Inside a VC’s mind: Rakuten Ventures’ managing partner Sae Min Ahn

This article is part of Tech in Asia’s partnership with The Jay Kim Show where we publish the revised transcripts from the show’s podcast interviews with top entrepreneurs. This is heavily revised from the original show transcripts. For the full interview, go here.

Sae Min Ahn is the managing partner of Rakuten Ventures, which has Japan’s internet giant, Rakuten, as its mother company.

In this interview, Ahn goes into how he looks at investments as a VC and offers some pieces of sound advice to founders looking for funding.

nWho is Sae Min Ahn?n

I run a venture capital arm of a conglomerate called Rakuten in Japan. We started about nearly five years ago to understand how to do investments in Southeast Asia in a synergistic way.

nHow did you become an investor?n

Actually, I wanted to become a journalist. I majored in broadcasting and journalism in Sogang University in Korea. But I also wanted to learn about business and started wondering about the what and why of business.

When I entered the workforce, I worked at two to three startups in Korea and moved on to Hyundai Card (Hyundai’s credit card company).

After a year, I moved to Google where I spent about five years covering things related to hardcore telesales and publisher relationships. Later, I moved on to business development, corporate development in Southeast Asia, and things related to actual investments. This kind of daisy-chained into an opportunity at Rakuten, as they were looking for a way to do investments in Southeast Asia.

Going into Rakuten, I really didn’t understand what the costs were. But it’s the kind of group where you will be given as much space as you want as long as you bring in the promised KPIs, OKRs, or overall performance that the group expects of you.

nHow do you look at investments?n

We do investments anywhere between US$1 million and US$10 million. We don’t actually put a lot of emphasis on “We only do early-stage investments,” or, “We only do growth-stage investments.” That’s because a lot of times the liquidity needs are so different in various verticals.

In terms of sectors we focus on, we have naturally gravitated—at least for now—toward tech-based companies like those related to AI, adtech, data transferal formats, and whatnot. I’m also starting to look at biotech companies.

How I look at investments has changed so much since 2013. My investments in the past were thankfully right, but they were done with so much blindness. I never really started out with a full deck.

But what I came to realize is that we simply want to invest in businesses that make sense to us. What making sense means to Rakuten Ventures is this:

nnDoes this business have some asymmetrical, informational, or sourcing advantage?nWhere is the actual relationship arbitrage coming from?nn

What a lot of people miss out on is creating the right kind of business model and cost of goods sold. People don’t understand that a lot of AI companies coming out right now, for example, have a hard time making bank just because their engineering force—no matter how high the quality is—is too expensive to develop a profitable model.

A lot of these things in relation to how you can make sense of business and how to scale it meaningfully are amalgamated into our investment thesis. One investor might say that scaling meaningfully is getting to a US$100 million revenue. But for me, I would rather scale to US$50 million and make sure you are able to manifest profitability and work from Plan C.

nHow involved are you in a business as a VC?n

Historically, we have led a lot of the rounds, but it never has to be that way all the time. There are situations where us leading is less of a benefit if there is a stronger player that can be the lead and help actively in proximity to the founders.

Moreover, we work with founders as much as the founders want to work with us. That’s the best way I can put it, as some founders know exactly what they’re doing and really want us to take a step back and simply give them advice when needed. There are also some companies that actively want our participation.

nWhat is your advice for founders looking for funding?n

The immediate red flag for me is this: a discouraged or tired founder that has made his pitch so many times that it’s become motorized and not about him being excited to meet me but about going through the motions. This tells me that the person is much more focused on completing the action rather than having an interaction with me.

But one of the biggest green flags for me is when a founder works in an industry that I’m interested in and masters his industry. He knows exactly what’s going on. He’s also able to break down all the complexities and explain them to me like I’m a Golden Retriever or a five-year-old. It actually makes me feel smart when I deal with people who manhandle GPUs and optimize their TensorFlow units.

If you’re a founder trying to get funding, know that investors will try to get something from you. They will try to learn something about the industry. When they try to interact with you, please regard this as a two-way street.

nWhat did you learn from your mistakes as an investor?n

I make mistakes every day. When I say that, I’m talking about how 20/20 hindsight is much more prevalent in venture capital to me. It’s because you sit on the board, and the latency between the decisions and the effect is very low.

In that perspective, I think one of the mistakes that I consistently made when I was just getting into venture capital was being afraid to speak up with the other board members. I assumed that they knew better. But looking back, they actually didn’t know better and they were also looking for guidance.

So, when you have something to talk about, make sure that it’s really meaningful and important to the founders. But you should never hold your tongue.

Another mistake is that I took the role of the board member for granted. And I’ve seen other board members do the same. It disgusts me now. I have so much more respect for what a board member should be and I make sure that if I am one, I fight tooth and nail for everything that I can do for the founder and the company.

Read more from this series here.