Death of the IPO Market? 12% Private Equity Allocation Rule (FH Podcast)


This week’s Podcast guest is a J.P. Morgan investment banker turned startup founder.

Kelvin Lee was previously at J.P. Morgan working on IPOs across Asia, and has raised over US$20 billion for clients in the course of his professional career.

Today, he is co-founder and CEO of Fundnel, a private investment platform that matches private companies with investors who are looking to invest.

I had the chance to sit down with Kelvin to learn about his thoughts on career advice for young graduates, the decline of public capital markets, and why growth stocks are the best bet for young investors.

Basics: What is Fundnel

Fundnel is a private investment platform that leverages technology and data to curate opportunities in growth & pre-IPO companies for their global network of 10,000+ investors. Fundnel is headquartered in Singapore with a growing presence in 5 countries across Asia Pacific. Since inception in 2015, the total value of deals launched on the platform exceeds USD1.8 billion with 34 transactions completed to date.

Online-based private investing is going to be a fairly new concept to most people, and we’re evolving what we do every day to help create a fairer and more transparent private marketplace for businesses and investors of all stripes”. – Kelvin Lee, CEO of Fundnel

Highlights Video

Watch the 10 minutes highlights on YouTube (don’t forget to Like and Subscribe!):

Full Audio Interview

Listen to the full conversation on iTunes here or just click PLAY below:

Text Highlights

For those who are pressed for time, text highlights are set out below.

There’s always a learning opportunity [1:35]

People don’t always get to choose how they start their career. However, bear in mind that things happen for a reason and there’s always a learning opportunity in whatever career you are in. Set your mind to fully absorbing every piece of information you come across, in whatever career you are in.

Running a company is like giving birth to a child [3:00]

This has been a journey of self-discovery for me. The biggest change is learning about myself, finding out what drives me.

Why am I doing this? What difference am I making? What am I going to tell my kids about what I do for a living?

Fundnel is about making a difference to capital markets in our region, rebuilding capital markets for the next generation of entrepreneurs and giving millennials a chance to invest in companies around us.

Hone the right skillsets to future-proof yourself for the next 20 years [5:05]

Think about what you want to do with your life before shoehorning yourself into a career. The traditional banking industry has changed. Jobs in traditional industries are becoming replaceable. I would think twice about going into traditional industries without thinking carefully about what you want.

When you are young, use the time to learn, make connections and broaden your mind rather than being hung up about which job will pay you more. Hone the right skillsets to future-proof yourself for the next 20 years.

Growth stocks and the 12% Private Equity Rule  [9:30]

As a young investor, I would pursue only growth stocks, instead of yield and dividend stocks. I want my money to double. Invest in companies that would make a difference to your portfolio. You are only young once.

Allocate to private equity instead of public equity. Diversify into a basket of private equity type opportunities. Fundnel can do this for young investors, to allow them to diversify without the cost of onboarding with traditional P/E funds.

Public markets’ returns are shrinking. It’s a race to the bottom about whom can get the same basket of public listed stocks with the lowest cost. It’s getting harder and harder to make a 7.5% return without allocating to higher risk investments. Reports shows that to make 7.5% return, you need to have a 12% allocation to private equity. It isn’t about expanding your portfolio, it’s about allocation.

Setting up my kids for success [13:50]

When they are born, I set up a child development account which the government matches. There are also some accounts in CPF that give you a 4% return, which is honestly higher than what a lot of people can make for themselves on a sustainable basis. Compounding is the most powerful force in the universe. By not touching the money and investing early, this would set my kids up for more than enough when they come of age. I also invest for them growth companies (rather than yield/dividend companies) which will really make a difference in their account.

Death of the IPO market? [19:50]

Structurally, capital markets weren’t built to support small offerings or smaller raises. Many people complain about the Singapore exchange – lack of good companies to invest in + liquidity. The first variable is the shrinking demographic. The second is what they can make available to be listed on the exchange. If you do lower the listing requirements, the fees to be made become smaller but the cost structures are the same. This doesn’t solve the issue of smaller companies seeking growth capital.

At Fundnel, we screen 50-60 new opportunities every week and launch 2 deals every week with a team of 5 persons. In the first year we launched in 2016, Fundnel completed 15 transactions, raising USD 49 million. In contrast, in the same time period, the Singapore Catalist Board supported 11 deals, raising USD 77 million, with the support of 12 banks. The cost structures are very different. In this regard, building a structure powered by technology to support small offerings makes a big difference.

Common factor for successful companies [26:05]

Our system actually weeds out 80% of companies that come through us based on quantitative screening, which tells us how they rank compared to their peer set in the same industry/geography, thereby allowing our investment team to prioritize our time on the remaining 20%. Of that 20%, 5% are launched to our network of investors, and only about 1% is invested. To date, we have completed 34 transactions, raising over USD 1.4 billion.

These companies are not trying to be next unicorn, but they are trying to make a difference to the real economy we are living in. To solve problems that you and I face. Investors in this part of the world are looking at demonstrable revenue and companies with good execution.

Who would you like to hear from next on the FH Podcast? Share your suggestion below! I respond personally to all comments!

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