Hi, everyone and welcome to another episode of the SME show where I bring on proven entrepreneur around Asia and reverse engineer their strategies and tactics to succeed.

Now in this interview, I've got a very special guest. His name is Joseph Phua and he is the co-founder of Paktor. Now some of the points that you will learn in this interview are, firstly how he got out of his comfort, cushy job in the U.S. and started Paktor, a tech venture that is usually viewed as risky by many other entrepreneurs.

And then next, we go on to talk a little bit more about how he found his co-founders for his company Paktor and then convinced them to join the vision. Also, we’d go on to talk about how he got his angel round of funding of $1.5 million and then $3 million for series A and subsequently seven million for Series B. And also how he attracted all the various notable investors.

You will hear some of the names in the interview. And finally, we’d also be talking about how he scaled up the entire business where he grew from 0 to 7 million users in just a very short span of three years.

He was unable to disclose his revenue numbers but he was able to share that he grew his revenue numbers about a one hundred times from the previous year to the current year. And he goes on to project about eight figures end of this year. So without further do, let's get on with the SME show.

Marcus: Hello everyone this is Marcus here from SeedIn and today we got a very special guest. His name is Joseph. And lo and behold he co-founded the dating app called Paktor,which has grown very quickly in the last three years.

It was launched in June 2013 and over the last three years, they've grown from 0 to 7 million users in just a short span of three years. And more impressively in terms of their revenue numbers they grew about a hundred times from last year to the current year.

And revenue numbers just on our earlier conversation Paktor is about to achieve eight figures this year. Joseph, thanks very much for doing this interview and welcome to the show.

Joseph: Thank you, Marcus.

Marcus: Alright Joseph. Perhaps let's start off with the very beginning of the inception of Paktor. So tell me about how you started the entire business.

Joseph: Oh I was in school, actually in Chicago doing my masters and I had just been dumped by my girlfriend of eight years. I was the single guy trying to figure my way around how to meet new people and stumbled upon technology enabled dating services, so you have web services, and mobile dating applications.

In the U.S. it’s is a prevalent form of a channel to meet new people and I got hooked. I decided that Southeast Asia needed something like this because I was gonna come back to Southeast Asia after school and I wanted to meet people myself.

And so it started off as building a product to help myself, to meet girls and we’re getting quick traction in Singapore when the product launched and that was when this project, a mini project of my own, became something more than a mini project.

Marcus: And Joseph, when you first returned to Southeast Asia, did you try any dating apps when you arrived?

Joseph: So when I'm in the US I did a quick study and the quick study was to look what is available in the market specifically in Singapore at that point in time, to help me meet new people and it was nothing there. There was absolutely nothing. It was Greenfield.

Marcus: Not even Tinder?

Joseph: None. Tinder wasn't here at that point. There were another dating apps and products like OKCupid. OKCupid was too serious for my case then you have other foreign applications like Russian brides and more. Nothing specific tailored for the local scene and I'm extremely local. There wasn't anything that suited what I was looking for.

Marcus: I see. So you came back to Singapore and you saw there's a problem. You then realize that, hey a lot of the things that you stumbled upon in the U.S. could actually be built and there's actually an addressable market in Southeast Asia. So from that, you build up the entire application yourself.

Could you walk me through the story of you know how you started the whole thing?

Joseph: Well I did a couple lines of code while I was in secondary school in Singapore but beyond that I know nothing about code. So the way I went about doing this was actually paying somebody else to do it for me.

Marcus: How much did you pay?

Joseph: $2,500.

Marcus: For a guy to start building the app for you?

Joseph: Yes and that was the first product. It was a crappy product. Don't get me wrong. It was a crappy product that suited and served in what I was looking for. And if I were the only one with maybe a hundred other people on the application, the product would have held on.

But I think I remember on Channel 8 reporting us on the news one night. Maybe a few days after we launched and we had like 15 thousand people who joined the application in 15 minutes and it was not good. It was a good problem but was not good because everything just collapsed.

But that is how we got started. The plan was to never to build a team to serve this but to spend a little bit of money to build a better product.

Marcus: So, once you have the 15,000 people on board and I would assume a lot of people would be frustrated because they want to meet new people like yourself but they were probably struggling with the app. How do you react to that?

Joseph: Panicked because I don't know what to do. After all, my background is in anything but technology. I did few years in sales and operations, spend some time doing consulting, banking and well none of that had anything to do with technology.

