The Australian VC who funded PropertyGuru and Chope isn’t interested in your valuation

Paul Bassat, co-founder and managing partner of Square Peg Capital. Photo credit: Square Peg Capital

Square Peg Capital raised a US$180 million fund for startups earlier this year. The Australia-headquartered VC has investments in its home country as well as in Southeast Asia, Israel, and the US. Its portfolio includes an early small stake in Uber, Australian graphic design firm Canva, and Singapore’s PropertyGuru, Chope, and Wego.

Paul Bassat, Square Peg’s managing partner and co-founder, is an entrepreneur himself, having co-founded jobs site Seek in 1997. And before he invests, the last thing he wants to hear from founders is their company’s valuation.

In Bassat’s mind, an entrepreneur who’s too eager to push a number on investors risks putting them off, as they might find the proposed valuation too high. Then, if the entrepreneur haggles, investors might think this sounds too desperate or betrays lack of confidence in the initial proposal.

“Raising money is as much about psychology as anything else,” Bassat tells Tech in Asia. Also, if investors value your company at a certain amount and you come to them with a lower price in mind, it’s your loss. “I just don’t think you’re doing yourself any favors,” he notes.

More importantly, that’s not what you should be focusing on as a founder, he adds. “We want to meet folks who are just passionate about running the business. So there’s a little bit of a turn-off when they come along with valuation comparatives and talk more like investment bankers.”

Growth potential

Square Peg invests in technology businesses that can target markets with high potential and address real problems in them. In Southeast Asia, the VC has invested in property portal PropertyGuru and travel search engine Wego. Most recently, it funded restaurant finder Chope and services marketplace Kaodim.

The VC’s 27-strong portfolio also includes payments provider Stripe, US-Israeli big data weather predictor ClimaCell, and freelance services marketplace Fiverr. It’s had one exit so far, with Texas-based logistics software builder Shipping Easy selling to competitor Stamps.com for US$55 million last year.

“[These companies] have platform or marketplace dominance to them,” Bassat says. “They are very, very scalable businesses. We love scalable businesses. And that’s not just financial scale, it’s organizational scale.”

You have a list of things that you want to do. On most days, you can’t get to any of them.

This means that as the business grows larger, it doesn’t get proportionately harder to manage. “Contrast that with ecommerce-type businesses, where the level of complexity just keeps growing and growing as the company gets bigger and bigger,” he explains. “The number of agents [on PropertyGuru] has probably doubled since the time we’ve been involved in the business. It’s not two times more complex to deal with double the number of agents.”

A common refrain of investors outside Southeast Asia who hesitate to invest in the region is the lack of local knowledge and presence on the ground. Square Peg counts on the expertise of its portfolio companies instead of trying to learn everything itself. Working with local investors who go into deals with it is also part of Square Peg’s strategy.

“We feel we understand those markets well enough to make investment decisions. But in terms of actually executing and running a business day to day, we’re relying on incredible local knowledge and expertise,” Bassat says. “And what we bring perhaps in this case is strong domain expertise in terms of understanding how to scale marketplace businesses.”

To accomplish this, Bassat tries to keep his hands off the wheel when working with a portfolio company. “The way I think about our role is to push and challenge if we do have questions. But ultimately, it’s really to back management,” he says. “And it’s very, very easy as a former CEO sitting on the board to think, ‘Oh, why can’t they do this?’ or, ‘This is easier. Why can’t they do more things?’”

Cheering from the sidelines

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