Joseph (Jo) Phua is non-executive chairman of 17LIVE Inc., a company he cofounded and ran as CEO until June 2020. 17LIVE operates the largest live streaming platform in Asia (ex-China) with over 50m global users, led by its flagship app 17LIVE, as well as Meme Live and live stream eCommerce solutions HandsUP and FBBuy. Today, Jo shares with us his fascinating story, from selling watches in China to building Paktor (Tinder of Southeast Asia) and eventually merging it with 17 Media, resulting in one of the few and most notable internet unicorns that grew out of Taiwan + Japan. Jo discusses the operational challenges of running an online dating and live stream business, a fundraise strategy unique to Southeast Asia, and the importance of product-market fit and execution. He also shares his approach to growth, both in terms of M&A as well as market entry. Hope you enjoy!
Before we dive into the details of your business activities, could you first share with us your personal story and some of the formative experiences in your life?
Jo: Sure, thanks for having me on! I was born and raised in Singapore. As a kid, I travelled a lot because my parents ran a retail business in the region. When I was travelling with them, I learned the importance of sales and operations. That is a piece of history that is still very relevant to what I do today. So basically, for the first twenty odd years I was travelling and called Singapore home. I served in the army in Singapore, before heading to the US to do my undergrad in finance. I had a brief stint at a bank after graduation and decided that wasn’t for me. Then I headed to China and did four years of retail there, selling watches and jewelry in Beijing and Shanghai. Retail is in my blood.
I eventually went back to the US to get my MBA. After that, I had a brief stint in consulting before deciding to start my own company. How I got my start was interesting… so I had just been dumped by my girlfriend from a long-term relationship. Tinder was just coming around in 2012, 2013. I was having a lot of fun on Tinder and realized that there wasn’t a similar product in Southeast Asia, so I wanted to create something to help myself. That was the original goal. It wasn’t meant to be a business at first. It was a tool for myself and that was the genesis of the business. Going back to what I mentioned, if you see along the patterns of when I was younger and what I did, prior to starting a business, it mostly revolved around sales and operations.
Building Paktor, the “Tinder of Southeast Asia”
Thanks for sharing that history Jo, we have a better sense of your upbringing and what shaped you. Going back to the dating app you build up (Paktor). From what I recall, it started in Singapore and seemed to take off rapidly. It entered a number of markets, and at some point, pulled out of several that wasn’t working so well. At one point it almost ran out of cash. Can you help us understand what it was like for you building Paktor?
Jo: Paktor means “to go on a date” in Cantonese. The company was started on May 6th, 2013. I raised a family and friends funding round back in May of 2013. Again, it wasn’t meant to be a business, more as a product to serve myself. After a while I realized it was gaining a lot of traction. Funny story, when the app first launched, there was a limited number of guys that could use the app, just so that the pool wouldn’t be too big. It was meant purely for personal use. I had lifted the restriction when I realized there was actual demand. Every night we would deal with server issues because the demand was growing, so I raised more family and friends funding.
I hadn’t run a full business at that point, and because of inexperience, I hired too much too quickly. I didn’t really build out a monetization model, it was more about how to get more users at lower cost and how can we expand faster. As you mentioned, we expanded across 11 different markets and very quickly ran out of money. By the end of December 2013, we were almost out of money. We had to lay off 70% of the team and reduced our market coverage from 11 to just 4 key markets. The next year was a grind, actually every year after that has been a grind. 2013 was more of a “honeymoon period”. Then in 2014 things got real and we had to pinch every single cent.
What did it take to right the ship? From a funding perspective, and in terms of other operational tweaks that you made?
Jo: This is where my past experiences and my instincts kicked in. In 2014, while trying to reduce burn and develop a monetization model, I raised two rounds of funding. I raised a round of seed funding from two angels, and then our first institutional round. That’s when I started to hone my ability to raise capital. I think that’s important, because one of the key factors that allowed us to outperform was the support of our investors and the ability to expand quickly into markets while figuring things out. That’s not the most capital-efficient way to do things, but it allowed us a lot more time and leeway to make mistakes and learn along the way. It allowed us to gain a lot of market share to come to where we are today.
