in 2020 and was subsequently promoted as a Principal in 2023. Prior to AppWorks, Sophie had 10 years of public equity experience. She was part of the portfolio management team at Neuberger Berman, focusing on emerging market opportunities. Prior to that she served as a research analyst at Credit Suisse, JPMorgan, and London-based Autonomous Research. Sophie holds a Master of Finance with distinction from Warwick Business School and BS Finance from National Taiwan University. Her passion and expertise, however, extend far beyond just researching companies and industries. She is also an author of two published poetry books and holds a keen interest in human psychology and human behavior.

In the ever-evolving world of technology, artificial intelligence (AI) has emerged as a beacon of innovation, attracting significant capital and propelling startups to unprecedented heights. However, this blossoming AI spring season starkly contrasts with the chilly atmosphere pervading the rest of the tech landscape. Amidst slashed valuations and the recent bankruptcy of banking giants like SVB and Credit Suisse, it is evident that we are in the midst of a capital winter that shows no signs of abating anytime soon. The situation is particularly challenging for startups in Southeast Asia, where many are grappling with unfavorable market conditions for the first time. In this article, we will delve into practical strategies and tips for founders to navigate this capital winter, ensuring their ventures not only survive but also thrive in these trying times.

1. What does a capital winter mean for VC investment?

a. It’s an era of less FOMO but more SLOJI.

The effects of the capital winter have reached all corners of the investment world, from the icy cold public equity market to growth equity and finally early-stage investment. With the exit forecast clouded by higher risk and uncertainties, VC investors are inevitably adjusting their investment approach.

Most VC investors in this region have become more patient and disciplined (with valuation). It is no longer a market driven by FOMO, but rather a time to be SLOJI – “slow to join in.”

Traditionally, VC investors were driven by a fear of being late to the game and sought to invest early and cheaply. Now VC investors are more comfortable waiting slightly longer and even committing to higher valuations when founders demonstrate a stronger set of metrics or evidence of product-market fit (PMF). This also means a greater emphasis on due diligence and the importance for a startup to show solid fundamentals for long-term success.

b. Path to profitability is almost a must, on top of all other necessary metrics.

Investors are currently placing a greater emphasis on profitability because they need to be more patient and disciplined, as well as considering the challenging macro environment. This does not necessarily mean that profitability is the sole metric used to evaluate a startup, but rather that a founder’s understanding and commitment to profitability is an important factor in investors’ assessments.

Here is some general advice for startups at different stages of development: If your startup is in the Series B or later stage, it should already have improving or excellent profitability metrics. At the Series A stage, it is important to demonstrate thoughts and plans for future profitability. For seed stage startups, the focus should still be on product-market-fit (PMF), and if anything else, don’t pursue a cash-burning business model.

c. Balanced growth is even more important.

The path to profitability is more like a check box. What investors are really eager to see is balanced growth. Growth is how a startup could eventually prove its PMF and disrupt the status quo. Balanced growth means growth plus a path to profitability – growth with at least steadily improving margins.

2. What does a capital winter mean to a founder and their startup?

a. Money is more expensive tomorrow.

The capital winter started because we are now in a rising interest rate environment, where money is more expensive tomorrow. It also means every dollar you save/earn today is more valuable. That is why no investor will support cash-burning business models right now.

b. Cut burn and survive.

As the capital winter could be prolonged, it is time that a founder needs to know how to survive and sustain longer and wisely. Since money tomorrow is more expensive, cutting burn can already help you save more valuable money today.

c. Focus on your best PMF.

There could be many directions/options for you and your startup. It is time to focus on your best PMF, where there is demand, paid users, or recurring cash flow. It is time to focus the resources on your best shot.

d. It is time to think like camel rather than a unicorn.

I really like this concept borrowed from this article in the Harvard Business Review, which was written in 2020 but seems only more relevant now.

Under a tough capital market like right now, many startups may die. The implication is that your competitors may die too. That’s why it is time for intelligent founders to prioritize survival over the blind pursuit of market share. Surviving and sustaining your startup with healthy growth and margin is already a victory.

VCs, among all types of investors, are the ones that stand the closest to founders. We are essentially on the same side because the success of VCs is entirely dependent on a startup’s success. Since we’re on the same side, when VC investors are now acting more patient and disciplined, founders should do the same together. It’s time to be a camel together.

3. What does a capital winter mean to a founder when it comes to fundraising?

For founders’ preparation, I’d say fundraising 101 is the eternal guideline and even works more effectively at a time like this: Know your investors, engage with them early, be transparent, know your stage, and so on. These are all critical factors. I’ll pick two that were highlighted during the panel:

a. Engage with investors early, build long-term trust.

