SINGAPORE (Nov 11): For years, the Singapore government has been promoting entrepreneurship and innovation to build a stronger local community of businesses that can help create jobs and grow the GDP. Edwin Chow, assistant CEO of Enterprise Singapore, knows the scene more intimately than many civil servants promoting entrepreneurship and innovation. He tried it more than a decade ago and, in his own words, “failed miserably”.
Back then, Chow and his partners came up with the idea of a handset designed for the elderly who lived independently. Instead of the tiny buttons in the Nokia phones that were popular at the time, Chow wanted to build a phone with a simple layout. It would enable users to keep track of their medical appointments and get in touch with their children. He managed to interest a few nursing homes but before the product could be launched, two things happened. First, the iPhone was introduced, and whatever services and functions Chow’s phone had could now easily be installed through an app. Then, the 2008 global financial crisis struck and any chance of acquiring additional funding disappeared.
Yet, that stint gave him first-hand experience at running a start-up. He understands the struggles and factors needed to succeed, and he believes the conditions today are better than ever for start-ups to grow in Singapore. “You have [global crowdfunding platform] Kickstarter, crowdfunding platforms, you have grants from Enterprise Singapore, you have help from so many accelerators and incubators. So, if I were 10 years younger, three kids fewer and if I had the same idea today, I wouldn’t be talking to you,” quips Chow during an interview with The Edge Singapore.
A decade ago, when Chow was trying to get his start-up off the ground, there were about 3,000 tech start-ups in total. Today, the number has increased by a third to 4,000. At the time, there was just a handful of active investors whereas today, there are about 100 active incubators and accelerators that are helping to draw in venture capital money and investing their own money.
The deal sizes have grown too. While a typical seed round would call for $250,000 in venture capital and value the start-ups at between $1 million and $2 million, now many start-ups can attract more than $1 million in the seed round and be valued at $5 million.
Most tellingly, the value of deals done has surged. In the first nine months of 2019, a whopping $13.4 billion was invested in start-ups in 437 deals — up 36% from the same period last year. Nearly half of this amount — $6.6 billion — was raised by Grab but, even if that is stripped out, the total value of deals is easily 20 times that of a decade ago, says Chow.
Start-ups are enjoying not just more funding, but also better access to markets. For one, many big companies are now happy to work with start-ups, such as inviting them to come up with solutions to their problems. Biotechnology and pharmaceutical companies pioneered this model, which has since spread to big engineering and even property companies.
For the start-ups, getting a big company as a partner is fantastic validation and shortens time to market. For venture capital companies — which face the risks of technology, market and operations when they fund a start-up — market risk is mitigated if the start-up finds a partner in a big company. “There’s a very strong synergy between what the start-up system is doing and what the innovation system is doing. This is mutually reinforcing,” says Chow.
But if current conditions allow start-ups to thrive, why is there a need for the government to play such an active role? The government, via the National Research Foundation’s five-yearly Research, Innovation and Enterprise plan, is dishing out $19 billion between 2016 and 2020, up from $16 billion between 2011 and 2015. Of this, some $15 billion has been allocated to R&D activities and the remaining $4 billion to fund start-ups and companies keen to commercialist the technologies arising from the R&D.
Chow says while the numbers are big, it takes a long time to bring a technology from lab to market and chances of success vary. He adds that the government’s aim of funding start-ups and innovation is to get local companies to put the traditional models of trading using middlemen, and competing on costs, behind them. For decades, both models served Singapore’s economy well, but they are harder to defend today. “You need to quickly pivot to a model where you own the brand, the product or some of the secret process and secret sauce that allows you to charge a premium.”
Along the way, the government hopes to show there is value in supporting start-ups. “Instead of buying a property and living off rental income, I should invest in a company, invest in a project,” he says.
Chow adds that Singapore is not the only government actively promoting start-ups. Others such as the US have gone down this path before. The Silicon Valley would not have started if the US Defense Advanced Research Projects Agency had not hired US scientists to do R&D, which eventually led to the creation of technologies such as GPS and touchscreens. Over in Europe, leading semiconductor company ST Microelectronics received state funding and support from the governments of France and Italy.
Similarly, the Israelis have created a system that fosters innovation and the growth of numerous technology-based companies. Chow warns, however, that while it is tempting to hold up Israel as a model for Singapore, there are key differences. For one, Singapore is not a “war economy” and the government’s spending priorities should not be determined as such.
Yet, there is an aspect Singapore can adopt: attracting talent. Israel was able to attract 800,000 Jews to emigrate from the Soviet Union, including many scientists and engineers. Chow relates the story of how an Israeli stumbled upon his building cleaner one evening peering at technical documents left on the table. As it turned out, the cleaner was a recent Russian immigrant and a doctorate holder in astrophysics from the Russian Academy of Sciences. He was hired by the Israeli. “That’s how you absorb talent,” says Chow.
There are already formal ties to tap Israel’s technological capabilities and innovation. Under the Singapore-Israel Industrial R&D Foundation, the countries team up to fund R&D projects and then help commercialise the outcome in each other’s regional markets. Chow acknowledges that perhaps more than 10 years ago, the technology was mainly from Israel while Singapore played a bigger role in funding. However, that imbalance is being corrected. Funding is shared and more Singapore technology is being developed. Similar arrangements have been put in place with other countries, such as Germany.
Singapore’s efforts to promote start-ups and entrepreneurship have made many, including those who are overseas, sit up and pay attention. Anecdotally, start-ups led by foreign founders have set up shop here. When asked why, their reasons are usually that Singapore is an easy place to do business, a springboard to Southeast Asia or generous with funding, both private and public.
Chow stresses that while there is plenty of government funding and support for start-ups, there are many conditions attached to ensure the funds go to deserving companies. For example, Enterprise Singapore, one of the main administrators of such government funding, provides funding in the form of grants or equity. Grants are given only to companies that are at least 30% Singaporean-owned. Other schemes include one where the funding can be converted to equity and the government becomes an eventual shareholder of the start-up. The list of criteria includes having an accredited mentor to agree that the start-ups are on the right track and put in a corresponding amount of investment in the form of “sweat equity”.
Chow disagrees with the suggestion that many foreign start-ups relocate to Singapore because of the availability of easy funding and sometimes pulling a fast one after obtaining it. “Maybe, 10 years ago, you could still find suckers. Was the government a sucker? Maybe. But now, you have accelerators, incubators and [venture capitalists], and they have their own money in. If the start-ups can convince them, then okay, you are a damn good salesman. I hope you can correct the misperception. As far as we are concerned, we are very clear. This one I will defend and push back hard.”
At the end of the day, Chow believes there is plenty of potential for start-ups in Singapore — there are 7,000 MNCs, 2,000 large local companies and 30,000 small and medium-size enterprises with $10 million and above in turnover here. If the start-ups are targeting the regional consumer market, there is Indonesia, with its population of 300 million mostly young people, close by. “The market is here,” he stresses.