So in 2014 we raised two rounds and slowly built back up the team. I was still very cautious about spending capital then. I think sales is one key piece because you need to be able to sell the “dream” to the team, but at the same time sell the potential returns to investors. I think these two things carried us through 2013 to 2015. The team grew to about 200+ people. We stuck to the four markets and developed monetization around them. In 2015 we did about a couple million dollars in revenues. We were still losing money, but we were getting somewhere. By 2015 I had raised another three rounds and raising capital became a full-time job.
You mentioned in 2014, you had angel investors and an institutional fund, was that Vertex?
Jo: Yes, that was.
I don’t know the Southeast Asian market that well. When it comes to fund raising, Southeast Asian, at least compared to China, is smaller. From a venture fund raising perspective, raising earlier rounds seems to be okay. But as the company continues to scale and get bigger, in terms of larger pools of capital, it certainly seems limited at that time. When you said you honed your skills of fund raising abilities, what are some of the things you do to raise money? Was there anything different or special? Additionally, what are some success factors required to build out a dating app, since there are plenty of challenges specific to doing that type of business?
Jo: You’re absolutely right. Southeast Asia was a region that was very welcoming for people who were raising seed to Series A capital. Of course, that has improved as time went by. Even then, most of the large rounds in Southeast Asia were done by private equity funds or non-regional VCs. Seldom will you find Southeast Asian based VCs doing rounds with ticket sizes more than $25 million. If you look at our fund raising history, even today, the largest round we’ve ever raised was about $30 million. We’ve raised many rounds, but we’ve never raised a round that was relatively large compared to our scale. The last round that we raised was at the end of last year. Even that round, size wise, was the same as the one we raised 3-4 years ago. So I think size is always going to matter no matter what the valuation is. Just by the construct of the region and the industry we are in. Some industries, in the right markets, will naturally need larger rounds, and you will have investors of different types taking on ticket sizes that are much larger. For the dating space, that wasn’t the case.
So how did we go about doing things? We just raised less, but we raise more often. You keep investors close, even those who didn’t invest. You keep them updated. If they see that you constantly hit your projections, investors will be persuaded. What’s extremely crucial is getting a core support base of investors who believe in you, who themselves have a very good reputation and track record. These investors then become the pillar of your pitch. It helps in bringing on new investors, because you have to reach to get to the right investors. There isn’t one key thing that helped fund raising, but I will say that it is a confluence of all of the above.
In terms of the online dating space per se, it is one that is big but at the same time small. It is large in terms of market size, but it is small in terms of the number of key players in the market. It’s a very difficult business to be in, but it could be a great business to be in if you do well. Why do I say it’s a difficult business? Your KPI, as a product, is to be able to match users. Technically, when you match users up, they leave. So, your success ends up reducing your product retention. That itself results in a LTV of users that is limited. What this means is that you have to be extremely efficient in your operations from a unit perspective, and you have to have sufficient scale. It’s very challenging for players in smaller markets to succeed because you just don’t have enough scale.
For example, a team of 10 people are needed, no matter where it is, to build a dating product. The number of people you need is unrelated to the market size. In businesses where you have much higher margins and a more natural product market fit, the easier it tends to be. But in online dating that is not the case. That’s why the pool of players who are successful remains limited. It’s small so that you know everybody. And you get to know this industry in a lot of detail. That was something that I constantly did. I dug deep into the industry, the metrics used, and basically learned everything about online dating. There was a point in time when I can say that there were no more than 10 people in the world who knew more about this business than I did.
In terms of the dating business, you mentioned the opportunities as well as challenges. I’ve also heard of other difficulties in this business. For example, fraudulent user or fake profiles. As I recall, in China, there are several dating apps (e.g. TanTan) or sleep apps (e.g. Snail Sleep). They experienced significant challenges… for example there were teams in China that built fake profiles to attract and connect with users on the app and eventually connect with them on a separate, personal messaging app so as to sell them stuff down the road. For Chinese apps like TanTan, solving this fraudulent users piece was one of their most important key success factors. Was that something that Paktor experienced?
