What you need to know
Essential reading for students or anyone else interested in venture capital flows in Asia.
Rookie Fund is a student venture fund that every year selects a cohort of students in Taiwan and Xiamen, China, puts money in their hands and charges them with the responsibility for investing in local startups.
Billed as Asia’s first campus-based venture capital (VC) fund, Taipei-headquartered Rookie Fund was formerly known as 500 Rookies, a name that speaks to its roots in the Silicon Valley-based VC 500 Startups. The fund is backed by Rui Ma, a former 500 Startups Head of Global Fundraising, and Norman Chang, also a former 500 Startups stalwart, and is currently overseeing the final months of its third batch of students.
Last year, Rookie Fund tempted Stephanie Tang, 27, away from her first corporate investment role as Program Manager of HTC's Virtual Reality Venture Capital Association to take up the post of Managing Director.
Fresh from being selected for the 2018 Forbes Asia 30 Under 30 Finance and Venture Capital list, The News Lens spoke to Tang about Rookie Fund, the challenges facing student startups in Taiwan, and the efforts Taiwan is making to attract more VC to the island.
The News Lens: What’s is Rookie Fund’s brief?
Stephanie Tang: If you’ve heard of Dorm Room Fund (DRF) in the States, it’s a similar model. We’re a student-run venture fund. Our mission is to develop the best student investors in Asia by providing them with capital, mentorship and hands-on experience. We let the students make investment decisions – compared with other student-based funds in the region, we’re the only one that hands them that kind of power and responsibility.
TNL: How does the program work?
ST: Each summer, I recruit the student investors for this year. They join in mid-Oct and the program lasts until end-June. Their priority is to find one or two startup investments: from deal-seeking, valuation and due diligence to actual investment. Our mandate is that the teams have to be student-run; one of the members of the startup that has more than 10 percent equity has to have graduated within the last two years.
They then take pitches on a weekly basis. Actually, we have just invested in H3O, a Taiwan-based AI chatbot company, that is working on personality digitalization. Two core members are National Taiwan University (NTU) grads.
TNL: How many students do you take each year?
ST: We try to limit to under 10 in each location. We operate out of Xiamen, where there are seven, and Taiwan, which has six. In Taiwan right now we have one student in finance, one finance, one politics, one business administration and one healthcare.
We get around 200 applications for each location, selecting via an online application form online with a couple of creative questions, looking for students with a bit of startup experience or that can demonstrate that they know about the space.
TNL: What’s an example of a creative question?
ST: We ask them, "Describe a startup that we haven’t heard of and how would you do due diligence on it?" That trips up a lot of people. Even if they know how to do due diligence or can figure it out from Google, how to actually go about it isn’t that easy.
TNL: Where do the rookies' investment funds come from?
ST: The people who give us money are philanthropic and then if we have money left over it goes back into the fund. We have enough funds to operate stably for two years. The management team fundraisers – Norman and Rui – both have personal projects but they spent 20 percent of their time on fund operations.
Each team then has US$10,000 per startup and two investments per year in each location. For the rookies, since they don’t get paid, it’s a learning activity and risk-free financially. Unlike a traditional fund, our returns don’t get returned to any of us or our limited partners.
Unlike a traditional fund, our returns don’t get returned to any of us or our limited partners.
TNL: What do they learn during the program?
ST: At the beginning, it’s a 101 on angel investing led by Rui. We have 60-plus 101 and externship mentors: some are in the VC industry, others are experts in tech, software and hardware. For the externship, students go on a one-day internship at their mentor's office, so [they] can see what a partner does at a VC firm.
TNL: What are the rookies’ biggest misconceptions?
The harsh reality is that in Asia getting into VC is really difficult. In Taiwan, there are virtually none and there are not many opportunities for young people. Some realize they do want to be in VC but it’s not going to happen right after graduation. In the long term they are thinking – is there a way to build my career through finance, the startup route or just being super-freaking rich and starting your own fund? The biggest benefit is that we open their eyes to reality, it’s a healthy thing so they have a pragmatic view in terms of what they can do.
TNL: The fund is billed as targeting urban areas with less capital available. What does that mean?
