Profile: 500 Startups' Khailee Ng

Having completed 216 flights in 2019, Khailee Ng is now grounded. The managing partner for 500 Startups in Southeast Asia is responding to his coronavirus-imposed immobility in Kuala Lumpur by indulging two of his passions: physical exercise and content creation. “I’ve been working out a ton, I tell my friends I want to get prison-jacked,” he says. “I’ve also been writing and researching more. We’ve done webinars and I’m even producing a daily newsletter.”

To those familiar with Ng, this response should come as no surprise. He is a bundle of energy and ideas, known for persistent networking and being enthusiastically candid during panel discussions. If he weren’t exercising and writing, he would probably be bouncing off the walls of his apartment.

Success came to Ng at a relatively young age – he had exited one start-up and listed another before his 30th birthday – but happiness and fulfillment were elusive. It took about three years and a career switch into venture capital for the loneliness of the self-obsessed, validation-seeking founder to abate. And the final phase of this transition amounted to a significant lifestyle choice: Ng put his apartment up for sale, gave away most of his wardrobe, shopped only for necessities, lost weight, got rid of his glasses, cut his hair short, and turned vegan.

“My experiences set me up to be really bold. That’s why I lead my life with a certain degree of boldness now. The worst-case scenario is I fall back on a pretty comfortable life. I’m not crazy rich but I’m more comfortable than I expected to be when growing up,” Ng says. “Where I’ve landed in terms of personal happiness, you just come up with your own game. It doesn’t really matter what other people are doing. Happiness comes when you stop comparing yourself to others.”

This should not be confused with a lack of ambition. When Ng pitched a Southeast Asia fund to 500 Startups, the firm had little or no presence outside the US. Six years on, there are two 500 Durians funds; a portfolio of more than 200 companies, including two unicorns (ride-hailing platform Grab and e-commerce player Bukalapak) and one near unicorn (C2C marketplace Carousell); and an impact investment tie-up with the United Nations Development Program (UNDP).

Despite bringing a US venture capital firm to Asia, very little of Ng’s career has been spent in the US. He characterizes himself – and 500 Startups – as an outsider and draws strength from this designation. “Christine [Tsai], our CEO, has a chip on her shoulder: she comes from a migrant family and is a woman in a mostly white VC world in Silicon Valley,” Ng says. “We speak multiple languages and we know what globalization feels like. This gives us a unified sense of purpose, which is to uplift people and economies through entrepreneurship.”

Nokia dreams 

Born in Malaysia and largely educated there, Ng recognized the transformative power of the internet from a young age, albeit with a very different end-goal in mind. He wanted a Nokia 3210; at least, he did until the 8210 was released. Coding came relatively easily. Ng’s father, a mechanical engineer in the oil and gas industry, ensured his household was equipped with the latest computers in the 1980s and 1990s. All three of his sons ended up working in the internet industry in one way or another.

Ng, the middle child, saw website design as the best way to top-up his relatively meager allowance and indulge in retail therapy. He would pore over newspapers, noting the advertisers and then checking to see if they had an online presence. Those that didn’t received a phone call from Ng offering his services – during which he would lower his voice to try and sound like an adult.

“You could take any part-time job as a teenager, save up for a year or two, and you would never be able to afford that phone. Building websites seemed to be the most scalable way to get money,” Ng recalls. “The best thing my parents did for me was to leave me alone. I had decent grades, I wasn’t getting in any trouble, and that was enough. It took them years to understand what I was up to.”

This corollary between the internet and wealth was underlined in his first job out of university, working for MindValley, a start-up co-founded by Michael Reining, formerly head of new ventures strategy at eBay. It designed online personal development courses in conjunction with leading authors in the field, one of whom was profiled in “The Secret,” a smash-hit 2006 documentary. A project with that author accumulated $2 million in sales within two weeks.