Jo: I think fraudulent users are going to be an issue no matter where you are. It’s quite easy to spot these fraudulent users because their behaviors are not consistent with other users. Just to give you an example: in any given market, generally the gift-like-to-dislike ratio of any profile is going to convert to a certain number for a specific target audience. For example if you’re male, 28, and live in a certain place, your like-to-dislike and gift-like-to-dislike ratio should not be too much of an outlier. For fraudulent users, it sticks out very quickly. We developed a system that allows us to use different metrics to quickly gauge when users are fraudulent or otherwise. I think it’s not very different from the systems that are used globally. It just depends on what is management’s take on the metrics. The segment that we play in actually relies on real users, real connections. Because of that our revenue per user is higher than our cost. It is because our users basically value these real connections that are created.
Merging with 17 Media
You mentioned gift-giving. So this is a bit of a segue, because Paktor launched as a dating app. In 2017 it merged with a Taiwanese live-streaming company called 17 Media. Can you tell us more about that merger process, and what happened afterwards?
Jo: I spent a lot of time studying the dating industry and reviewing the players in all the markets of interest to me. One of the markets in Asia that we were in is Taiwan. I launched our business in Taiwan back at the end of 2013. I spent quite some time in Taiwan where I met my partner, Jeff Huang. Actually, Jeff was a competitor back then. He started his own dating app in 2014, and I met him as a competitor. We stayed close and we would catch up every time I came to Taiwan. In 2015, he stopped working on dating and he launched 17 Media (app is called 17Live). That was when mobile streaming as entertainment was still very recent.
Globally, there were other two other players, Periscope and Meerkat, in the US. In Asia, in the format of full-screen mobile live stream, there were none before Jeff started 17Live. Overnight, it became a huge sensation. In 2015 it had gotten to a million downloads in 30 days. It was possibly the fastest growing product during that period. So much so that it experienced significant lags and delays because the protocols weren’t mature, and the team was grappling with how to deal with the heavy influx of users. By the end of 2015, in China came hundreds of similar applications just because the rising popularity of the 17Live app.
In 2015, due to content issues, the application was taken off the App Store for about two weeks. That period allowed a lot of Chinese players to absorb a lot of traffic, so in 2016 when it was relaunched, it was much harder for them. They went through a difficult patch in 2016 from an operational perspective and a funding perspective. One of the funding rounds that they put together fell through, and that was when we met again. We met in 2016 when I had just come out of raising another round. I met Jeff and he said, “Hey Jo, I don’t know how you keep raising money for the dating app. How do you do it?” I remember very clearly we were at one of the steakhouses that he always goes to. I saw an opportunity, an asset, I saw how live streaming was in China and how it was very recent outside of China, and the potential of it. This is before Zoom, before any forms of live stream we know today. I found myself using the product, and I found myself addicted to 17Live.
At that point, I felt that that was a much larger opportunity than the one I was pursuing with the dating app, yet the target audience is very similar. On Jeff’s end, he saw how I operated the dating business and was able to raise capital for the company, and he was running out of capital. We decided to come together. I saw an opportunity and he saw somebody who could come fix his problems. That was when we decided that Paktor would take a stake in 17 Media. In September 2016, we did the deal to take the controlling stake in 17 Media. Quickly after, we decided the best thing was to merge because 17Live was growing very quickly. I worked on 17Live for three months and I saw the inherent nature of the business and the potentials of it was there. We just needed someone to unlock it.
In Q4 of 2016, we 4X-ed the business and quickly realized that we needed to merge the businesses together, if not, it would be extremely challenging to run the business after. To give you a sense of the growth (these are all public numbers), in 2016 we got a combined revenue of 5 million USD. In 2017 we had 90 million USD. In 2018 we were on track to 175 million USD. The scale quickly tipped, and it was 90% live streaming.
I think most of our audience at this point knows what live stream is, especially given that live streaming is coming back to the US, in terms of both enjoying the content and some live stream e-commerce models. To your point, you mentioned that 90% of the business was live stream, so was the business model essentially around audience giving virtual gifts to broadcasters and you getting a cut of that?
