PRINT THIS PAGE

International venture capital: Singapore

Investment in Singapore's VC industry is increasing as the country embraces the global rise of information technology. However, as Eriq Gardner of Upside discusses, the Singaporean VC community remains conservative in its approach and the island has a long way to go before it is seen as the key technology hub of Asia.

A few years ago, Singapore's government officials had a slight problem on their hands.

A small island - only 253 square miles but with a population of over four million - Singapore was running out of room to build new roads. According to Singapore's economic development board (EDB), the government estimated that roads were consuming 14 percent of the land - roughly equivalent to the area needed to house the entire population of the island.

Yet the number of cars on the road continued to surge, and something needed to be done quickly, before Singaporeans took to living out of their automobiles.

Instead of restricting vehicle ownership or building new roads, Singapore chose the road less travelled. The government invested in new technology to save the day and implanted optical-sensory flash points along the highway in the hope that tolls - if not tollbooths - could manage the flow of traffic. Since this change, rush hour has become more expensive and, as a result of more cars travelling at non-peak times, quicker.

Today, as almost any Singaporean might point out, the island just might have the most sophisticated stretch of pavement in the world: information gets beamed to and from smart cards attached to the windshields of automobiles often going more than 50 miles per hour.

In Singapore, it seems there is no room for error. Likewise, ever since the country finally realized that the road to the economic future started on the information highway, Singapore has been playing catch-up, trying to jump-start a nascent indigenous VC force that it believes can transform the country. But can the government make the investment community run as smoothly as its highways?

From goods to ideas

Singapore, in this respect, is a very top-down society. Decisions made by the upper echelons of power often dictate how Singaporeans see themselves. The critical moment for Singapore's cultural economy came not a few years ago, but in the late 1950s, when Britain withdrew its colonists from the nation.

A few years later, Singapore split from a joint government with Malaysia. At that point, the newly formed government of Singapore, facing the same post-colonial choice of withdrawal or engagement that many of its Southeast Asian neighbours confronted, decided to do exactly what India, Malaysia, Indonesia, and Thailand were not doing, namely skipping the existential search for national identity and diving headfirst into global commerce.

Long valued as a major shipping port because of its location, Singapore quickly embraced the role of being a bridge between various Asian cultures and the West. This diffused identity was nicely cached into a major role in the burgeoning manufacturing industry of textiles in the 1960s and electronic equipment later on.

Only in the late 1990s, however, did it become clear to Singapore's authorities that information technology was sweeping the world's economies off their feet. Since then, Singapore has invested large pools of capital, hoping to get new technologies and businesses off the ground and reforming both the rules and the structure of what it means to be an enterpriser within the country.

Today, Singapore's streets feel like a hallowed tribute to where its government officials feel the country is heading, littered with more homage to the benefits of a consumer society than remembrances of the past. Even Singapore's haute Raffles Hotel - which was once home to colonial Englishmen, upper crust society, and a wild cocktail called the Singapore Sling - has been transformed so that it is now just one component of the island's omnipresent mall.

‘Psychologically, we've always been a trading country,' says Infocomm Development Authority (IDA) CEO Yong Ying-I. ‘And, in many ways, we still are. We just trade different things now. We used to be a marketplace of goods. And, now, we are a marketplace of ideas.'

Singapore as a hub

At the heart of Singapore's drive to enter the next stage of a technology economy is its goal of being a hub for Asia's high-tech growth. Singapore - as almost any businessperson, venture capitalist, or government official will acknowledge - will never be the destination of choice for consumer products. Instead, many believe that the island can be the perfect launching pad: use our resources, Singapore's optimists say - our mighty infrastructure, our knowledge capital, and our generous government support - and we will introduce you to Asia.

‘We want to be seen as the key hub of Asia,' says Chua Hwee Song, manager of the $1bn Technopreneurship Investment Fund (TIF) at TIF Ventures. ‘Singapore is very centrally placed, and, although we [have] only four million [people], we have a huge corporate market - close to about 6,000 multinational corporations. The regional and operational headquarters of many of these firms are here.'

Surrounded by Indonesia, Malaysia, Thailand, and the Philippines - four countries rife with economic and political turmoil - Singapore stands quite close to an entire region that, if it can get its act together, has enormous high-tech growth potential.

Without many of the legacy infrastructures that haunt governments and institutions elsewhere and impede progress, Southeast Asia may very well make it onto the fast track. For instance, Southeast Asia's telecommunications and wireless technologies are already a couple of steps ahead of many other regions'. In Singapore, wireless antennae are ubiquitous in everything from subways to high-rises. The country has an extensive submarine-cable network with a total capacity of 53.36Gbps (projected to increase to more than 15Tbps by the end of 2001). It is also liberalising its telecommunications market, granting about 150 licenses to both domestic and international operators.