Keen to find similar success with his own business, Ng teamed up with Joel Neoh, a friend, and pursued various ideas. The breakthrough came in 2010 with Says.com, a social news network. Two years after launch, the company was generating more traffic than the websites of Malaysia’s major newspapers. At a time when Google and Facebook were sweeping up the banner ads market, Says.com maintained its profit margins by staying away from that advertising format. Instead, the company pioneered sponsored content in the country.

“I hated banner ads, I thought they were evil and annoying,” Ng explains. “When advertisers approached us about banner ads, we said: ‘You need to buy banner ads because you aren’t newsworthy. If you were newsworthy, people would be writing about you, so let’s brainstorm a newsy way to tell your story and we will create sponsored content.’”

Says.com went public in 2013 through a reverse merger at a valuation of MYR$60 million ($20 million). The company was rebranded as Rev Asia Holdings and two bolt-on acquisitions followed. Four years after the listing, Media Prima, Malaysia’s largest traditional media company, acquired Rev Asia for MYR105 million. Says.com is still in operation as a Media Prima subsidiary.

Ng’s second start-up was born while his first was still growing. Neoh suggested they build a Groupon clone to monetize traffic from Says.com and Groupsmore launched about three weeks later. Within three months it was Malaysia’s largest group-buying site, and two weeks after that, Groupon emailed customer support to suggest an acquisition. A sale concluded in January 2011, four months after launch. Neoh became CEO of Groupon Malaysia and subsequently ran the entire Asia business.

“When I look at the valuations of the companies I’m investing in today, I never got anything like that. But for a 29-year-old, I was very rich,” Ng observes. “At the same time, I was unhappy. I felt like the exit wasn’t big enough and I wasn’t living up to my true potential. In retrospect, that was bratty. I asked myself if I should set up another company. But just as an actor from Malaysia wants to go to Hollywood, a tech guy from Malaysia wants to go to Silicon Valley.”

A new path

He went to parties, made friends, and received introductions. One of them – through Reining – was to Dave McClure, co-founder of 500 Startups. The firm struck Ng as different. Whereas most VCs in Silicon Valley struggled to find Malaysia on a map and were only really thinking about China in an Asia context, 500 Startups had some local knowledge. It had invested start-ups in the Philippines and Singapore. The latter company, video streaming site Viki, was acquired by Rakuten for $200 million.

Ng offered his services as a mentor for batch five of 500 Startups’ accelerator program. A year later, he suggested they raise a Southeast Asia fund. Ng would be responsible for fundraising and management; 500 Startups was only being asked to put its reputation on the line. Nevertheless, it represented a leap. The firm now has 17 thematic funds dedicated to certain geographies or verticals alongside its five global funds, as well as over 100 team members across 20 countries. Apart from an accelerator in Mexico, this global footprint came after the Southeast Asia fund.

500 Durians I launched in June 2014 with an anchor commitment from Mavcap, a venture capital firm established by the government. High net worth families and individuals also contributed capital. The corpus was originally $10 million but a decision was taken midway through the investment period to increase it to $25 million. Given Grab, Bukalapak, and Carousell were among the first six investments, LPs had good reason to be happy.

“I really should have ended my career there. I should have dropped the mic and just left and become a ballerina or a movie producer or something,” Ng jokes. “But I pressed on.”

Fund I made seed-stage investments in 120 start-ups. After the three standout performers, a handful of companies are onto their Series B and C rounds. In each case, Ng made a note of why he invested and translated the findings into a five-point evaluation system: Does the founder have a competitive advantage over others? Can the business model generate a multi-billion-dollar outcome? Is the valuation low enough for 500 Startups to make a 3x multiple? Is the business model proven to acquire customers and deliver sustainable unit economics? Are customers returning to the product?

Running the numbers, he discovered that start-ups capable of meeting the first three criteria had a much higher chance of success. Meanwhile, a string of companies showed evidence of strength in the last two but never amounted to anything. Given the importance attached to the quality of the entrepreneur, what are the characteristics that define Grab co-founder Anthony Tan, for example?