Jo: Yes. This stems from why Jeff started the business. Jeff has been in the music industry for the last 30 years. He’s been a content creator since the 90s and he’s part of a group called the L.A. Boyz. It was a quite popular rap group in the 90s (or so he would like me to believe). He constantly reminds me how when he would walk into stadiums and people would cry. I don’t know how much of that to believe, but jokes aside, he was a great content creator. He had seen firsthand how artists and creators were getting ripped off by middlemen. For every dollar that is paid by the consumer, be it CDs or records or any type of merchandise, the artists seize a very little bit. You’d be lucky to seize 10 cents. I remember when he started, Jeff mentioned he was getting one cent on a dollar. Of course it built up over time, but even then it was no more than 15 cents.
Later he stopped creating music to the pace he was doing it and started an agency to create music for other artists and he had his own label. When he started 17Live, the goal was very simple: to create a platform where artists could cut out all of the middlemen, work directly with the platform and make a living out of creating any type of live content. The business model was very similar to what you mentioned: users or fans gift virtual items and artists who create the content get a cut of it, and the platform, after taking cost off, get a cut of it.
Got it. It almost sounds like a precursor to “Patreon”, where content creators share their works online and have fans sponsor their content. It’s really interesting to see these models come out, experience some traction, disappear for a period, and then come back. For example, you mentioned Periscope and Meerkat which were super popular in 2014 but kind of died down in the US for a while. I think Periscope just shut down earlier this week. And then we had the live video launch in Asia. I didn’t realize that it was 17Live first. I certainly noticed the hundreds of apps you referred to in China taking off. Even there, a lot of the ones that were popular in the early days eventually died out, and now you have KuaiShou and DouYin (under ByteDance). Anyhow, back to the company you built out with Jeff, I noticed that you seemed to have a M&A strategy where you acquired a few other dating apps, live video apps and even live video e-commerce. Could you talk us through that thinking?
Jo: I think it’s extremely difficult to find product market fit and true innovation. In fact, maybe it’s not difficult, it’s just that all the ideas out there have already been thought of, and it’s all about execution. I’m a firm believer in the idea that “operations is king”. And that’s why I always thought it’s easier to acquire. If you can acquire a player that is doing well already in a market that you’re not in yet, it’s more cost efficient for you to acquire (if you get it at the right price of course).
You’re right. I ran the company for the last seven or eight years and I have acquired eight companies since, so more than one M&A per year of dating companies and live stream related companies. I think it’s much easier to acquire companies to get a foothold than building it yourself. Instead of building something new, take what is doing well and has potential and expand on the fundamentals that they have already built.
The corporate group is currently called 17LIVE, right? Before the rebrand it was called M17 for a period. So that group acquired 8 companies as you mentioned. Are these separate apps today or are they incorporated into the flagship app 17Live? How do they work together?
Jo: Again, I don’t know if it’s just me or if that is the right thing to do, but I think the different products we acquired had different target audiences, so we never merged them into one product. They were always separate products, because they are targeting different audiences and different niches in the market. There are different types of dating. You have voice dating, live dating, casual dating, serious dating… it didn’t make sense to merge all those products together. Similarly, for live stream where we acquired all those companies, they have different functions, markets and styles, so we never merged them either. Was this a conscious decision? I think yes, it was conscious to a certain extent. Did we discuss it? Yes.
Another underlying reason as to why we didn’t merge the products was because it’s very difficult to merge teams and cultures. You will have clashes. Even within the same team you’re going to have problems, much less across teams or across companies. It’s extremely challenging. When you’re trying to optimize for speed and growth, it’s not in the best interest to try to merge cultures together right from the onset, and afterwards it becomes too much of a hassle to merge the teams together. Of course, it might make sense to merge after both teams have achieved scale, but most of the companies that we acquired were much smaller than we were, so you don’t involve these companies in the processes that we have in place in the larger company. You provide them with the infrastructure and resources, but you don’t try to bog them down.
Entering the Japan market
One more thing about 17Live and how you expanded it over time is market entry. You mentioned that Paktor initially entered 11 markets and then reduced to 4 key ones. You’ve also mentioned in a prior conversation that entering the Japan market was very critical for the business. It’s quite a large market compared to some of the other markets in the region. Could you talk through that, how did you think about Japan, why and how did it happen?
