Overwhelming

To all who have pop by the blog to read about my Jerry McGuire moment.

THANKS!

And I hope that, if nothing else, get the brain juice flowing a bit.

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Technopreneurship in Singapore - A Commentary

Note:
On Monday night, I was up partially to help look after my No 2 who was sick with fever. Then I couldn't sleep, and literally had a "Jerry McGuire Moment" - recall the show Jerry McGuire, where Jerry had an epiphany in the middle of the night and wrote this long thesis about something, only for him to loose his job the days after.

My Jerry McGuire moment was triggered from a conversation I had earlier in the day with a VC friend, but to be honest, it has been something that I have been thinking off for the longest of time. Defining moments include the press release by Dr Tony Tan when he visited Israel, as well as of my own conversations with entrepreneurs and VC friends alike.

It definitely is a long document, but let me warn you that I did very little factual research on it. Most of the points are stuck somewhere in my head, and I do not have time to research up the points for I am doing this as my own interest and not as an MBA thesis.

Comments would be welcomed, but again, this is MY commentary and MY thoughts formulated through discussions and news articles.

Long article below:

Transitioning Singapore into Economy 1.5

 

We have all heard about Web 2.0, and lately at CES, the CEO of Yahoo proudly stood in front of a banner which said “Yahoo 3.0”. So what is Economy 1.5? Well, a quick search on Google indicates that the term Economy 2.0 is taken as a virtual economy, ie similar to what we see happening on Second Life. However, what I am talking about is not virtual, it is very real. And as such, perhaps I will call it Economy 1.5, which roughly translates to more than the old way of doing things, but not in the virtual world.

 

Economy 1.0: Building Singapore from Scratch

 

The exploits of MM Lee Kuan Yew during his time as the Prime Minister of Singapore is well documented. Many people around the world still gaze in amazement the rapid progress he has brought to Singapore in 40 short years.

 

Consider this, Singapore is a small country, with no real natural resources to speak of. It’s key strength was human capital, but at the time the then PM Lee Kuan Yew rose to power after the Independence of Singapore from Malaysia, the masses were generally poorly educated with only a select few having university education.

 

Through sheer grit and determination, PM Lee marshaled the educated select few and the uneducated masses to work as a team. In short, Singapore started with virtually nothing, and as a first step to become the world’s manufacturing hub. She started with manufacturing of low technology goods such as toys etc etc, and slowly made the step to move up the value chain.

 

Fast forward 40 years. The Singapore of today is unable to produce the cheap toys of yesteryears. China has taken over that role. In fact, Singapore can’t manufacturer even the lower end consumer electronics any more, our costs are just too high. So the only way is to continue to climb the value-chain, transitioning from manufacturing to research and development.

 

 

Moving into Economy 1.5

 

Along the way, to government had realized this and had started to invest in public funded R&D through the universities and institutions of higher learning and through the setting up of the National Science and Technology Board (now known as the Agency for Science Technology and Research).

 

R&D has even found its way into primary schools to get the pupils a headstart in undertaking simple research and development. And the government has itself branched out of the traditional Science and Technology (encompassing chemicals, microelectronics, manufacturing, materials and infocommunication technologies) into the Biomedical Sector.

 

In 2006, the government set up another research arm called the National Research Foundation, spearheaded by the then Deputy Prime Minister Dr Tony Tan. Its objective was to undertake research that is not covered by its sister agency A*STAR.

Moving the economy from a manufacturing based to a knowledge based (which all these R&D workers are labeled as) is not as simple and there was a period of some turmoil as Singapore’s Economic Development Board had a tough time attracting inward bound investment, facing stiff competition from not only neighbouring countries, but also India, China as well as the recently liberated economies of Eastern Europe. All these countries offered cheaper skilled manpower than what Singapore could offer.

 

At the same time (this was in the mid to late 90’s), the dot.com bubble began to grow in the US, and technopreneurship was THE “buzzword” of those times. The Singapore government, through the foresight of people like Mr Teo Ming Kian, the then Chairman of NSTB together with the respective ministries created the Technopreneurship Innovation Fund, amounting to some SGD 1 billion and TIF Ventures was set-up to manage that fund. The large portion of the fund was earmarked at Fund of Fund (FoF) to be invested into VC’s funds on a Limited Partnership basis, and the rest earmarked for direct investment.

 

The aim of the fund was primarily to attract premium Venture Capital (VC) brands, through the FoF, to set-up office in Singapore and it was hoped that they would in turn invest in Singapore start-ups. The end-goal for the fund was to kick-start the process to get young, technology-centric, innovative start-ups to co-exists with the mature manufacturing companies that are already in Singapore.

