“If they fail, how much do they owe you?”
The question came from the crowd gathered at downtown innovation lab, Phandeeyar, in Yangon.
Max Fram-Schwartz, a principal at Silicon Valley investment firm and accelerator 500 Startups, had explained his company injected small amounts of capital – generally about US$100,000 – into many different start-ups.
Now, a member of the audience wanted to know what would happen if one of the fund’s bets went belly-up.
“If you fail and lose our money, you don’t owe us anything,” he said. “We made an investment. A lot of our companies fail. We don’t go after them and try and get money.”
While equity investment has become the new norm in ecosystems like Silicon Valley, it is slow to grab hold of Myanmar. Some founders lack experience with the funding process and investors struggle with the start-up scene. For now, money flows in from outside, with local investors more accustomed to backing hard assets than risky start-ups.
“They do the big deals,” said Guy Eugene, managing partner at Myanmar Investment Group. “Most people I met the last two years, they don’t know that private equity, venture, exists.”
Education can only do so much to bridge the knowledge gap around starting up businesses and fundraising – and experience can be the best teacher, according to some.
“I can’t remember exactly the course that I took about investment,” said Ma Soe Sandar Oo, who graduated from the Yangon Institute of Economics with a Bachelor of Commerce.
“But what I can say is that subjects I took at school were not enough to run a business outside.”
“To be a startup, you have to work for a startup. That’s where you learn the really hard skills about investment, raising funds,” said Ko Min Zeya Phyo, founder of Myanmar start-up Code2Lab.
There is a lack of information in the ecosystem around raising money, according to Josephine Price, director at local investment firm Anthem Asia.
The company compares the investment process to courtship: from dating to getting engaged to getting married. “There’s not an understanding there,” Ms Price said. “There haven’t been really any success stories, exits yet.”
In a market without a stock exchange, options to earn investors returns are limited. A marked lack of proof of concept can keep local investors at bay. And some still operate under old rules around investment that don’t apply to the start-up scene.
Local start-up CEO Ko Wai Yan Lin said founders could not rely on wealthy Myanmar individuals for backing. “The concept of investing in start-ups is very risky and the local people aren’t used to this culture and they don’t want to lose their money,” he continued.
Many of these funders have more experience in industries such as real estate rather than tech, where start-ups abound, according to Mr Fram-Schwartz – and they require some coaching to leave old habits behind.
“How do you explain to a wealthy individual who made money in real estate how to think about investing in start-ups? Right now they think, ‘It’s the same risk as investing in real estate, you have to give us 50 percent of your company and we’re going to give you no money,’” he said. “I’d focus less on trying to drag investors here and more on [how to] educate the investors that may already be here.”
Conditions in Myanmar remain challenging around investment and building a business. In a difficult climate, at least one firm has turned to old standbys.
“The issue is ... limited banking, no capital market, limited education about business in general, no business plan,” Mr Eugene said. “But that’s why we’re here. Back to basics of private equity.”