The Era Of Building A Company Only Through Venture Capital Is Gone

Chalinda Abeykoon is no stranger to starting up, failing, and bouncing back. 

After all, he has lived through the Sri Lankan civil war that went on for almost three decades. And that’s probably what gives him the stamina and energy to start up without being afraid of failing because he knows how to land on his feet.

When the civil war in Sri Lanka ended in 2009, Chalinda joined the Sri Lankan government to set up the country’s first startup incubator, Spiralation.

While people were leaving the war-torn country in the hopes of starting a better life elsewhere, Chalinda spent four-and-a-half years at Spiralation and built a portfolio of 35 companies, which were given small government grants to set up.

During his career spanning 14 years, Chalinda has headed multiple ventures, with many of them laying the foundation for startups to grow. Aside from Spiralation, he ran a startup accelerator Disrupt Unlimited, backed by textile major Brandix; a startup crowdfunding platform called CrowdIsland; and Sri Lanka’s first alliance of angel investors, The Lankan Angel Network. He was also one of the first mentors of Accelerating Asia. 

Now as a managing partner of nVentures, a Singapore-based early-stage VC, Chalinda backs founders in South Asia and Southeast Asia, who know what it is like to fail and what it takes to come out of it. 

As a micro VC, nVentures invests small checks from US$50,000 to US$500,000 in pre-seed stage B2B fintech startups focusing on emerging Asia. Set up by Chalinda, and his co-founders Imal Kalutotage and Ashok Verma in 2020, it currently has 10 portfolios across Sri Lanka, India, Bangladesh, and Singapore.

In an interview with Hedwig by The Content House, Chalinda opened up about:

• How he chooses founders to back

• How founders can build a sustainable company

• How he deals with failure

The Content House: What is your investment philosophy?

Chalinda Abeykoon: My co-founders, Imal and Ashok, and I have gone through the cycle of starting a company, scaling, and exiting. And we also come from lower-middle-class families.

When we were building our own companies, we saw many challenges, especially in raising investment. South Asian cultures tend to be hierarchical, so raising money is so much about who you know rather than what you know. We don't have a prominent background or wealthy parents or relatives. So we literally had to do everything. 

We see a lot of good startups from tier 2 and tier 3 cities, especially in India, Bangladesh, and Sri Lanka. These companies have innovative solutions to grassroots problems that people in rural cities and villages face. 

These companies come to metro cities because that's where all the action is. But since they don't have a network, they very frequently get passed by the usual VCs.

We primarily look at these kinds of startups. Our portfolio has about ten companies and 90% of them are from non-metro cities. Since we come from similar backgrounds, we feel that we can connect with the founders at a personal level. 

Because we've been through that startup journey, we know who is bullshitting within the first 30 minutes. Each of us knows coding, business development, and sales. We’ve built cultures, and hired for multiple roles. Whether it's tech or non-tech, we have hands-on experience that comes with building a company.

We don’t look at funding unicorns or anything like that. What we look at is unit economics. We want to help founders build sustainable companies, zebras and camels every day.

We focus on building a business through revenue and not so much through venture capital. So we are slightly different in our approach. Two to three companies out of our ten portfolios are already cash flow positive on a month-on-month basis. 

The Content House: How do you pick startups? And how do you know a founder is truly exceptional?

Chalinda Abeykoon: It’s common for investors to say they invest in founders. But what does that mean? 

For us, it means we invest in founders who have taken risks in their lives. 

Even before listening to a founder’s pitch and understanding what they're trying to solve, we want to know them and the kind of risks they have taken in the past. Have they failed in the past? 

We prefer founders who have skin in the game and who have faced failures, yet they rolled up their sleeves and are doing the work.

At the initial stages, you have got to do things that don't scale. And primarily a lot of it means that you're doing things that make you uncomfortable, that's outside your comfort zone.

When we look at entrepreneurs, we look at how uncomfortable founders are because that's extremely important. Sometimes you get great founders, but they are so obsessed about being successful that they don't take any risk outside their comfort zone. And that's usually a red flag.

We generally don't invest in idea-stage companies, but we have invested in one or two purely because the founders have built a company before and they knew how to attract talent.

Revenue is not a deterrent for us, but we prefer companies that have some level of traction. We want to know if you have users and how fast you onboarded these users. For example, by the time you come to us, it is always better if you have acquired 1000 customers running a pilot for two weeks versus acquiring 1000 users after running a pilot for the last six months. The first option is always better because it shows that the founder has understood the nitty-gritty of the business.

Chalinda Abeykoon, Managing Partner at nVentures

The Content House: Funding hasn't bounced back yet, globally. What advice do you have for founders at this point?

Chalinda Abeykoon: It is not just a South Asia thing, it's a global one. Exits have been delayed for the last couple of years, so LPs haven't got their money back. And because of this, they can't invest money into new venture capital funds. The venture capital funds thus cannot invest in new companies. It's a cycle, where everybody's connected.