 

After about 10 years of existence, TIF Ventures finally closed when the Ministry of Finance decided not to invest another tranche of funding for TIF. Does this mean that it was a very expensive experiment, and now the government has decided that it is safer to bet on what it knows best, which is primarily manufacturing?

 

Of course, at this stage, manufacturing now encompasses electronics (such as semiconductors and hard discs), but also includes pharmaceuticals, fossil fuel based chemical plants, as well as an increasing number of factories that cater for the renewable energy sector such as solar (one could consider them as part of the semiconductor sector) and biofuels.

 

With the dot com bust, and the rise of India and China, many of the VCs originally attracted here by TIF has now closed their Singapore office, or at least kept the headcount to a minimum and moved on to the next best thing: China and India. So how does this augur for aspiring entrepreneurs in Singapore?

 

Economy 1.5 Part One.

 

Evidently not good. For those aspiring technopreneurs, funding, especially at the early stages are almost impossible to come by. There simply aren’t many early stage VCs in Singapore that are willing to risk investing in these stage of start-ups. And these are supposed to represent the next wave in Small and Medium Enterprises (SMEs) and hopefully some will turn into MultiNational Companies (MNCs).

 

Is there something wrong with the picture?

 

I believe there is.

 

I believe that the EDB, even with the best effort it puts in to attract inward bound investment, will find it increasingly difficult to attract mega projects into the country. Why? This is because China is catching up to Singapore, in terms of talent, in terms of regulations and it is definitely not short of people wanting to pump investment into the country. And a similar thing is happening in India as well.

 

With the 2006 announcement that the government is allocating up to US 8 billion (or approximately SG 12 billion at an exchange of 1 USD = 1.5 SGD) dollars into research and development over the following 5 years, I believe there will be excess of funding that will be available to the R&D community.

 

The R&D community in Singapore comprises of the private sector and the public sector. In the private sector, the R&D undertaken is primarily driven by business objectives with many short to medium term projects than long term blue sky research.

 

In the public sector, R&D is undertaken at the institutes belonging to A*STAR, Temasek Life Sciences Laboratory, at the 2 IHLs comprising of NUS and NTU as well as publicly funded institution such as the National Healthcare Group and SingHealth. Additional R&D, though more end-use related occurs at the polytechnics.

 

But to what outcome will this investment of SG 12 billion bring? What will be the end result? Surely it is not to contribute to the general knowledge of mankind? While that will surely happen, it is politically not viable as the masses still need to put food on the table and to do that, they need to have gainful employment.

 

Therefore, from these R&D investment, there must be some commercial outlet or use where a business could be built from it. Some of the technologies conceived from this funding will be used to keep existing companies and their facilities firmly anchored in Singapore, and some others will be used to strengthen our current crop of SMEs.

 

However, there will be some technologies where either the current crop of companies small and large are unable to make full use of, or that it’s use or market is still undeveloped, are better used in the setting of a start-up company.

 

But for these start-ups, Darwin’s Law applies, just as it does in Nature. Only the strong survive. The general rule of thumb used by most VCs, even in Silicon Valley, is 1 out of 10 will IPO, 2 – 3 will be acquired with some returns, 3-5 will survive but the investor will not recoup their investment, and the rest will die.

 

If in Silicon Valley, the odds are such, surely the odds of surviving the start-up phase are even worse. But is there any other option for Singapore?

 

Frankly I believe that this is a path that has to be traveled. Yes, while the good people at EDB and the various other agencies try with all their might to keep the economy humming, it is paramount for the country to start looking at promoting entrepreneurship to generate the next generation buzz among the workforce.

 

As it is, it has been close to 5 years since the BMS R&D effort really kicked off with the then Chairman of A*STAR, Mr Philip Yeo and I believe that some of the projects funded during the initial phase are now starting to show some results. One may argue that the BMS industry, the gestation period for new technologies take a much longer time than other industries, and I completely agree with that.

 

We see in the past weeks and months, that A*STAR has put in place additional research groups meant to take the research from the bench to the bedside. The question is does it make sense to take this onwards as a publicly-funded R&D, or should these devices, or compounds be tested as part of a product portfolio of a start-up company? Or perhaps the burning question could be: at what stage does the public R&D monies stop and the industry and private R&D monies start?

