Key priorities for founders and financial investors

Investors in early-stage businesses are increasing their focus on delivering sustainable and profitable growth, alongside ensuring that the business is structured operationally with the right governance, financial reporting controls and executive leadership to deliver the intended outcome of growth and profitability.

The rising middle class, with higher disposable incomes, financial inclusion initiatives, and increasing levels of consumerism has driven a proliferation of new startups and unicorns across the region. There have been 35 unicorns in 2021 and 50 in 2022 alone, predominantly in platforms providing business services and connected products, payments, and other embedded finance and financial services products.

Early-stage businesses being funded have been a prominent feature in SEA and responsible for continued growth with a total of 692 deals totaling USD $11,503m in 2021 and 326 deals totaling USD $5,612m in 2022 via Seed to Series I raises.

Given this growth and the increased numbers of financial investors; we see from our work a consistent set of trends in areas founders and investors should prioritise early given the scale of investment dollars going into businesses that are in an early stage or are scaling up.

Stephen Bates, Partner and Head of Financial Services Deal Advisory, ASPAC, Head of Transaction Services, Singapore describes “during the growth phase for these start-ups there are various funding rounds in which investors need to make sure their focus is not only on the market, their customers, products and distribution channels, but also the supporting core business activities including governance, financial reporting and controls, risk management, operations and technology security to ensure the foundations of the business are met alongside the business growth objectives”.

Referencing a recent FinTech deal; “the company provides game changing digital products disrupting traditional services however the founders have a difficult challenge to manage their time and focus on the core business activities as well as addressing investors and funding requirements. The headcount growth alone in the past 3 months moved the company from 100 people to being over 800 making their human resource challenge alone a massive task.”

Founders have unique levels of business experience, innovation and vision and typically are heavily focused on market facing activities, accelerating growth, fundraising and seeking Value Creation ideas. In more successful businesses, there is a higher level of executive leadership support across the business to mitigate operating, commercial and financial risks. The right executive leadership and businesses advisors will support the execution of the business plan, as well as bring focus and stability to the founders by supporting core business activities including governance, financial reporting and controls, risk management, operations and technology security. This means the business can be set up to meet investor expectations. Less successful businesses where core operations have not kept pace with the top line, often have weak financial reporting processes and controls and thin layers of governance, which can often lead to limp financial results or worst case financial mismanagement.

Possessing accurate and timely financial reporting information creates value for the company and allows for complete transparency about segments, markets and customers in order to make effective decision making. An established financial reporting and control framework provides investors increased comfort over the reliability and integrity of financial data used to form an investment decision.

Most early stage businesses have a lean management team and therefore the overall governance model, whilst being fit for purpose, is quicky obsolete as the business scales. This is an area in which early stage businesses can come unstuck if not properly supported from investors or other external experienced advisers. We have seen more recently a number of high profile startups fail due to poor governance, weak financial controls and consequently investors are increasing their focus in this area.

In conclusion, for early stage businesses embedding and continuously right sizing core business activities including governance, financial reporting and controls, risk management, operations and technology security will provide a robust foundation for accelerated growth and value creation and consequently meeting all of the business challenges and investors objectives.