Based on our experiences, each region of the world has its own way of dealing with due diligence and coming to terms with investors.
In North America, we have found that a deal is discussed, often upfront, and once agreed, anything approaching a formal investment only comes after a seemingly endless process of due diligence queries. Often this necessitates the establishment of a data room by the investee business and weeks of dedicated effort furnishing the requisite information.
If you are successful in working through this often arduous task, then it’s contract time – and a process of trying to anticipate and document every possible future scenario and the consequences that may arise therefrom, which might well result in a contract of 100 pages or more.
Practitioners of this North American style of due diligence and documentation would claim that anything less rigorous, will dramatically increase the chance of a failed investment and indeed leave the investor at risk of being exposed to something that diminishes their potential investment returns.
In Singapore, our experience suggests that the style couldn’t be more different.
First of all, the deal often will not be discussed in initial meetings. Indeed, the deal might be considered to be a distant third in terms of matters of importance. The first consideration is a discovery of who are the investees? Most importantly from the investor’s point of view, they focus on assessing the character of the key persons that they are gong to invest in. And this assessment often takes place over lunches and dinners and in between, in office meetings.
Because if the character of an investee is considered to have passed the test, then and only then is it worthwhile moving to the next stage – to assess the business sector and the underlying business model.
If the potential investor buys into the business opportunity, then a deal can finally be discussed – but probably with far less strenuous contractual requirements, based on the notion that if you are arguing about a contract, the investment is most likely dead.
As an example of just how minimal the contractual requirements may be, our sister company Qtrax has historically raised (and continues to raise) around 2/3rds of its monies in South East Asia (Singapore, Indonesia and Malaysia) – amounting to tens of millions of US dollars. Except for $3.6m of those funds raised, all deals were done with NO contract longer than a page. And almost unbelievably, in several deals money flowed before the deal was worked out and certainly before any contract, even one less than a page long, was executed.
The parties trusted each other to be mutually respectful and reasonable. And this sort of high degree of trust placed in us should and did engender reciprocal respect and commitment, which invariably resulted in solid friendships.
And therein is the first reason we could never back down – our investors had placed their hard earned dollars with us in both small and lavish quantities and we owed them a result. And we couldn’t be prouder that after all this time, we are about to deliver, a quite spectacular one.
With our sister company Qtrax, our goal has been to provide free music for the developing world. There are, in our estimation, about 16 countries in which you can sell music subscriptions for say USD$10/month in reasonable quantities. If somebody insisted there were 20 countries, we wouldn’t argue.
But throughout much of the rest of the world (well over 100 countries), this simply will not happen. It is very difficult to sell subscriptions in South America, in the Caribbean, Africa, the Middle-East, Eastern Europe and large parts of Asia. For these territories, with Telco partners and by providing certain guarantees, we have pioneered a free-to- consumer model with revenues coming from advertising.
And it’s of course advertising that fuels much of the internet – Google, Facebook, Twitter and other dominant services would be worth much less if they were based on subscriptions. The reason they are worth hundreds of billions of dollars is because they are FREE to users and supported by advertising. But the free-to-consumer model would undermine the existing subscription model that has achieved levels of traction in certain developed countries. Not so in certain developing countries, where we are convinced that our model might produce many multiples of the income currently being earned for rights holders.
But back to Due Diligence – The North Americans would frown on the lax due diligence standards of the Singaporeans, as they see them. But the Singaporean retort would be, that they assess what is MOST important – the character of the business’s management, for it is management that is needed to execute and deliver the performance on which any investment is based. And in many cases, all the paperwork in the world doesn’t adequately assess that. As an aside, the current spate of ICO’s and the analysis of the propositions are probably much closer in orientation to the Singapore model – and there is a strong argument that says for businesses at the stage of development that most ICOs are at, due diligence and many of the warranty and indemnity based contractual protections are probably the wrong way to go about ensuring a successful investment, in any case.
We firmly believe that paperwork DOES have its place, but nothing can probably beat character assessment.
In truth, I don’t know whether the Singaporeans assessed our staying power when deciding to invest in us and our proposition. No doubt, at some point in the last decade of struggle, hard work and extraordinarily uplifting victories, they did. But as a criteria, staying power would be so easy to overlook in both forms of due diligence. And it’s not unimportant.
Because…the impossible takes a bit longer – sometimes, a lot longer. And you want to know that you are investing in people that will work tirelessly until success.
