Buyers and Builders
00:05:30 · Eric Tan
[00:05:30] S1: I'm definitely kind of one of these guys, right? I think how I went into the startup was really I found an idea that I thought I can uniquely relate to as a consumer. And I went into it knowing that it's going to be hard, but it is like one of those things where, you don't really know how hard it is until you get yourself into it, I walked away with a couple of learnings as I was reflecting on it, I think on a more professional level, I've realized that it is very difficult to fight against macroeconomic structure and and kind of long term tailwind. You just purely using a willpower as a as an individual, right? Because I launched a startup in a market where I knew it was quite difficult to raise external funding as an entrepreneur, but I kind of just went for it, like, as with all entrepreneur, our mindset is, okay, let's let's just go with it and see what happens, even though you know you're swimming against the tide, but at the end of it, I I realized that it's impossible for me to bend reality to wheel in in the market where just it's not favorable to to build startups. So, it's like for example, in Malaysia, it's not a very big market. A lot of investors would want to invest in in a big single market and someone is building something similar in China would would command, let's say, like, times the valuation just simply because the size is bigger. So it took me, like, really, really in the face to to to really understand, hey, You can't fight against a macroeconomic structure. It's just against your favor. And from then, like, moving forward from from then on, I became a lot more conscious around finding opportunities that really fits well with the long term trend and and overall kind of macro structure, I don't swim against the tide because I've been there, done that. I find it just unnecessarily difficult to to do that. On a more personal level, I think it taught me to be a little bit more empathetic. It humbles me because before that, I was doing a a bit of investment, investing in startups here and there as Angel as part of the fund, and it is quite easy to say, hey, go do this and go do that, mister founders, but in reality, it is never as simple as in in theory.
00:07:42 · Eric Tan, Mikk
We can put the best PowerPoint and excel up and tell the founders to fire a bunch of people or change a business plan, but the reality is, it's just, it's just, it means nothing if you can't execute it, which I think in, it, weirdly, it makes me relate a lot better with founders and businesses in my role today, as a serial acquirer, I think, for, for, for most cases, I think founders understand they have been through the trenches, it gives you a little bit more respect, and they understand that it did not come from a place of arrogance, but it come from a place of, in some sense, pain and, and, and, and learnings from the past. [00:08:21] S0: Okay. Now the Catcha Digital, the portfolio today, how do you structure it? Because you said you have three pillars. You have those events, software, and also digital media. Yep. Is it decentralized, centralized? How do you run it? How do you structure it structure?
00:08:42 · Eric Tan
[00:08:42] S1: It it is generally quite decentralized. So the way you structure it is that there's a HQ team that does all the M and A and the corporate development work. And then within the three pillars, there is a head of the business. So today, media is about digital media is about 85% of the whole group. It's comprises of close to about 250 employees. There is a management team that runs a business on a day to day level. Their basic remit is to hit the p and l budget and cash flow target on a year to year basis and work with the HQ team on any add on or bolt on acquisitions. So it is a buy and build sort of approach where we have a platform assets and we buy a bunch of synergistic business and bolt it on. So, our kind of relationship with the CEOs would primarily stem from four things. So, one, on a monthly basis, we sit down as board meeting to make sure that, you know, we are moving towards the right direction, executing the business plan, and if there's any sort of, incidents that happen, we wanna know the board level, making sure that we hit the numbers. Number two is primarily around funding. So let's just say the CEOs wants to invest in building billboards, Right? It's it's a business that we're getting into these days. It requires $10,000,000 of of CapEx. Then how do we go about funding it? Is this a good idea to to go into this business organically? And the HQ team will work quite closely with the operating CEOs to really decide what's the right thing to do. And the third bucket is split into kind of three point one and three point two in that we spend a lot of time to see us to think about who to acquire. And it comes both ways. Right? So one direction would be the CEOs might see a company on a day to day basis, might be a partner, might be a competitor that they meet in the market and say, hey, Eric, I would like to acquire this business. And you'll come to us and and teach a business case, and then we will, you know, work with him to figure out whether it's a good idea, and if we think it's a good idea, then our HQ team will come in as like a outsource corporate development team to help run the deal process, so that he doesn't get bogged down by the deal making process, but he continue to focus on driving the business, and he gets involved as and when we think it's helpful to come in, to talk about the plans going forward, etcetera.
00:10:59 · Eric Tan, Mikk
And and kind of the offshoot of that is that quite often, we, from HCO would meet a lot of companies that we think he should buy, and then we would then have to go back to him and pitch a investment case to him. So by and large, this would be how we operate across all the, all the three pillars. Some are more active in bolt on, some are less active, but this would be kind of overall picture of how we operate, so, kind of just to summarize it, the, the capital location is centralized, at HQ, we manage treasury as a whole, we work with the operating company to, determine the future direction, but it's very much decentralized and driven by the management team of the respective pillar, and we try not to get involved. So the overarching principle is that we don't want to be the smartest person in the board meeting. It it should be the management of the of the respective company, and we support them as and when we we think we could help with capital, it could be... We could help with network relationship, or even kinda cross portfolio companies' synergies. But as much as we can, we try to get out of their way. [00:12:03] S0: And how is it to manage those three separate pillars? And what I mean here is that are you planning to add new ones if you see a good opportunity or you just kind of stick to those three and go and expand from there?
00:12:03 · Mikk, Eric Tan
[00:12:03] S0: And how is it to manage those three separate pillars? And what I mean here is that are you planning to add new ones if you see a good opportunity or you just kind of stick to those three and go and expand from there? [00:12:14] S1: I think I think for the near future between one to two years, we will seek to these three pillar, but internally, we're actively looking for for the fourth pillar. The the good the the good thing is that as we scale the pillars, it gets easier and easier to run it. So media today, sorry, like B2B expo is something that we went in last year. So today, it is like the media portfolio four, five years ago, where we're still trying to kind of find a good cadence. So today, our media business is quite skilled. It's quite stable. The team is quite experienced now and things gets easier. So, it's kind of like, we, we are trying to manage it such that, before we extend ourselves to a new pillar, the existing pillar are already stabilized and we can actually manage quite well. So but to answer your question, we do not plan to expand immediately, but we are actively looking for a third sorry, a fourth pillar. [00:13:05] S0: You said the CEO sometimes come to you with some acquisition opportunities. Yep. And at the same time, doing the research on you, you've said that you buy roughly one company out of every 100 you review. So two questions. What causes the other 99 to fail? And how do you generate such a deal flow?
00:13:05 · Mikk, Eric Tan
[00:13:05] S0: You said the CEO sometimes come to you with some acquisition opportunities. Yep. And at the same time, doing the research on you, you've said that you buy roughly one company out of every 100 you review. So two questions. What causes the other 99 to fail? And how do you generate such a deal flow? [00:13:29] S1: Primarily, it fails for a few reasons. So one would be... The the most obvious one is valuation expectation, I I would say, that often kills a deal. The second most likely would be people. I think it's quite easy to find good deals on paper, but it's quite hard to find companies with the right culture fit, and I think that has always been the trickiest part. So we have definitely walked away from many deals that is on paper looks really good, but actually, when it comes to culture fit, it is a big red flag. And how do we normally find find out other than just talking to them, talking to the founders is before we get into the sector, we would have spoken to everyone in the sectors, including all the competitors, and what we like to listen, look for in terms of sign of whether they are good kind of companies would be how the competitors are talking about them. And the single line that we love is that, Eric, we have competed with these guys. We absolutely hate them, but they are really good and we have huge professional respect for them. And that's what we like. Are competitors, but I respect you because you're just so good.