‘The good thing about Singapore is we can act as a bridge,' says Doris Yee, a partner at IGlobe Partners. ‘The markets in Asia are not homogeneous. The markets are fragmented: different languages, different cultures, and different rules. So that, in itself, is a challenge. You've got to keep up with what is happening.'

The region has already made steps toward cooperation: increasing intraregional trade, reducing tariffs and customs barriers, and building better transportation connectivity between the countries. However, whether Singapore can truly act as a big brother to the region without arousing the hegemonic suspicions of its neighbours is up for debate.

But the upside, Yee says, is enormous. With governments ready and willing to work with the countries of the Western Hemisphere, Southeast Asia may be a viable alternative to the superpower that the region is typically overshadowed by - China.

Many Singaporean VC funds are betting that IT and enterprise software are the places to be. For a culture wrapped up in the potential of business technology and unsure, like almost everyone else, of the exact consumer practicalities of these new technologies, Singapore's somewhat safe dalliance into preparing others to lead the next charge is not surprising. Instead, it suggests that the populace knows the direction it wants to head but hasn't figured out an exact destination. Speak with almost any Singaporean businessperson, and you are likely to get the same vibe.

‘We're moving into value-added services,' says Yee, adopting an air of clichéd market-speak vagueness that Westerners are all too familiar with, ‘getting people trained in technologies, getting engineers to go into R&D labs, and creating products, ideas, and solutions. That is a very good foundation for moving into technopreneurship.'

Singaporean technopreneurship

When Yee and the rest of the investment community in Singapore talk of ‘technopreneurship', they are echoing a word the government has given them along with its money. The word flows from the lips of everyone in the country, is stamped on the government's literature, and has even found its way into the United States, where Singapore has hired a high-priced public-relations firm to handle its image and talk up ‘Singaporean technopreneurship.'

According to Economic Development Board Chairman Teo Ming Kian, technopreneurship refers to a spirit of creativity and risk-taking upon which new ventures will be launched. To achieve this spirit, the island is making a number of major investments. The first of these investments, Teo says, is in education, overhauling the current curriculum - under which Singapore's students have frequently earned top test scores internationally in math and science - in favour of PC-centric instruction that gives as much weight to conceptual thinking as it does to the hard sciences.

Teo also says that Singapore is liberalising the foundations of its economy in an effort to spur investments from both inside the country and abroad. These changes include loosening bankruptcy rules, creating favourable tax treatment of stock options, making it easier for companies to list on Singapore's stock exchange, and deregulating industries such as telecom.

In terms of telecommunications and infrastructure as an impetus for growth, Singapore is making sure everyone gets on the information highway - fast. According to the IDA, Singapore's broadband network reaches an amazing 99 percent of the island's homes, schools, and businesses.

In the IDA's 2000 report, a small note on the last page pleads: ‘There are more than 30,000 less-fortunate families who are in need of PCs. If you have a used PC that you don't need, pass it on.' Of course, compared with statistics from almost any other country, 30,000 out of four million is nothing. Yet the equation of computer needs with poverty illustrates how seriously the government is taking this issue.

When Singapore was building its high-tech highway to control the flow of automobiles, sceptics could have easily pointed out potential obstacles: the technology, especially the image-recognition software, might not have been ready. Getting all the vendors to work together could have proven too tough a task. Or the citizens, perhaps fearing yet another tax or citing strong privacy concerns, might not have accepted the system. Nevertheless, it appears that the government's strong arm was able to overcome all these potential obstacles.

As reflected in the modifications the island has made in accordance with the government's directive, Singapore hopes to become an Asian-business paradise for both investors and venture capitalists. The question begs, however: if you build it, will they come?

The fund of funds

Under the wing of the Ministry of Finance, TIF Ventures, acting as a sort of ‘super VC', might be called ‘the fund of funds.' In the last few years, it has invested $1bn in Singapore. Rather than investing in start-ups, it has poured the money into the coffers of other venture capitalist firms. TIF Ventures' Song says that it is ‘trying to get all the players together and build a Silicon Valley environment.'

The money that TIF Ventures has invested, he says, has found its way into 47 funds. Twenty-five percent of the money went to indigenous VCs, with the hope that dangling cash in front of the country's eyes would create interest among local entrepreneurs. Song says that the idea was to provide a dollar for every one and a half to two and a half dollars that were raised. ‘So we are able to get a core group of indigenous VCs going from our sponsorship,' he says, ‘and we know that they are good VCs, because the market is soft, but they are still raising their own money.'

The destination for the second portion of the fund, called the ‘broadbase trench phase,' was any reputable VC firm that would set up shop in Singapore. The remainder of the money, the ‘strategy phase,' went to international high-yield funds that didn't have to spend even a minute dealing with Singapore's intolerable humidity. If the broadbase trench phase was aimed at attracting foreign capital into the country, the strategy phase set the bar even higher, creating a social network that Singaporean companies could go to when they were expanding globally.