“I would say Anthony is one of the most competitive, intense and focused entrepreneurs you will ever find,” Ng says, adding that his mistake on Grab was to underestimate the market rather than the entrepreneur. “Sometimes the quality of entrepreneur is shaped by the thrust of the market and the journey of the company. A killer entrepreneur doesn’t guarantee you a killer outcome. You need a combination of the market and the model and the entrepreneur to come together. And you want an entrepreneur who has a personality fit with the business they are trying to build.”

Founders have changed as Southeast Asia’s start-up ecosystem has evolved, but there are three tells Ng watches out for. First, an entrepreneur must be singularly obsessed with his or her company. Second, they must take ownership of the founder identity and do whatever it takes to be successful. Third, they must take something and run, following up immediately on action points. He also pays more attention to co-founder dynamics than before; his first three failed investments came as a result of internal disputes rather than operational flaws.

Ng has no desire to become a founder again: he believes his personality type – thriving on the realization of different ideas – is more suited to venture capital. And then there are plenty of ideas for developing 500 Startups. A third Southeast Asia fund will come; maybe larger than the $50 million raised for Fund II, but Ng is wary of exceeding $100 million. Beyond that, he wants to make better use of data – for example, getting granular enough to correlate success to a founder’s educational background – and do more to promote the stories behind his portfolio companies.

A more ambitious goal involves advancing the scope of technology so it can reach new markets and entrepreneurs and address more problems. If Harvard-educated Anthony Tan is the kind of founder 500 Startups backed in its first iteration, maybe Gibran Huzaifah is the poster child for what comes next. He grew up in the slums of Jakarta and went through college with little to eat and at times nowhere to sleep. Becoming a fish farmer to pay his way through school, Huzaifah built an automatic feeding mechanism. EFishery, which now sells fish futures as well as feeding devices, has a valuation of $100 million.

“You don’t just have to go for the guy from the good family who went to Harvard, you can go for the guy who came from the streets, and he may have success as well,” says Ng. “There will be more first world unicorns, but there are many stakeholders now on the internet who weren’t there before – farmers, micro-SMEs, the rural poor. They are the next billion users wanting products and services, so that’s where we will find large, unsolved problems.”

Impact angle

This agenda was what led Ng, somewhat reluctantly, to the UN General Assembly in New York in 2017. He felt out of place sitting on a panel alongside global institutions with large impact investment allocations, especially given he only looked up sustainable development goals (SDGs) on the internet while traveling to the venue. However, when these investors said they had trouble finding companies that could offer impact and scale, Ng was shocked and then suddenly talkative. Alodokter, eFishery, FinAccel – out came a list of 500 Startups investees that meet at least one SDG.

“I told them, ‘These companies don’t call themselves impact investments. You need to be in the business world and identify a subset of commercial companies that matter to the SDGs.’ They said that wasn’t efficient. We were having this very heated discussion, and you’ve seen me on stage, I don’t hold back. The audience broke into applause midway; that had never happened in a UN panel before. After we finished, people were energized, saying we must find a fix for this,” Ng recalls.

It took more than 18 months for the fix to arrive. ImpactAim Indonesia, an accelerator program run by 500 Startups and the UN, took nine companies into its first batch. This culminated in a demo day in Singapore attended by 90 impact and non-impact investors. Some of these start-ups have raised follow-on funding through connections made on the program.

“The opportunity sets we are pursuing happen to map very well to impact investing. We can become a feeder for impact investors, whether that means we launch an impact fund, whether we ensure all our funds have good impact measurements, or whether we work with LPs that want more in terms of ESG [environment, social and governance] and impact,” Ng adds. “Impact is going mainstream. In two years or so, there won’t be any form of VC without impact measurement.”

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• Topics
• Southeast Asia
• Technology
• GPs
• 500 Startups
• TMT