Jo: After my experience with Paktor, I had become very cautious with market expansion. In fact I was hosting a fireside chat yesterday and one of the thoughts that I raised was around this. I do not believe that you should expand outside of your home market until you’ve cornered it. Unless, of course, your goals was never to start your business in your home market. But if the only reason you’re expanding outside of the home market is because you cannot gain sufficient market share in your own market, then you should not expand outside. Why do I say this? First, you need to make sure that you can find product market fit. Now, if you can’t even do it in your own market, the market you need to know the best, then there’s nothing for you in any other market. In fact, you are just increasing the chances of failure if you move into one other market, just because your resources and attention will be split. Chances are, you will lose everything.
When I was working on 17Live, I remember from September 2016 to Q2 2017, I was being pushed every single week, because we were growing so quickly. We grew from $200k USD per month in revenue to $6 million of revenue a month in just a span of seven, eight months. Investors see these numbers and start projecting out in their head, multiplying the population of all the markets and then, suddenly, they get many ideas. This business suddenly goes “boom”. You have to resist expanding outside of your home market until you’ve cornered it. That was what we did. We spent about seven months cornering the home market in Taiwan and we had about 50+ percent market share, and that was when I felt sufficiently comfortable to go look for a new market here in Japan.
That was actually my third try at Japan. The first two tries were in dating and I failed. I knew that I didn’t know the market. I also knew that it was going to be extremely challenging and we needed a local partner. We ended up working with one of our largest investors, Infinity Venture Partners, and one of their founding partners Hiro who is also our current CEO came on board as CEO of the Japanese market. He built a team from scratch and we relayed the fundamentals of the business, relayed our operations and passed on our systems. I worked with him to build out the content strategy and Hiro took it from there and built out the Japan market for us. Today it is our largest market.
That’s very good advice to budding entrepreneurs to focus, focus, focus before expanding. In terms of the 17Live app and the solutions provided there, is it comparable to the ones you have in Taiwan? Or are there any localization requirements there in Japan?
Jo: Some localization but mostly the same. The product in live stream is actually not the app. The app in itself is commoditized technology. Anybody today can build a live stream app in a month; there are so many modules out there that you can just plug and play. The product that we’re selling is actually the content and the entertainment behind it. So from a product perspective, it’s not very different, but from a content perspective, it’s very different.
What is the paying behavior like in Japan in terms of the reception of the entertainment content or, potentially, e-commerce done by live video?
Jo: I would say for live entertainment, the behavior of the users is quite similar across the world. Of course, different markets have different conversion rates and different revenue-per-user, but in terms of behavior, we don’t see much difference. I think we can easily say that it’s quite uniform across all different markets.
In terms of live commerce, I think it is still very nascent. Especially outside of China, it is super nascent. You have hot spots here and there, but definitely not mainstream, not like how things are in China. In fact, I think there’s going to be a much longer gestation period for this, same in Japan as with in most of the other markets.
That’s a fair point. In China the live video ecommerce market is quite big today, probably about $160 billion USD worth in 2020 (tripled since 2019). In China this model became much more popular this year, especially given Covid-19 and being unable to go to offline stores to check out products. So I tend to agree with you. I think this is a very special year and live video ecommerce accelerated massively. Even for China it’s very recent and for other markets it’s still TBD. When I compare China to the U.S., the live video concept was there for a while in the U.S. but didn’t take off the way that one might expect, whereas it did in China as well as the rest of Asia. Perhaps a topic for another day.
I’m conscious of your time so would like to talk about what you are working on today. I think most people know at this point that you’ve stepped down from the CEO role but continue to be engaged as Chairman of the Board. Can you tell us about your role today and the investment activities that you’re working on?
Jo: Yes, I stepped down in July of this year, handed over the baton to Hiro and took on the role of Chairman of the company. I speak to the team weekly, more about strategic directions and strategic matters, less related to day-to-day operations. For the past 4 to 5 months, I’ve been spending a lot more time with my family. I have actually been looking at many different companies. As I mentioned, I think it’s very challenging to find product market fit, but once you have some semblance of a product market fit, it all boils down to operations and executions which I thrive in.