What's important for founders is understanding how you build a company through revenue and not through venture capital. The era where you built a company through venture capital and only on venture capital is dead and gone with the pandemic itself.

Barriers to entrepreneurship, barriers to starting a company, or the cost of starting a company have drastically reduced in the last ten years. Any kid can build a company if they have a laptop and Internet connection.

I studied software engineering and learned how to build an e-commerce website in the early 2000s when eBay was coming up. But nowadays, you don't need a software engineering degree to build an e-commerce website. You just go, drag and drop. There are plenty of sites like Wix.

So launching a company is super easy, but building a business and getting paying customers is still very hard. And that's where a lot of entrepreneurs fail. It's not a case of a lack of good ideas. It's about business acumen. So that's where the gap is.

And the advice for entrepreneurs is that from day one, you need to be thinking of making revenue. There are certain business models, where you can not do that. You go into losses, primarily in B2C. But we are not into those businesses.

If you want to be an entrepreneur, you have to think through and understand how you're going to make money. You have to think about the use case, narrow down your customer, and validate your value proposition. Then you need to validate your MVP early on and hit the ground running.

The Content House: How do you build a sustainable company at the early stages?

Chalinda Abeykoon: There isn't a one-size-fits-all model. But if you're building something, you need three things. You need somebody to build whatever it is that you're building. You need somebody to sell. And you need somebody to keep everything together

Often we see all founders working on development. There is no responsibility assigned—who is responsible for going and selling, who's going to knock on doors, who's going to send those cold emails, who's going to pick up the phone and call people, etc. Irrespective of how many co-founders you have, these responsibilities should be allocated.

But each company is different and has its own nuances. So it’s super hard to say, this is what you need to do.

Having said that, you at least have to have some domain expertise. You have to understand the customers' pain points. And, you really need to be able to put yourself in the customer's shoes. It is ideal if you solve a pain point that you have faced rather than building something that you see as an opportunity in the market.

The Content House: When you look at founders, you said you look at how they have failed and how they have come out of it. Is there any personal story involved?

Chalinda Abeykoon: All three of us have faced multiple failures in business, in life, and across every aspect. That's why we feel that's something very important.

But if you haven't failed in your life or if you haven't gone through any hardships, it doesn’t mean you can’t be an entrepreneur. You can definitely be an entrepreneur. But then, if you don’t have experience, it can become overwhelming for you to bounce back. Again, it depends on individual to individual.

But, it's probably one of our biases and it's mostly because we have a similar background. If you take me and Imal, both of us lost our fathers when we were young. And because of that, we've had challenges growing up. But that never really stopped us from doing whatever the hell that we wanted to do.

I used to play cricket in school and we went to India to play matches. There were times when we lost matches. But we also won many matches.

From a business standpoint, I have failed at a business I started. Initially, it was going really well, but it failed because of different things that happened in the market that were outside my control. But then, I can't blame everything on the market. I should have anticipated those things. This is how you learn.

A couple of times I've hit rock bottom. I had been without any money. But then I started building again. In business, I partnered with the wrong people. I got screwed. I worked without salaries. I got screwed on my equity. But, I don't have any hard feelings about any of these things now because you learn.

Every person that you meet, you learn something. In every situation, there is learning. You learn either a version of yourself that you want to be, a characteristic that you want to have in yourself. Or you learn a version that you don't want to become, you learn a habit or quality, you don’t want to have. So every person that you meet has something to teach you.

It depends on your perspective on life. I can look at it and say, oh,  this person screwed me, I'm going to take revenge. Or the other way to look at it is, you know what, I never want to be that person.

The Content House: What would your advice be for founders and aspiring entrepreneurs going through challenging times?

Chalinda Abeykoon: Unfortunately, if you're an entrepreneur, you're going to go through some hardships. But the reality is that you're on your own and it sucks.

The way around it is to build a close circle of support like mentors or friends. Ideally, if you're lucky enough to have relatives, that's great. If you can have a mentor whom you meet at least once a month or at least once a quarter, that's brilliant.

A lot of entrepreneurs are obsessed with building followers on social media these days. None of those millions of followers are going to help you. So the number one thing is to build that trust circle, at least one or two people who will support you when things go south.

In today’s time, by and large, everybody's an entrepreneur. Even if you don't start a company, you still have to be an entrepreneur within the organization you work with.

In the early stages, you have to love uncertainty. You have to love failure and the chaos that comes with it. And if you don't, then that's a good indicator that you're not ready to be an entrepreneur. Facing hard times is a good litmus test because entrepreneurship has become so easy.

I fail on a daily basis. There are hundreds of things that I want to do. And I'm pretty sure I'm going to fail at least 60% of them, but it doesn't bother me at all.

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