What I did right at that point in time was to call and identify people around me who could help me. So the first person I called was my primary school classmate, Js who is my co-founder now.

Js spent three years at Amazon where he was a software engineer at AWST. So that's a cloud computing team and he is one of the smartest guys I know and so I called him for help. He came in and looked at what I had and he was like, "I'm not touching that".

If I'm going to do anything, you have rebuild this entire thing because nothing you have right now is gonna stick. So in the first month when he came on, he rebuilt the entire thing and worked on with the existing guys to rebuild and told me that we needed to hire and so that's when he officially joined us.

Marcus: When you approached Js, who is your primary school classmates, you told him the app's problem and he probably said everything has to be rebuilt from scratch.

Were there any terms of collaboration that time? Because a lot of times this happens to our listeners as well when they bring new people on board to the team especially the young entrepreneurs.

There's a lot of various terms of engagement. Like Js would probably say he would want 50% of your company if we’re were going to build this together. Was there anything like that from the beginning?

Joseph: Both my co-founders, Js and Charlene, I've known them for tens of years. So there was the implicit trust that we will do right with each other. Obviously, I will never encourage or I will never advise business owners to go by just trust alone.

Everything should go by black and white. That saves you a lot of pain. At that point in time, we had a mutual agreement that we would work something out after we got things fixed.

We trusted each other and so that was how we got started.

Marcus: Okay and when did the whole funding process come in? You mention there was a series of various fundings. Talk to me about that.

Joseph: So the first funds were from my pocket. I raised from my own personal savings of a few thousand dollars to cobble together the first product and when we gained traction in Singapore, I realize that we had something on our hands and I needed more funds to go with, to hire a team and build up the product.

That's when we went to family and friends. I went to family and friends, Charlene went to family and friends, Js went to family and friends and that's where we raised the initial set of few hundred thousand dollars to tide us over the first few months. After that, we realized that it was not going to be enough, we then went to friends, specifically friends in Hong Kong.

Marcu: So the 1.5 million that you raised among friends and family, what was the money used for at the very beginning?

Joseph: Hiring a team. So we had a team of 25 within a month after Js and Charlene joined. It was primarily used for team building and marketing activities in the ground prior to development and R&D. I would say that the seed funding that was spent, were on R&D product development team.

Marcus: That's a lot of building the product but at the same time, I think the devil's advocate here the same time. Some people may think , if I'm going to invest $1.5 million, I would like to see some user traction or, at least, some traction going on with the app before anyone would want to re-invest more money to that. What would you say to that?

Joseph: They are absolutely right. Friends and family money, I mean if you put in another term it's sympathy money, right? You go to your parents and aunts and uncles "Hey I really have something here and I want to work for it but I dumped all my life savings into it. Can you help me?"

So it's more sympathy money cobbled together with our network and we were thankful because without that half a million dollars, it would be a harder ride and we wouldn't have been able to get where we are today because every step is crucial.

Marcus: And then after the angel funding, you realize that it may not have been enough. Then you went on to Series A, where you had your first investment from Vertex Holdings. Talk to me a little bit about the whole process?

Joseph: So Evie is our investment manager at Vertex. I got to know her in 2013 actually a few days after we launched. She saw a sudden spike at our traffic and cold-emailed me.

Then we met up and she asked me how much I needed to grow the business and I said I don't need any money now, I'm doing fine. So that wasn't really a good meeting because I didn't know how to deal with an investor.

6 months later, we met up again and she asked me, "how much do you need"? I said, "I need about $300,000". She said, "Are you sure you need only that much? Because that's not how much it costs to build a business here." I was wrong again.

So we met again after 6 months, I told her I was wrong and we need $3 million. She's like, "Okay. So it took you a year to learn that, but now is a good time as any to talk". So that’s when they deep-dived into the business, and they like what they saw.

Marcus: Besides the money, because I think when it comes to seeking investor, it can be a little challenging but I'm sure a lot of our listeners would be interested in what they are looking for are smart money rather than just pure money. So what kind of value did Vertex bring into the table for you guys? Just curious.

Joseph: So there're two question here. The first question is about being smart money versus dumb money and second question about the value that Vertex brought.

I do not subscribe to the notion that smart money, well smart money in a sense is definitely better than dumb money because what you looking for when you're fundraising, the key thing is that you're looking for is money.