So for the last four months or so I’ve been working to deploy capital and invest in opportunities that I see in different young companies. Actually not necessarily young companies, but those with product market fit but have issues with operations and executions where value can be extracted through improving these operations. Every single day, I speak to at least one company across the region. This keeps me on my toes, keeps me looking at different opportunities and keeps me abreast of what people are working on. So far, we’ve made three investments. They are small investments but I enjoy doing it. It’s fun speaking to people, working on operations with them and add value to their businesses.
What kind of investments are these? Are they minority investments where you can provide advice and feedback? Or is there a different approach where you take more control and get more involved operationally?
Jo: I don’t think there’s a fixed strategy. I’ve been open to both. One thing that I’m cautious of is not to get stuck too deep into operations because that’s not what I want to do. I want to support management, so I’ve been open to both.
OK. When you say deals in “different regions”, do you mean greater Southeast Asia?
Jo: I look at businesses globally. There isn’t a specific region that I focus on. I’m agnostic in that sense. But, naturally, because of where I am, I am more focuses on where I’m physically based. Given the Covid-19 situation I’ve been stuck in Taiwan for the last year, so I see a lot of Taiwanese companies, but at the same time I also see a lot of Southeast Asian companies.
Taiwan’s market potential
The last time we spoke we talked about the Taiwan market, and given that we’re both here, it makes sense to dig deeper and get a better sense of what are the good opportunities here. One of my observations is that Taiwan is quite interesting and tends to be overlooked because the population size is smaller compared to other markets in the region and China in particular. But there are a lot of talented entrepreneurs and great engineering resources here. I also noticed that the valuations are cheaper because of the smaller market size and less capital competition. I’d love to get your perspective on what you find particularly attractive about this market.
Jo: I think you bring up most of the key points. I wouldn’t say that the competition is less because there are still significant local competitors because of the attractiveness of the market. I would say that comparatively, it is less expensive to get off the ground. If you compare with Beijing or Shanghai, a good engineer there is probably going to cost two times that of Taiwan. That’s just because of the speed that things are moving in China where engineers are in huge demand. There are also demand in Taiwan but software engineers don’t cost that much compared to China. So things are easier to get off the ground from a cost perspective. That means you can try many times, fail many times and still going to be around. I think that is extremely attractive.
Secondly, from a population perspective, coming from me who’s born and raised in Singapore with five million population, the twenty million population in Taiwan is a no-brainer. From a population perspective, Taiwan supports much larger businesses. In fact, global businesses can be built in and sustain itself off the Taiwanese market alone. That’s how big the market is. If you look at the gaming space, Taiwan is possibly within the top 5 in terms of gaming. From an ARPU and GDP per capita perspective, Taiwan are Singapore are very similar; the living standards are very similar. And infrastructure, which is so important, from transportation to telecommunications to all these different factors, are very strong in Taiwan. It’s a very conducive environment to start a new business and people are very willing to try new technologies, so I think it’s a great place to incubate any type of business if you’re in the region.
Those are some really great reasons for what makes Taiwan attractive. It seems to be quite a fertile environment for building companies. Perhaps to end on that note, Jo, I really enjoyed our conversation today. I wanted to bring you onto the Harbinger podcast because these conversations are extremely insightful as you share your experience and sage advice. I think a lot more people than just myself would benefit from what you share.
Another reason why I wanted to talk to you is because you’re not just a successful entrepreneur and investor, but you have a lot of heart. I read some of your Medium posts and some of the lessons you shared with other entrepreneurs. Besides the business focus in the tenor of our conversation, is there anything else you would like to share with our audience when it comes to personal lessons or other things that have come up over the course of your experiences?
Jo: I would say that this has been an extremely difficult year for everyone, but just keep going. Those who survive this year are going to make it out so much better than ever before, just simply because you would have proven yourself stronger than most of the others. It’s been a difficult year and hopefully things get much better next year.
Thanks for sharing that with us and thank you for your time Jo. Really enjoyed the conversation!
Jo: Thank you for having me!