So far, the government's strategy seems to have worked, at least as far as increasing the level of money raising going on in the country. According to the economic development board, a paltry $16m in funds was raised in 1985. Today, that number has ballooned to $11.5bn, under the managed care of close to 90 fund-management groups and 370 investment professionals.

Risk aversion vs. impatience

The young Singaporean VC community has a long way to go before it reaches the maturity found in other countries. The frustration felt by local entrepreneurs is self-evident. Building an effective venture capital industry, according to some locals, is a big issue.

‘Do you want me to give you an honest opinion or a polite one?' asks Sandra Lee, chief executive officer of Singapore-based logistics-software start-up Cargo International Web, perhaps wrestling with national allegiance on one hand and actual memories of Singaporean venture capitalists on the other.

‘It's pretty much a nightmare dealing with them,' Lee says bluntly. ‘Why do I say that? They seem to have a follow-on attitude. If I were to get a VC from Silicon Valley here, I would have no problem with the VCs doing due diligence. I'm not saying that [Singaporean VCs] aren't good. But, from the experience I've had, the only constructive help I've gotten is from the government. They are not VCs, though.'

Lee and a few other Singaporean entrepreneurs, who asked to not be identified, say that venture capitalists on the island are so conservative that they might as well have no funds to begin with. Lee and her compatriots admit to logging a good deal of flight time, in the hope that VCs outside of Singapore don't hold their purse strings as tightly as Singaporeans do.

‘People in this part of the world tend to be more risk-averse,' Lee says. ‘They tell me, “If it's so smart, why didn't anyone else think of it? Why [should] I bother? What am I getting?”'

On the other hand, the VCs say that the entrepreneurs are somewhat stubborn, making unrealistic demands during hard economic times. ‘Patience is a virtue,' says one senior manager at a Singaporean VC fund. ‘They really just don't get it sometimes.'

‘We've seen a lot of startups and a lot of young, enthusiastic people who might not be too realistic,' says IGlobe Partners' Yee. ‘A lot of that effervescence is coming out. A lot of those unrealistic IPO goals of nine months ago have been shaken. Right now, the situation is getting more stable.'

The hopes of ambitious entrepreneurs and ROI-obsessed VCs are certainly not a local tale, nor a new one. But, in Singapore, where the government has so vigorously pursued a model of Western capitalism - a facsimile, if you will, of everything that it's digested from the newspapers and the multiple English-language business channels flooding the airwaves - there is a certain hollowness to these affairs that does not exist elsewhere.

In a country that marches its children to school two-by-two in plain white uniforms, and then tries to preach to them the virtues of creativity and independence, this is a somewhat unsurprising result.

A hopeful future

But, if there is one place that may lend hope to the region, it is the National Science and Technology Board-funded Kent Ridge Digital Labs (KRDL), which was created in 1998 by a merger between Singapore's Information Technology Institute and the Institute of Systems Science. It is an organization staffed by an eclectic crew of international engineers - an incubation of sorts that is winning worldwide acclaim.

The team has been successful on several fronts: partnering with Microsoft, Apple Computer, Ericsson, IBM, Lucent Technologies, and Siemens, to name a few; working on cutting-edge technology like language processing and optical recognition; and, finally, attracting high-profile international venture capitalists to commercialise its technologies and talent. Since incorporating in 1998, KRDL has spun out 10 companies, and 8 more groups are currently in incubation.

KRDL's success seems to stem from a basic love of what technology is capable of - like recognising a license plate at 50 miles an hour - rather than the pursuit of something vague. This attitude has attracted a wealth of talent and capital to the organisation.

‘It's a system where most of our core funding goes into research,' says Juzar Motiwalla, CEO of KRDL. ‘And then, when the research shows interesting results, we look at the boundary of possibilities for it and then incubate the idea in-house. And then the venture capital will come in.'

In a culture where one big decision many years ago thrust the country onto a path where every road led outward, it's not surprising to now find Singapore's government-funded future housed in what can only be called - to borrow IDA CEO Yong's appropriation of former US Supreme Court Justice William Brennan Jr.'s phrase - a ‘marketplace of ideas.'

Copyright © 2002 Upside

Eriq Gardner is a journalist with UMAC Inc.

UMAC Inc. is dedicated to providing its customers with high quality, insightful media products that uniquely position the company as a leader in the information technology field. Upside covers key business issues and trends affecting high-tech companies in computing, software, telecommunications, and e-commerce. In addition to its flagship magazine, Upside has created a number of products in different media, including an Internet site, books, conferences and television. The company has also developed a creative, rewarding workplace for its growing workforce of bright, dedicated employees. For more information please visit www.upside.com