XinHui Tan, a seasoned investor and a key figure at Paragon Capital Management, has been at the forefront of early-stage startup investing for the past three years. Paragon Capital Management is a boutique asset management firm with AUM in excess of SGD 1 billion, and its Paragon Alpha VCC runs three open-ended public market funds and two close-ended private market funds, which includes Paragon Ventures I, an early-stage, sector and geography-agnostic venture capital fund.
Based in Singapore, the fund has a keen focus on tech-enabled and deep-tech companies, addressing environmental sustainability and fostering impactful solutions.
In this interview, XinHui shares her approach to identifying promising innovators, collaboration with industry partners, and strategies to mitigate the risks of investing in early-stage companies.
Highlights
A Conversation with XinHui Tan of Paragon Capital Management
Q: Hi XinHui, thank you for joining this virtual interview. To start, could you share a bit about Paragon Ventures I and your focus on early-stage companies?
A: Certainly. Paragon Ventures I started three years ago with a focus on early-stage venture capital investing, particularly in the early stages. Our goal has always been to find innovators. From the beginning, we’ve worked closely with universities and research institutions, such as NUS and A*STAR, to identify promising opportunities. We also work closely with several accelerators and incubators. Given our finance background, we rely heavily on these partners to provide insights into the technology and support our validation efforts. Our approach to early-stage investing is deeply rooted in collaboration, where we seek good partners to ensure a high-quality pipeline.
Q: That’s very interesting. When considering an investment in an early-stage startup, what do you specifically look for in the founders?
A: When evaluating the companies, we focus on the innovators themselves. We’ve invested in university spin-outs and research institute spin-outs where the founders are often deeply knowledgeable about their technology. While they might not be business, HR, or finance experts, what matters most to us is their understanding of the technology and their tenacity to overcome challenges. We also look for founders with the vision to grow their company and are open to bringing in new skills as needed. It’s essential that they recognize the importance of building a strong, well-rounded team as the company scales and thrives amidst early-stage startup investing.
Q: It sounds like Paragon Ventures I offers a lot of support to the startups you invest in. Can you elaborate on the kind of guidance you provide to founders?
A: Absolutely. Financial governance is one of the key areas where we provide guidance. We emphasize the importance of being on top of financial reporting, accountability, and prudent spending from day one. These are crucial for avoiding issues down the road, especially when companies prepare for significant events like IPOs or M&As. We connect our portfolio companies engaged in early-stage startup investing with our network of partners to ensure they are aware of these areas early on. Additionally, we guide them along on important matters, such as HR and legal aspects, ensuring they are well-prepared for future growth.
Q: That’s very insightful. Investing in early-stage companies is often seen as risky. How do you and Paragon Ventures I mitigate these risks?
A: We mitigate risks by working closely with our founders, providing guidance, and understanding the company’s progress. Regular communication with the founders helps us stay informed about their business’s stage and challenges. However, it’s also important to note that despite our best efforts, some risks remain in early-stage startup investing. Our advice may or may not be the best. Ultimately, the founders own the majority of the business; they are the subject matter experts, and their success is also our success.share differing perspectives but respect the founders’ decisions.
Q: Building trust with founders seems to be crucial in your investment strategy. How do you establish and maintain that trust?
A: Trust is indeed the foundation of our relationships with founders. Even during due diligence, we are unlikely to invest should there be anything that causes mistrust. We look for hardworking and committed founders, and we build trust by being there to support them. Thus, we also regularly hold master classes and sessions to help them in areas they may not be strong in, such as HR or financial management. We maintain constant interaction with our portfolio companies, assuring them that we are there to help them succeed in early-stage startup investing.
Q: It’s great to hear how much support Paragon Ventures I offers. I’m curious about your investment strategies—what trends or changes in the startup ecosystem have influenced your approach?
A: Over the past three years, the startup ecosystem in Singapore has grown significantly. We’ve seen more collaboration among investors and a rise in deep-tech-focused accelerators and incubators. This is beneficial for us, as we’ve always been interested in tech and deep tech sectors. Our investment strategy remains sector-agnostic, allowing us to explore various opportunities. However, we do have a preference for unique and innovative solutions in early-stage startup investing.
Q: Can you share some of the sectors that Paragon Ventures I typically invests in?
XinHui Tan: We’ve invested in a diverse range of sectors. For example, we have a robotics company that has developed a soft robotic gripper, a membrane company focused on oil separation, and a software company for the construction industry. We also invest in cybersecurity, new materials, sustainability-focused companies, and even battery recycling. The bulk of our investments revolves around productivity and sustainability, but we are always open to exploring other sectors that align with our values and our focus on early-stage startup investing.
Q: Thank you for sharing that. Lastly, what’s a key lesson you’ve learned from your experience in investing so far?
A: One of the biggest lessons is the importance of due diligence. We’ve walked away from several companies even after conducting thorough due diligence because we identified potential issues. Proper due diligence is crucial in early-stage startup investing—it helps us understand the market, the technology, and the potential risks. Trust in the founders is important but must be coupled with a strong solution addressing a real market need. It’s essential to assess every aspect of the company before making an investment.
Q: That’s a valuable insight. Can I conclude that investors invest in startups because they trust the founders and believe in their innovation?
A: Yes, that’s correct. Investors trust that the founders can succeed with their innovation. However, trust alone isn’t enough—the technology and solution must be strong, and the market potential must be clear. It’s a combination of trust and confidence in the overall vision and execution for successful early-stage startup investing.
Lessons Learned: Essential Insights for Early-Stage Investors
Throughout the interview, XinHui Tan emphasizes the critical role of trust and due diligence in early-stage investing. Indeed, trust in the founders’ vision and capabilities is paramount, but it must be supported by a solid technology and a strong market demand. XinHui’s experience underscores the importance of thorough due diligence in mitigating risks and making informed investment decisions. For investors and founders alike, the lessons from XinHui’s approach offer valuable guidance in navigating the challenging but rewarding world of early-stage startup investing.