When people ask me who should they go for to look for investment, I would say wherever you can get the money, you take it and you are not in the position to discriminate against money. We, as business owners, if you need money from other people then there is no difference.

Obviously, if you are tabled with so many options, say you have 10 term sheets on the table. Everyone offering you a better deal than the other person. Now then, you have to discern between the value that each investor breaks.

Marcus: Was that the option you had back then?

Joseph: I told you, Marcus, that we got lucky along the way. We didn't have a lot of options at that point. We only have two options at that point. Both options were quite attractive but the reason why we went with Vertex is

because this is the first time we're taking outside money and we wanted to work with somebody we can trust and Vertex is a Singapore-based company with a Singapore-based fund with Singapore-based investment managers. I trusted them and my team trusted them.

The value that Vertex has brought, is it has gotten us from an obscure company into a company that was back by Vertex. I mean, if you are a listener yourself, you would be aware that Vertex is back to Reebonz, an extremely successful company, Vertex is back to Grabtaxi, another extremely successful company.

And so we were happy and very excited to be, while I don't think we're the same league yet but very excited to be on the same list in terms of true value add. So Vertex sees things very clearly.

They know the pitfalls of the companies that they have fallen off in their hands. They know the strength of the companies that have not fallen in their hands. The first thing was, they connect us with other investors in the region, and with their reputation it was comparatively not as difficult to raise money with them.

In terms of connections, anybody in Southeast Asia that we needed to get connected with, even if they did know somebody, they would know somebody who knows somebody and that was actually the key thing that helps us really scale our business in the region.

Marcus: Right. Okay, so I can see that there's a lot of value that Vertex has brought on for you guys and I'm happy for that. So after the Series A completion, you went on Series B to raise $7 million and a couple of very

big names that are joining the Paktor team as well. Some of the names that we mentioned earlier were Convergence and you also mentioned Majuven. Were all those introductions from Vertex?

Joseph: Yes, in some sense, either a direct introduction or introduction to introduction. I guess in the last year, we have probably spoken to upwards of hundred to two hundred investors and 70% of them were linked by Vertex.

Marcus: Very cool Joseph. Now moving on back to the business of Paktor. So you guys have grown tremendously fast with just a short span of three years only and just before we did this interview, you mentioned that you did a lot of mistakes and you credit a lot of your success to luck which I think you are very modest about.

Now, what would you say in achieving eight figures in just three years worth of running the business, that’s a phenomenal feat by any measure? What would you say were some of the critical paths to success, although I

know that granted it's really a combination of a lot of things and then we talked about making some mistakes here and there, but if you were to just name a couple of things, what would those be?

Joseph: So I guess the first thing is knowing and believing that you're not the smartest person in the room, and that forces you to build a team of very smart people. And when you can build a team of very smart people, you end up doing good by yourself and I guess that's the most important thing I mean by far.

Without the team, this company is nothing at this point and so I guess that's the first thing that I realized very early on, that's gotten us to where we are today. The second one is realizing opportunities and when luck falls on your lap, you quickly take it and you don't question yourself.

A lot of times, there are actions that you take or pass. You move on to that you don’t know for certain if that's going to guide you the right way but you listen to your gut and your instincts. You do it anyway because you think that, that's the right thing to do. I mean they are only two outcomes; it's the right thing to do and the wrong thing to do.

And you only know it by hindsight. If it’s the right thing to do,you need to figure out how you could have just determined that was the right thing to do earlier on, instead of later. And having it be sure, if it was the wrong thing to do, you then quickly move forward and you learn from your mistakes and you continue.

My dad told me that since I was young. My dad is a business owner as well. So he got to where he is now not because he was smart again and likewise, I had told you, Marcus I didn't get to where I am today or my team doesn't get to where we are today because we are smarter than others.

It's just that we make bets that do not cripple us but we make many of these bets and when the results of these bets come through we try to recover as quickly as possible because we don't sink in more than x percent that would kill us and I guess, a lot of that I took away from my dad's experience.

Marcus: Fair enough. Tell me about the time when it got you to realize that you're really not the smartest people or smartest person in the room. When was that and describe the entire conversation, if you could?

Joseph: So I realize that I was not the smartest person even before when I started Paktor. I studied in Singapore up to junior college, and I did my undergraduate studies in NYU, and Masters in the University of Chicago.

