Singapore's decade-long push to become a hotbed for entrepreneurs is stuck at stage one.
The city-state of 5.3 million people ranks No. 1 in the
world in ease of doing business and fourth in starting one,
according to a World Bank study. It offers low taxes,
easy-to-obtain seed money to start a business, and a
well-educated, English-speaking workforce in the gateway to
It just takes one day and S$315 ($260) to register a
business in Singapore. Yet, the country has struggled to attract
international investment money for its own start-ups.
Venture capital firms are put off by the small size of the
market, lack of big ideas that can be a global success and an
uncertain exit strategy. Only 50 out of 301 venture capital
firms based in Singapore are interested in local investment,
according to the Asian Venture Capital Journal Research.
Of the 70 high tech start-ups the government has invested in
over the past two years, just 10 received follow-on private
funding from investors locally and abroad, according to the
National Research Foundation, the government arm responsible for
research and development.
"There is a real shortage of venture capital firms investing
in Series A in Singapore," said Leslie Loh, an
entrepreneur-turned-investor, referring to the first round of
funds raised by start-ups after seed capital.
"VCs are looking at countries like India and China where there is a larger domestic market."
2 percent (about $15 million) of the total venture capital investment
in Asia is aimed at Singapore, according to Asian Venture Capital
Journal Research's data for 2012. Japan,
China and India topped the list of big VC investments in Asia.
"In the early stage there is a big push (by the government).
But if you look at the whole ecosystem for helping companies
grow, there is a gap in the growth stage," said Wong Poh Kam, a
professor at National University of Singapore's business school.
"For a Singapore company to be able to achieve global
success, it needs to have sufficient follow-on venture capital
Pampered by government funds at the early stage, when
start-ups can tap up to S$500,000 in grants, companies are
finding it hard when they go looking for millions of dollars
from venture capital firms for Series A funds.
Of the 374 venture capital investments in Asia in 2012,
Singapore accounted for just 24, according to AVCJ Research.
"If there are no success stories, VCs do not think there is
a compelling reason to be here," said Wong.
But that success depends on big money from venture capital
firms, leaving start-ups stuck in a vicious cycle.
Andrew Roth, co-founder of Perx, which makes a digital
loyalty card application, said one of the first questions he
heard from investors when he went looking for funding was, "What
is your net operating income?"
Roth says he would not have been asked that question if he
was in Silicon Valley, where investors care more about the
functioning of the product and its ability to gain scale.
"The mindset has to change," said Roth, who is currently in
the process of raising a second round of funds from individual
investors and funds. "It is a younger ecosystem so investors are
so much more risk averse."
THE 'A' CRUNCH
Singapore start-ups are also forced to think globally right
from day one as a product aimed at a small domestic audience is
not going to bring them a lot of success.
Henn Tan, head of Trek 2000 International Ltd, the
company that introduced the ThumbDrive USB flash drive in 2000
and ranks among the few globally known success stories of
Singapore, said it is difficult for Singapore to produce
"Because fellow Singaporeans are being subjected to
regimented life from early years...there are too many rules and
regulations for the young generation to think out of the box
without being reprimanded," Tan said.
The problem of raising funds beyond the government-created
cocoon raises the question of whether its involvement in the
start-up scene is actually a good thing.
Some think the government initiatives allow undeserving
start-ups to get easy money, while others say the lack of
private funds just proves that the government has to be active
in providing a catalyst to start-ups and entrepreneurs.
The government says it needs to support start-ups at the
early stage because that's where the most risk exists.
"When the landscape is one which sees the vibrancy that you
see in California and where multitudes of VCs have taken root
and (are) able to manage a portfolio from early stage to growth
stage to pre-IPO, then we can take a step back," said Low Teck
Seng, CEO of the National Research Foundation.
But he also warned against too much government involvement.
"If the government funds what the industry thinks is not worth
funding, then we will not be doing justice to public funds."
Other than state-run or state-backed companies such as
Singapore Airlines Ltd and Keppel Corp Ltd,
the world's largest oil rig builder, there are only a few big
home-grown companies from Singapore.
There was Creative Technologies Ltd, whose PC audio cards, speakers and MP3 players
were a hit in the early 2000s, but it fell out of favour with
increasing competition. The company has posted 21 straight quarters of
losses and voluntarily delisted itself from the Nasdaq in 2007.
For Perx's Roth, who moved from New Jersey to Singapore to
start his company, the attraction is the presence of global
firms that set up an Asian base here, providing a steady stream
of potential customers.
The fact that Singapore is home to high-flying business
executives also helps. Facebook co-founder Eduardo Saverin
invested in Perx early on. He sits on Perx's board, and meets
with Roth and his team once a month, Roth said.
"It's hard for Singapore to claim to be an entrepreneur hub
for (the) whole of Asia," said NUS's Wong. "A more realistic
target would be for Southeast Asia."
($1 = 1.2182 Singapore dollars)
(Editing by Emily Kaiser) (Reuters)