ST: Taiwan is less funded compared to Singapore, Hong Kong and most of China. In China, Xiamen is on the up, but still less funded than tier-one cities. We’re going to see if we have to breach that remit as we are considering expanding to Hong Kong and Singapore – a big reason is language. I speak English and Mandarin, and if we entered Japan or South Korea language would be an issue.
We are considering expanding to Hong Kong and Singapore.
TNL: How much interaction do the students have with the startups they invest in?
ST: They don’t do much portfolio management – that’s primarily done by me – but we are trying to encourage interaction. This year’s cohort went back and interviewed the teams that last year’s rookies invested in. After the three-month mark, the rookies are already in a position to offer a lot of value to student startups. This year, they hosted a VC 101 and recruited a bunch of startups to pitch at the event and set up a mock back-and-forth dialogue with investors.
TNL: Where have some of the rookies ended up?
ST: We’ve put people into Google, AirBnb, Plug and Play Tech Center in Silicon Valley [China online food delivery service] Ele.me and other successful Chinese startups. That aside, rookies have told me how the experience has changed their perspective on what it means to be successful. A lot of Taiwanese kids struggle with feelings of inadequacy or fear, often intertwined with feelings of entitlement. It’s a strange mix. Some of our students got into Taida [NTU] but they don’t think about where that is versus the rest of the world or how they need to improve their English skills.
A lot of Taiwanese kids struggle with feelings of inadequacy or fear, often intertwined with feelings of entitlement.
TNL: What kind of issues do you come across working with the startups themselves?
They are naive. You’d think people can Google this stuff but there are still obstacles to being successful with the pitch. Their pitch decks often have vital info missing. For all startup teams that participate in our events, it’s the best form of practice as they can get tips on how to make their business model a bit more sensible, and how to be successful when they talk to other investors, because at their current state they won’t be successful.
TNL: What’s your view on the progress Taiwan has made so far in galvanizing its startup ecosystem?
ST: We are the first legal fund operating as a Limited Liability Partnership (LLP) in Taiwan – we’ve been working with the government and our lawyers for a long time to make sure this happened. Prior to us all funds used non-Taiwanese entities to invest.
We are the first legal fund operating as a Limited Liability Partnership (LLP) in Taiwan.
The other difficult thing is convertibles. Unless you're a closely held company (閉鎖型公司) [explanation here], i.e. not an LLC, you cannot accept convertible debt, so a lot of startups cannot get a valuation and therefore cannot get funding.
If they want to use a convertible they would have to have an overseas company or something other than just a Taiwanese company. Taiwan could be a bit more helpful with that, and I think the government is trying but for students with limited resources and knowhow they are not going to do that.
TNL: Is a lack of access to international finance professionals also a problem in Taiwan?
ST: Taiwan overall has less money and professional services are expensive and student startups just don’t have that money even if they’ve raised a round of funding. I’m seeing a lot more events teaching about establishing entities here, basic accounting and entity setup, term sheets, etc. They are trying to make this knowledge more prevalent, but there is still a gap in terms of how proactively young people seek this out.
TNL: How does the scene here compare with China?
ST: Xiamen is crazy. China has so much money to invest, so the issue in Xiamen is that even student-run teams’ valuations are crazy high. Students have to practice selling us and our value-add. A lot of the teams can easily get capital, so they have to know why they should go through this hassle to get US$10,000. It’s harder to find the good teams before they blow up.
Taiwan has less capital, even from professional VCs, and is more risk averse. A lot of students never get funding. Some get government grants but that doesn’t mean they know how to pitch a VC.
TNL: Is there any sense among students that they don’t need a VC as they can just launch an initial coin offering (ICO)?
ST: Taiwan is caught up in the crypto hurricane [and] has that mentality that it must be a part of whats going, but we haven’t seen students working on that. Taiwan is starting to regulate so for students to enter this space is risky.
TNL: What are your ambitions for Rookie Fund?
ST: My KPI [Key Performance Indicator] is our investments, and our multiples are doing really well. All five companies we have invested in are all healthy, most have raised capital and some have much higher valuations.
Another big objective of ours is the rookies, and how we can empower them. This year I have seen a huge transformation in all of the rookies – it’s knowhow but [also] becoming more confident in their own skin and improving how they express themselves, helping them become better public speakers or improving their mindset about what a job can be and where they want to go.
Disclosure: 500 Startups is a Series A investor in The News Lens.
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