Marcus: I think anybody know who walked that path would hold himself in very high esteem, it's understandable.

Joseph: I spent my summer at McKinsey and then I realized, I am not smart at all.

You work with a rocket scientist, you work with people who have to crunch numbers that you've never imagined, and when I realized that the world is so big and I'm so small.

That's when you actually question your existence and you wonder if the bubble that you've built yourself into while studying in Singapore has actually helped or not helped at all and with that I took away quite a bit. I think if I haven't gone through that experience I would have failed horribly and miserably in my life.

Marcus: So that's the experience when you were in McKenzie. I guess it thought you to be humble. Perhaps you're not the smartest but you took that learning to heart and applied it when you started Paktor, which is great.

Joseph: Yeah, I would think that thinking yourself as intelligent doesn’t mean that you are not humble, but that you think that a lot of things can be done easily. A lot of my friends, even when they start up businesses, I would tell them – it’s not as easy as it looks. It’s never as easy as it looks.

Marcus: Another point that you brought up earlier was realizing the opportunities where luck falls on your lap. So tell me about that. How did that happen within Paktor? I'm sure there's more than just a few opportunities that fell in your lap.

Joseph: So when opportunities fall in your lap, at times you have to slap yourself into thinking if it's true or if there is something going on here that you’re not noticing. Over the last two-and-a-half years, I've become quite desensitized to think things are too good to be true because in the last few years, because often they are too good to be true. But over the years, there were things that have happened and they were truly very good.

Marcus: Any example that you could share?

Joseph: The first fundraising processes as I mentioned, we had two authors. That was after fifty to sixty reaches. At that point of time, we didn't know if it was real. We've heard horror stories about investors backing out or things not panning out. I didn't know to believe or not to believe what I had on the plate. It was the first time we were raising outside money.

In fact, a lot of other companies were trying to raise outside money and they were more successful than we were.

Secondly, in terms of growing monetization.So in 2015, we set out to try to make money.

Marcus: That was about two years after you launched the product

Joseph: Yes, 1.5 years. In 2015 we were building up our product very diligently and put it up on the market. Lo and behold, money started coming in.

Marcus: What was the monetization model?

Joseph: So we have a recurring subscription model. Paktor is currently a freemium product where paying users get premium features. So in 2015, we spent a few months trying to build the product to make money and it did make money for us. Data was telling us that we were making quite a bit of money.

And I didn't believe that data. I looked deeper and try to squeeze and cut it in more ways that I could imagine but it was true. We were profitable in some of the countries that we were operating in.

I've questioned the data from day one because things don't come easy. I've had never have things comes easy in the last two and half years. So when things come easy to you, you will question if you were missing something.

Marcus: How much was the first week when you launched or open up the monetization model? How much did you see that was coming in?

Joseph: I cannot disclose but it was enough to make my eyeballs pop.

Marcus: For an ex-investment banker I'm assuming that's really a lot.

You've mentioned that it was profitable in some countries that you were in and what happened after that?

Joseph: After the excitement died down, then we asked why it is profitable in some countries and not profitable in other countries. That's when we dug deep again and we try to figure it out. I think we figured it out.

We’re in the process of rebuilding the monetization model, and it will help us in those countries to become profitable and it's a constant process.

For me again for monetization, I think we did some things right and I also think we got lucky because I don't see companies being able to switch from a non-profitable mode to a profitable mode in a matter of months.

I was informed by the team a few weeks ago that we are right now the top grossing application out of Singapore. I think the team would agree with me that we made a few steps along the way that got us quickly to where we are.

Marcus: All right and the last question before we wrap up this interview. What will your plans be for the next 12 months for Paktor?

Joseph: So that is the question that is often asked and I have a standard answer. In twelve months we are gonna build a revenue that is beyond eight-figures in US dollars and we are going to scale up our existing operations in non-profitable countries to become profitable.

We're going to deepen our penetration in Taiwan, Korea, and Singapore where we are doing extremely well. In Indonesia, we’re growing extremely fast.

But to be honest, I know what I’m going to do in the next month, and I know these will help me get to things that I hope to achieve in the next 12 months. But it’s hard to say what's going to happen in twelve months.

Marcus: Okay. Well best of luck to you Joseph and thanks very much for doing this interview

Joseph: Thank you, Marcus.