Investors will take longer to assess a startup. I’d encourage startup founders to engage with prospective investors early because trust takes time to build. Most investors appreciate receiving regular or occasional updates from founders, demonstrating their commitment and discipline.

Many alumni from our AppWorks Accelerator regularly send us updates from time to time. Those who continue to show progress and dedication usually have pretty successful fundraising results – because most investors on the list get to observe them long enough before they actually need funding.

b. PMF, PMF, PMF.

Founders often ask what investors look for when evaluating potential investments. While founders are the experts on their own businesses, it is important to highlight key metrics that demonstrate strong PMF. In today’s business environment, PMF also requires a clear path to profitability.

This does not necessarily mean that early-stage startups need to immediately prove profitability, but rather that they should be able to demonstrate a vision for how their business can eventually monetize and become profitable. By focusing on these key metrics and showing a roadmap for profitability, founders can better position their businesses for success in the fundraising process.

4. How long will this capital winter last?

Founders should be aware that the current emphasis on profitability is not just a temporary trend, but a fundamental shift in the way businesses operate. This shift is not limited to a few companies – tech giants such as Grab and GoTo have already adjusted their profitability targets to accelerated timelines to reflect this change.

While Vietnam may have experienced record-high GDP growth in the third quarter of 2022, the fourth quarter saw a decline in global demand that is expected to persist in the coming months. As a supply market, Southeast Asia may feel the effects of global recession later on, which means that the “capital winter” may also last longer. To prepare for these challenges, founders should prioritize profitability and survival for the next 2-3 years (at least) and adopt a long-term, sustainable mindset for their businesses.

Remember, it’s time to think like a camel. Other unicorn-wannabes will die in the desert.

5. For founders, why now should be a promising time rather than a discouraging time?

Many founders may feel discouraged thinking about a capital winter and global recession. I’d instead encourage founders that it is the best time. It is the best time for founders to care about users, solve real pain points, and set a healthy goal for the company to survive. It is the best time for investors to stop chasing FOMO and pay attention to fundamentals and holistic vision.

The truth is that VC investors can’t sit on a pile of cash even if they become more disciplined with investment, they are expected by their investors to deploy according to market opportunities even in the winter. We still are on the lookout for amazing founders to allow us to join them on their journey to disrupt this world and create abundance and a better future.

So I think this article should end on a positive note for you. Again, VC investors and founders are meant to always stand on the same side. The goal of AppWorks as a VC is to fund the most-talented founders and help you make the biggest impact on this world – that’s something that will never change. We are always here for you.

If you are a founder working on a startup in SEA, or working with web3 and AI / IoT, apply to AppWorks Accelerator to join the largest founder community in Greater Southeast Asia.

Communications Master, Communication Master

Antony is a Master specializing in advising AppWorks startups on public, media and social media relations and communications matters. He joins Team AppWorks with over 18 years of media experience under his belt, having been a part of the very first batch of reporters to cover the Internet industry in Taiwan. He’s since held various senior level roles at prominent publications including Vice Chief Editor at Business Next Magazine, Senior Associate Managing Editor at Cheers Magazine, and Chief Editor at SmartM. Antony received his Bachelors in Management Science from National Chiao Tung University, and has tracked closely the evolution of media. Seeing himself as an “Internet missionary,” Antony loves sharing with others the sheer impact of digital technologies, particularly as it pertains to revolutionizing businesses and facilitating a new age of entrepreneurs.

Large enterprises collaborating with startups has become a leading trend in recent years for boosting innovation, and Wistron is one of the most representative examples of this. In addition to actively encouraging internal innovation, Wistron has also launched various initiatives such as the Wistron Vertical Accelerator through a strategic alliance with AppWorks, to engage in more extensive and systematic collaboration with external startups. In this process, the Value Creation Center (VCC) under the CTO’s office, is one of the driving forces, connecting the internal and external innovative energies and facilitating a variety of innovation possibilities. In its collaborations with startups, VCC offers design services (ODM) and external resource connections (Outreach Business), providing complete assistance to early-stage startups with product volumes under 10K. VCC also helps startups connect with various Wistron business units to receive broader support.

In a special interview with AppWorks, Benson Chin, who has served at Wistron for over 25 years and is the Executive Director of the Value Creation Center, shares Wistron’s significant stages in promoting innovation and the experiences and gains from deep collaboration with startups and participation in Wistron’s accelerator. Here are the key points:

Q: What role does VCC play in various business units within the Wistron Group, and what are its future strategies and goals?

A: As the name of the Value Creation Center suggests, our main goal is to create value, not just save costs. Wistron’s core business is ODM/OEM, and our long-term expertise lies in efficiency, quality, speed, and scale. But Wistron also has a distinctive DNA – we place a strong emphasis on innovation, and value creation will inevitably come from the synergies of innovation. So, our name reflects the mission and expectations that Wistron has entrusted to us.

