In real estate investing, flipping fixer-upper houses promises quick returns, but it is fraught with risks and timing challenges, which may render it riskier than long-term investments. Despite challenges, investors such as Turn Capital founder Joseph Phua keenly recognise the potential of revitalising struggling businesses for profitability.
After years of starting businesses, the entrepreneur now helps companies improve their operations if they have enough resources. He says: “Over the last few years, we have been buying up assets across different themes, working with strong teams to turn cash flow positive and profitable quickly. Today, we have a controlling interest in six companies, all of which are profitable.”
Phua co-founded the live-streaming platform 17LIVE, which was listed on the Singapore Exchange S68 . It was later acquired by the spac firm Vertex Technology Acquisition Corp, marking Singapore’s only successful despac transaction.
For its FY2023 ended December, 17LIVE reported a net loss of US$247.9 million ($334.3 million) on business combination expenses, among others. This is compared to the loss of US$51 million recorded in FY2022. Excluding the net effects of one-offs, its FY2023 adjusted operating income increased 40.1% y-o-y to US$15.4 million; adjusted ebitda increased 26% y-o-y to US$20 million, while adjusted profit increased 93.9% y-o-y.
Turn Capital was established after Phua resigned from his managerial position at 17LIVE in 2020. With newfound free time, he explored opportunities to engage with other companies. Initially, Turn Capital followed the single-family office (SFO) model, serving as Phua’s platform for pursuing buyout opportunities. His initial target was Sound On, a Taiwanese company facilitating podcast uploads across platforms like Spotify and Apple Music.
He prioritised profitability, aiming to achieve it within a month. Seeing synergy with the voice-based chat app Goodnight, he invested and merged both companies.
Turn Capital’s investment in Sound On proved successful. Phua disclosed that the firm invested in 2021 and recovered the initial investment through dividends within a year. Moreover, selling a 10% stake resulted in a tenfold return. Turn Capital still holds the remaining stake to leverage future potential, with plans for a complete exit.
Phua made other investments via the SFO structure, including blockchain-related companies Coinomo and DefiSafety, Vietnamese creator economy platform Metub and luxury furniture brand Theodore Alexander.
In 2022, Turn Capital launched Next Apple News, employing 96% of the staff laid off from Apple Daily Taiwan. Recently, its sports investment arm invested in English football club King Lynn Town Football Club.
See also: Prudential launches global AI Lab in Singapore to accelerate innovation
After several years at Turn Capital, Phua’s resolve to acquire undervalued companies intensified, leading to the establishment of a structured fund. This strategic pivot corresponds to the challenges start-ups face amid the pandemic, prompting investors to exercise greater caution in capital deployment.
Data from Crunchbase, released on Jan 4, shows that global start-up funding in 2023 hit a five-year low at US$285 billion, marking a 38% y-o-y decline from the US$462 billion invested in 2022. Cutbacks were evident across all funding stages, with early-stage, late-stage, and seed-stage funding dropping by over 40%, 37%, and 30%, respectively. Compared to the pre-pandemic years of 2018 to 2020, overall funding in 2023 saw a decrease of less than 20%.
Phua points out that the sectors Turn Capital focuses on have also seen notable decreases in investment levels. To expand the strategy of acquiring undervalued firms and revitalising them for profitable exits, Phua enlisted the expertise of former 17LIVE CFO Shang Koo and Kollective Ventures founder Ho Kheng Lian as general partners (GPs). This move led to the launch of the firm’s inaugural fund, Turn Capital Opportunities Fund (TCOF).
Growth strategy
Turn Capital’s strategy enhances unit economics by identifying optimal business models, monetisation strategies, and pricing tactics. They collaborate closely with founders to streamline processes and cultivate proficient teams for sustained growth. Ultimately, Turn Capital aims to achieve profitability by distributing dividends and divesting minority shares, typically within a five-year timeframe.
The firm exclusively targets investments in the consumer, technology, media, and telecom sectors across Asian markets. Last November, it acquired Flash Coffee Thailand, marking its foray into the Rocket Internet-backed coffee chain known for its yellow and pink storefronts. Flash Coffee debuted in Jakarta in January 2020, expanded to Thailand in May, and was in Singapore by September — all during the pandemic. However, the chain shuttered its 11 outlets in Singapore last October to redirect its focus to other markets.
In Thailand, Turn Capital aims to capitalise on Flash Coffee’s brand, with plans to double its footprint by opening over 100 new stores in the next two years, reaching 200 locations.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
“We need to be able to operationally change each company, so a certain level of expertise is important. For example, I firmly believe that I know my industry well. No one in Southeast Asia knows the content business like I do. Therefore, the chances of my success are much higher if I were to acquire content-focused companies. If you ask me to invest in a car business, I would respectfully decline; it would be impossible for me to gain an edge,” says Phua.
Phua adds that their strategy is enabled by investing in far fewer companies than other funds. While typical capital funds invest in up to 50 companies, TCOF focuses on only about five. This allows more time and attention to be dedicated to each investee company.
TCOF prefers acquiring companies in their “post-revenue stage” or generating between US$1 million and US$10 million annually. The firm typically invests between US$7 million and US$10 million per company. Its GPs have a minimum 20% commitment in the US$50 million fund, starkly contrasting to typical funds where GPs usually commit only around 2%. This underscores the GPs’ strong belief in their investments, demonstrating their collective conviction.
Turn Capital sources potential deals through the GPs’ networks, leveraging their extensive combined experiences. For example, Ho, formerly an international restructuring and litigation lawyer in Singapore and Hong Kong, has invested in or advised companies like Vertex Ventures, SpaceX, and the dating app Coffee Meets Bagel. On the other hand, Koo brings 19 years of experience as a CFO and equity research analyst, having led successful US listings for Jiayuan.com and Lanvin Group.
Phua says Turn Capital understands the founders’ perspectives and works to align their interests. It also prioritises restructuring to ensure the founders maintain a substantial stake post-investment. Furthermore, Turn Capital actively pursues deals and engages with potential investee companies. Phua notes ongoing efforts to deploy capital and finalise “a few more deals” in the coming year. He also underscores Turn Capital’s cautious approach, avoiding rushed decisions and concentrating on companies it can genuinely transform.
On Jan 26, 17LIVE announced CEO Alex Lien’s resignation, with Phua assuming the helm. Given its strategy’s need for close collaboration with portfolio companies, how does this affect Phua’s management of Turn Capital? Phua is not worried, citing great teams at 17LIVE and Turn Capital, enabling him to manage both effectively.
He adds: “I continue to be committed to Turn Capital in the same capacity. My partners and I have worked together for more than 10 years and understand how to work efficiently and effectively with one another; we will work together to grow and manage our investments.”