 

Already we have seen some early successes in terms of laboratory prototypes coming from institutes like the Institute for BioNanotechnology (IBN), most prominently a bird flu detection kit, reflecting that the research being undertaken at these institutes are relevant (in the case of the bird flue detection kit – needed). In this case, the prototype is only the first of many steps that need to be undertaken to take the device from prototype all the way to market.

 

But essentially what Singapore lacks is the type of financing that is essentially makes Silicon Valley, Boston, San Diego and Israel what they are today where start-ups and VC are concerned. In Silicon Valley, there is a sophisticated network of angel investors, coupled with early stage VCs to provide a lifeline for budding entrepreneurs to spin-off the technologies that they are working on. Google was in fact started this way when founders Larry Page and Sergei Brin sought to commercialize their search engine.

 

Below is an excerpt of how the first tranche of funding for Google was obtained:

 

 

“Larry and Sergey soon began working on ways to harness information on the World Wide Web, spending so much time together that they took on a joint identity, “LarryandSergey.” By 1996, Larry had hit on the idea of using the links between web pages to rank their relative importance. Borrowing from academia the concept of citations in research papers as a measure of topicality and value, he and Brin applied that thinking to the Web: if one page linked to another, it was in effect “citing” or casting a vote for that page. The more votes a page had, the more valuable it was. The concept seems rather obvious in retrospect, and today most search engines operate on this principle. But, at the time, it was groundbreaking. Calling their new invention Google—a misspelling of a very large number in mathematics—Larry and Sergey shopped it around to various companies for the price of $1 million.

No one was interested. In the technology boom of the late 1990s, conventional thinking was that so-called web portals like Yahoo! and AOL, which offered email, news, weather and more, would make the most money. No one cared about search. But Sergey and Larry knew they were on to something, so they decided to take leaves of absence from Stanford and build a company themselves. Sergey’s parents were skeptical. “We were definitely upset,” Genia says. “We thought everybody in their right mind ought to get a Ph.D.”

Soliciting funds from faculty members, family and friends, Sergey and Larry scraped together enough to buy some servers and rent that famous garage in Menlo Park. Their venture quickly bore fruit: After viewing a quick demo, Sun Microsystems cofounder Andy Bechtolsheim (himself a Jewish immigrant from Germany) wrote a $100,000 check to “Google, Inc.” The only problem was, “Google, Inc.” did not yet exist—the company hadn’t yet been incorporated. For two weeks, as they handled the paperwork, the young men had nowhere to deposit the money. ”

(Source: http://www.momentmag.com/Exclusive/2007/2007-02/200702-BrinFeature.html)

 

I recently spoke with a few VC friends still left in Singapore. Their lament is not unusual: There is too few deal flows in Singapore to warrant an increased presence. The companies vying for these firm’s capital do not only come from within Singapore but from a world-wide competition as well. Each investment decision is undertaken after many rounds of debate with the Venture Partners, often located elsewhere as they sought to find the best companies to invest in.

 

The VCs left in town primarily operate more as private equity firms(mergers and acquisition and/or pre-IPO deals), with a handful looking at early stage companies. When one talks about seed stage funding, the number of formal investors can be counted with the digits on one hand.

 

And similarly, I have spoken to entrepreneurs and they lament that they are unable to find adequate funding to grow their companies beyond completely exhausting their own savings.

 

Their lament resembles the famous question: which came first, the chicken or the egg. For with the egg, there would be not chicken, and if there were no chicken, there would not be eggs. In the same vein, without capital there would not be start-ups, and without start-ups, capital will not flow here.

 

Therefore, how does one put a stop of this vicious cycle?

 

Further, with the recent governmental push toward cleantech, renewable energy, water technologies on top of the current Biomedical push, a fundamental question needs to be asked: are there enough sophisticated investors locally to be able to assess the market viability of the technologies being worked on now?

 

 

Economy 1.5 - Redux

 

Allow me to revisit the committed funding that the government has put aside for R&D. It was reported to be SG 12 billion spread out for 5 years. That works out to approximately SG 2.4 billion per year. While I am not privy to the details of the appropriation of these funds, I find it simply amazing.

 

But the vicious cycle still remains? Is it the lack of entrepreneurs, technology or investors? And do we have sufficient investment expertise to assess some of the new technologies that is being funded. Be mindful that we are not talking about the science as the institutes each have their Scientific Advisory Board, but the market application of the technology, which at best could be considered a little bit of crystal ball gazing.