Over the ten-plus years since VCC was established, our role and objectives have gone through three phases. Initially, we helped various Business Groups (BGs) and Business Units (BUs) with projects they deemed important but lacked the manpower, time, or ability to pursue. This was our starting point, so we had a deeper connection with various BGs and BUs. In the second phase, as our department developed, we started to anticipate our customers’ needs, doing things they hadn’t yet thought of, or preparing next-generation products to create more value for them.

Now we are in the third phase. We are continuously contemplating whether we can create valuable services, business models, or solutions for the company. This gives us more room and flexibility to diversify our development. We are always looking for a balance between maintaining necessary connections with each BG and BU to increase their value while proving our own, and helping Wistron make various longer-term innovative attempts.

Q: What specific approaches does the VCC take in terms of various innovations?

A: As Wistron has developed, it can be divided into two main strategies: encouraging internal innovation and connecting with external startups. For internal innovation, over the past 10 years, we’ve held two internal Demo Tech Day Road Shows each year, totaling 20 times, to present various innovative technologies or products from business units or the VCC. In addition, we’ve co-hosted several Golden Brain competitions with other educational training centers, encouraging our colleagues to participate in innovation competitions and propose various innovative products or business models. Some of our recent new products, such as the smart flower pot, smart coffee scale, and smart voice assistant for medical care , all came from the top-ranked products of the GoldenBrain competition. No matter which team the contestants belong to, VCC will assist in connecting and cooperating with the relevant BG or BU, continuously sparking ideas internally and enabling the team to fully realize their products or business models.

The other approach is to connect with external startups and collaborate on their innovative technologies, products, services, or business models. This is a role that the VCC has played more prominently in the past three to five years, shifting from an Inside Out approach to an Outside In one, learning together with external startups and co-creating value. As the overall industry changes faster and becomes more diverse, various BGs and BUs within Wistron are gradually establishing their own teams similar to the VCC, focusing on new technologies and products in the next one to two years, mainly serving existing ODM and OEM customers. We, on the other hand, focus on opportunities three to five years out or even longer. Looking at the results, the VCC has had a positive impact internally over the past few years, with innovation becoming a part of our DNA, and all units are paying more attention, with teams similar to the VCC gradually emerging.

Another role of the VCC is to facilitate horizontal communication and connection between various internal and external units. Because each BU, BG, or subsidiary has its own core focus, it can sometimes be difficult to keep track of what changes are happening outside. Our role is to create more horizontal connections, both internally and by helping external startups connect with units within Wistron. Internally, when various BGs and BUs develop new products, they may lack certain skills such as EE (Electronic Engineering), ID (Industrial Design), or UI/UX. At this point, they will seek our support. For example, Wistron is developing AMR (Autonomous Mobile Robot) fleets that can be applied in different areas such as medical care, shopping centers, public transportation, logistics warehouses, and factories, and ID and UI/UX are supported by the VCC. For external startups, we can also help connect them with our internal technology and manufacturing. For example, during the pandemic, there was a startup team from the Industrial Technology Research Institute whose product was an antimicrobial liquid generator. Using electrochemical technology, they can electrolyze tap water into highly active oxygen antimicrobial liquid. We assisted in the design and manufacturing of the product’s bottle and charging equipment.

I have been serving in Wistron for over 25 years, and the VCC team is very diverse. Besides having seasoned employees like myself, we also have very young colleagues. If we consider five years as a generation, our team spans five generations. This diverse background makes us well-suited to serve as a bridge connecting internally and externally. Personally, I thoroughly enjoy being able to produce concrete results and get a glimpse of what’s going on in the outside world.

Providing Comprehensive Services to Early-stage Startups

Q: In terms of collaborations with startups, what stage and fields of startups are VCC’s targets?

A: VCC can provide full-range design services (ODM) and external resource connections (Outreach Business) to startups. Simply put, we have comprehensive support from the entrepreneurial idea stage to the early stage of trial production and mass production of fewer than 10,000 units. This includes product design, needs or marketing research, UI/UX, hardware and software, CMF (Color, Material, Finishing) R&D, small-batch prototyping, prototype making, trial production, etc. Moreover, we have long-term partnerships with first-class academic institutions such as MIT and can help startups introduce forward-looking technologies. If startups need it, we also guide them in listing products on crowdfunding platforms like Kickstarter and Zeczec, or on e-commerce websites like Amazon to learn how to do e-commerce.

Startups have different needs at different stages, and Wistron currently plans to assist through three units. CVC (Corporate Venture Capital) focuses on startup funding, VCC focuses on the function aspect, and we have IIC (Innovation Integration Center) to help startups with small-scale mass production. So, when excellent startups collaborate with us, they get funding, technology, and production support. When startups formally enter scale-up, and their mass production scale is large enough that BGs and BUs are willing to take over, we will assist in making the connection to become long-term customers in the future.

