Why Fidelity Funding believes startups need more than just funding to succeed
2022-02-10 /09:02 pm
To curb the high failure rate in the startup ecosystem, Fidelity Funding builds a model that provides startups with more than just money.
When it comes to achieving success, a single startup would need more than just funding. It would also require different forms of support –from market access to ecosystem enablement– that is ideally built within an ecosystem.
This is what eatcosys, a Malaysia-based multi-disciplinary company offering retail and fintech solutions to support businesses in their transformation journey, is trying to achieve through Fidelity Funding.
Fidelity Funding is a fund that aims to serve as the capital funding arm for clients or portfolio companies that leverage the services of eatcosys. Targetting early stage startups, the venture capital fund has made investments into companies such as food marketplace SmartBite and edutech platform Askbee.
When it comes to investing in startups, Fidelity Funding is fully aware of the high failure rate among them and intends to minimise it to its best. This is why they come up with an approach that allows its portfolio companies to be part of an ecosystem of companies that work seamlessly with each other.
e27 speaks to Tham Lih Chung, Co-Founder and Chairman of eatcosys, and Managing Director of Fidelity Funding, and Bryan Chung, Executive Advisor of Fidelity Funding, to understand more about how they aim to support the startups in their growth journey.
Working hand in hand
As a serial entrepreneur, Tham is no stranger to failure –and the lessons that it provides to help entrepreneurs move up in life. Starting off his career in the corporate finance, investment banking, and accounting sector, he had built businesses in various sectors from construction to F&B.
When he founded eatcosys and (eventually) Fidelity Funding, he saw how tech was able to connect different segments of an industry and create convergence.
“We wanted to look into new ideas, to look into innovation … [by] having an arm that could breed and mature ideas and innovation into tech startups. Because the retail sector is more than just having the mom-and-pop stores doing the usual business transactions. Now we see a lot of convergence with tech,” he explains.
This convergence enables Tham to see how these emerging startups could potentially complement the eatcosys group of companies.
“We invest in startups that are enablers and accelerators of digital transformation. I know it is very generic and broad, but that is how we want it to be. Because if you ask us how the future is going to be like in the next two to three years, I think people are going to be struggling to describe it. So we want to able to capture different types of startups … that will be part of the ecosystem,” he elaborates.
Despite the approach, Fidelity Funding would like to tap more into the fintech space. This year, eatcosys raised MYR10 million (US$2.3 million) through a crowdfunding campaign on Fundnel. Part of this capital is to be used to invest in the fintech space.
Defying the odds
Apart from the convergence of tech into different kinds of industries, the ecosystem approach was also implemented to minimise the risk of failure amongst tech startups.
Chung points out that in a typical VC model, only one to two per cent of its portfolio companies will actually achieve success.
“I think that’s the generally accepted figure. So, why do investors continue to invest in VC funds, knowing that only one or two per cent will make it? So we are trying to go against this one per cent statistic. We are trying to not go play the numbers game: the one with ‘the more companies you invest, the higher your chance of success.’ We are saying no, let’s not do that,” he explains.
When investors are playing the ‘numbers game’, Chung says that they are basically investing in something that may or may not work out.
“We want to be able to invest in startups that will work out. No one can guarantee that you will be 100 per cent successful, but we are trying to minimise the failure rates. So, Fidelity Funding comes up with this model: when we look at companies, we want to be able to understand the market, the industry that they are in, and we want to be able to contribute actively to the growth of the company,” he continues.
This is why Fidelity Funding invests in companies that can be a part of their ecosystem. In addition to curbing the failure rate, this approach can also help founders in getting the kind of support that they need.
“A lot of these [startup founders] are young entrepreneurs, so they do not have the operational experience. They are full of energy and great ideas, but when it comes to execution, to operating the business, that is where they tend to falter,” Chung says.
According to him, this indicates that in order for startups to achieve success, having money is not always the solution for their problem.
“A lot of VCs would say, ‘We will introduce you to this person or company.’ But that is just referrals, and that is not enough. You also need to guide them to close a particular deal or transaction. So we have this group, these multiple partners, where we can lead them to. In a short time, they can immediately see that when they are plugged into the ecosystem, they can see their revenue growth,” Chung elaborates.
Fidelity Funding invests in companies in the pre-seed and seed stage with a ticket size that ranges from US$250,000 to US$1 million. “Because this is the stage where entrepreneurs will require a lot more guidance,” Chung explains.
While the fund is open to the idea of investing in the Southeast Asian market, at the moment, it will continue on focussing in Malaysia.