Well we persevered through demoralizing indignities & betrayals, excruciating and sustained pressure and way too much time – but in the end we’ve attained what we sought. And we’ve done it with the unwavering support of truly excellent people, without whom we would have gotten nowhere.
And this constitutes the second reason we could never back down – people who selflessly and supportively lent us their reputations.
Like our dear friend, the ex-Chairman & CEO of the RIAA & IFPI, Jay Berman, a legendary music industry leader. And our dear friend & Chairman of Qtrax’s Advisory Board, Larry Gan, ex-head of Accenture for Asia, with an insatiable and brilliant tech investment mind. And our other friend, Sandy Monteiro, ex-President of Universal Music for SE Asia. And John Velasco, whose music bio is almost biblical in length.
Yes, we accurately call each of our advisors friends, because more than anything else, and more importantly than the superb advice and guidance that they have given us, that is what they have been. True friends through thick and thin and they are another key reason we could never back down.
And of course it’s also our loyal staff – people that trusted in us. Like our amazing office boss Julia and our brilliant CTO Vimal, and our extraordinary head developers, Luke & Jon and our reliable, relentless and brilliant Head of Vendors Ecosystem, Olavs. These people have been and are truly wonderful – We thank them… Profusely. We are proud to call them friends.
Regarding our amazingly loyal staff, occasionally things do go wrong. And we don’t shy away from our failures, like with the closing of our Israeli office, which led to a very public spat. Well we continue to think we’re right and probably they continue to think they are. But we are paying them now – because we can. We persevered and we can and will do so, notwithstanding our adamant feelings on the subject. We do not have legal responsibility, perhaps not even moral responsibility to do so, but we hopefully have empathy & decency and so we will.
If you wish to read about ALL the difficulties we encountered in our long trek, including the very few people that have tried to derail us along the way, you’re welcome to consult with the bad press section of our website which we will be posting this week. Just request a password, please.
But apart from extraordinary investors, stellar advisors and amazing staff – all of whom we really count as friends, there are still other reasons we could not back down.
Central to that is our Artist Manifesto, which we set out in detail on its own site this week: www.artistmanifesto.org. We fervently believe in its principles, all of which are aimed at giving artists control over their work and much improved income from it. And our work has not even begun until we fulfill our vision, central to which is providing 30% of our FENIX.CASH tokens to the artists – for being artists, the people that give us so much joy. And to provide a new way for artists to sell their wares and to provide a new way for bands to earn money from the listening of their fans. And a new way to have transparent royalties. We clearly couldn’t back down until all of that was bought to life.
And then of course there’s my partners. They’ll be embarrassed if I go on at great length about them. But Lance Ford went from an accomplished career in publishing (was founding publisher of Maxim magazine in the USA and made it the largest circulation men’s magazine in the world) to throwing in his lot with me and all the attendant, unrelenting uncertainty. His great advertising skills are a small part of what he contributes. His sage counsel, completely apolitical nature and fierce loyalty are a one-of-a-kind combination and the main reason we’ve been enthusiastic partners and friends for more than 10 years.
And Richard Lee, who joined as our partner two years ago after knowing us for more than seven years. And still deciding to join us on our journey . From a truly stellar career as a global banker (and lawyer) operating out of Hong Kong. He led the execution of more primary capital raisings across almost every market in Asia than we thought possible, many of which were award winning, including 2011’s Global Deal of the Year, the IPO of Prada. After many years as MD, COO & Head of Execution of CLSA’s capital markets and corporate finance business, he decided, to our absolute delight, that he would like to join us, because our music ideas were as good as any project he had come across in more than 20 years of banking and law experience. Richard is now our truly brilliant Head of Execution for both FENIX and QTRAX and nobody is better. And in the most effective way, he is ALWAYS there to help – as a partner & friend.
And of course my founding partners Chai Ong and Arie Baalbergen. These gentlemen are the paragons of unwavering support, unparalleled quality feedback and decency. We have been together for 15 years and still like each other – a great deal. And speak MANY times a week.
So these extraordinary people are further reasons we could never back down.
As in the coming weeks, as we drive towards the launch of QTRAX and FENIX.CASH, we will vindicate our decision NOT to back down. It is true that this single-minded focus has resulted in the suppression of an absurd number of other ideas, many of which we immodestly think are great. But with these first two hard-earned launches, the rest will soon follow. Watch this space.