We are not too restricted in cooperating with startups from any field. Going back to market demand, I would define it as the elderly and dogs, lifestyle taste, and ESG aspects. We are more than willing to work with startups that focus on elder care, pet economy, or life applications using AI, IoT, Sensor, Cloud, and other technologies, as well as those developing environmentally friendly products and business models.

When cooperating with startups, we adopt an attitude of mutual respect and win-win creation. In the Wistron logo, the ‘i’ in Wistron is highlighted, representing the two important spirits of Innovation and Integrity. I often proudly say that I am fortunate to be deeply connected with the ‘i’ of Innovation. The other ‘i’, representing Integrity, should be the most basic DNA of us as an ODM/OEM manufacturer. We never plagiarize the IP of our clients to make our own products. The cooperation with startups is also based on this spirit. We sign bilateral NDAs (Non-Disclosure Agreements) to protect the IP of both parties. Perhaps there have been some bad businesses in the industry that have taken the IP of cooperating startups, but as far as my time at Wistron, I have never heard of us trying to take advantage of others. A quick check or inquiry in the market will reveal that we have never had such a record.

Q: How does a startup get charged when collaborating with VCC and using the services provided by VCC?

A: Fundamentally, VCC is a Cost Center unit, not a Profit Center. But our goal is to create long-term value for Wistron, so we don’t need to carry short-term revenue or profit financial targets, but all services still need to cover at least the operational costs of the department. Therefore, we will not provide services for free, but the charges, payment methods, and even production quantities will offer great flexibility to startups, with many plans available. We understand that entrepreneurship itself carries high risks and has different considerations, so we have ways to accommodate them.

Q: In your past cooperation with startups, or since the operation of the Wistron accelerator for a year and a half, what personal observations or takeaways do you have from the exchange process with entrepreneurs?

A: So far, we have a very positive view of cooperating with startups. Working with startups or entrepreneurs, we wouldn’t dare say we are mentors, but at least we can contribute some opinions and suggestions. I think this process is more like mutual exchange and learning. If we’re talking practically, this process can indeed help Wistron connect with some potential future customers.

Another gain we didn’t anticipate previously was the diversity of startups recruited and filtered through AppWorks to join the Wistron accelerator, which far exceeded expectations. For example, in the third term from September to December 2022, we saw startups covering areas such as FinTech, AR, Material Science, IC Design, etc. Through exchanges with them, we not only gained a deeper understanding of the most cutting-edge industry changes, product and business model development, but also saw the tangible help that VCC and other participating units of the Wistron Group can provide to startups, which is very fulfilling.

One of the startups we discussed a while ago, PackAge+ PeiKeJia, is one of the startups I greatly appreciate. Taiwanese e-commerce ships hundreds of millions of cartons as packaging materials each year, the vast majority of which are only used once, which is very wasteful and not environmentally friendly. They use material technology to promote circular packaging, turning recycled PET bottles into packaging bags that can be reused more than 30 times. They have started cooperating with many e-commerce companies in Taiwan and have secured over 3,000 recycling points in FamilyMart convenience stores during the pandemic. I’ve always thought the concepts of environmental protection and ESG are great, but it’s really not easy to turn them into a profitable business. Their willingness to take on this challenge and achieve good results is commendable.

Q: What advice do you have for startups who want to apply for the Wistron Accelerator or want to start a dialogue and cooperate with VCC?

A: I think the most important thing is to have a mindset that doesn’t limit oneself. When applying, you don’t need to immediately think about connecting with Wistron’s ODM, OEM businesses, or any unit, or what topic you want to work on. Instead, I think the senior executives of each unit joining the Wistron Accelerator are very humble and open. We’re not only helping startups, but we’re also learning a lot from entrepreneurs and startups. For example, I don’t believe we know more about chips than startups doing IC Design. As long as startups fit within the broad categories set for AI, IoT, cloud, cybersecurity, education, and healthcare, we welcome them and are willing to try various possibilities. I believe that during the few months of the accelerator period, we will gradually find some focal points for cooperation.

Furthermore, I hope that entrepreneurs have big dreams because if a company doesn’t have grand dreams, it’s unlikely to be remembered. In addition to having grand dreams, entrepreneurs also need the capability to realistically pursue them. Building a business requires a vision, but it also requires practical strategies and execution. You can dream of transforming an industry or creating a novel product, but you need to have the skills and the drive to turn that dream into a reality. That’s the kind of ambitious and dedicated mindset we’re looking for in the startups that join our accelerator.

***Calling founders working in AI, IoT, Cloud, Cyber Security, EdTech and MedTech to apply for Wistron Accelerator ***