 

What the government or the agencies under the government needs to do first is to set aside a sum from this R&D funding, and it’s main use is to invest into home grown technology based start-ups. We are not talking about providing loans, unless they are convertible loans, but straight up equity investment.

 

A 5% sum of SG 2.4 billion would equal SG 120 million per annum! Assuming that 60% of that goes to Series A funding and beyond would equal to SG 72 million per year. If these funding quantums range from SG 4 – 6 million each, it would translate to 14 transactions or companies being funded annually.

 

The other 40% should be devoted to the highest risk investment, which is Seed or funding at spin-off, where entrepreneurs and scientists are testing out their concepts in the market place and resolving issues with upscaling their manufacturing process. This would translate to SG 48 million, and if each of these projects get an average of 1 – 2 million, it would translate to at least 24, perhaps 30 new start-up being created each year.

 

If we look at the VC rule of thumb again, and of these 24 or 30 projects, it would seem that at least 1 -3 would survive to list as a public company, and hopefully another 8 – 12 would be acquired by bigger, more financially stable companies, and the rest would either be liquidated or forever remain in limbo.

 

Surely these numbers must mean something to the powers that be? To be sure, it does not have the instant gratification of releasing a press release to say this or that company is investing how ever many hundreds of million and creating how ever many hundreds or thousands of jobs.

 

But quite the reverse is true, for start-ups seldom advertise how many people they hire and how much money they are investing back into the company for they are private companies. One must see it in the same vein as tending a garden, where one nurtures the garden from seeds to seedling to young plants to hopefully, one day, producing plants. There is not much glamour in this, but still it is a role that needs to be filled, much like how the role of the farmer, though unglamorous, is an essential piece of the human value chain.

 

And when they do show up in the news it is only for the good news such as when Motorola acquired Soundbuzz, or when Bilcare acquire another home-grown start-up, SingularID. The other start-ups that get liquidated, do so quietly.

 

But should the model that funded TIF fund be used again? Surely there will be those in a position of influence that would shout a very positive “AYE!” This is the fastest way to import foreign talent (I must declare I am one of those foreign talent) who has expertise in the area which we currently lack. For instance, Al Gore is a partner at Kleiner Perkins, and KP is one of the foremost, and prestigious VCs in the world that is actively investing in the Cleantech area.

 

But to attract such a firm would involve much lobbying and a lot of money, but the key question is: would they stay once the money runs out, or will they bail like all the rest before them?

 

But what of homegrown talent? What of the people who’s daily work is exactly what these expensive foreignVCs do in a foreign land, though experts they are not, they certainly are trying their best.

 

So does that mean that we do not try to attract foreign VCs? But the best case study is studying how the VC industry grew in countries such as the United States, United Kingdom, Israel, India, and China. Apart from India and China, many of the current VCs started out as a local firm funded and staffed by the very entrepreneurs who have successfully exited from their start-ups and decided to become a VC in turn, either from a financial angle or a more altruistic angle.

 

They did not short-circuit the process, they slogged it through and some in the process, lost money as well for they did not enjoy much benefit from their own government. More importantly, the start-ups they invested in were not tied to any political objective.

 

In Israel, it is the norm to have start-ups relocate their headquarters to the US after their initial stage of growth. This is not seen as being unpatriotic but as a fact of life. The United States still represents the largest market in terms of monetary value, and therefore, these companies move the HQ to be closer to the market. A substantial part of the company still resides in Israel, and in fact, more often than not, the R&D is still located in the home country. These companies consider R&D as the heart and soul of the company, therefore it is most important that it not leave Israel.

 

For China and India (especially India), many of the VC investors in both these countries are Chinese and Indians who have emigrated to the West, found success in their newly adopted country but yet still feel an affinity to their motherland. They speak the language, know the local customs and regulations, but also play an important role in bridging the social and financial differences between their homeland and their adopted home. Plus the fact that India and China are the 2 most populous countries in the world also mean that there is a large home market to sell to.

 

Singapore, unfortunately, does not have many of such traits, and potentially the closest country that it resembles is Israel with a very big difference in culture. However, one could postulate that the worldview of many Israelis are governed by the tumultuous short history in a region that is strife with conflict. As such, there may be a more “do or die”, risk taking attitude in the Israel culture. Many of the past exploits of notable Israel army commanders were decidedly risky maneuvers, but yet still brought victory to Israel.

 

Singapore, on the other hand, is blessed with peaceful growth since Independence, except for a few years of insurgency during the Konfrantasi years with Indonesia (Singapore was then still part of Malaya). Its population, except for the upper echelons of power never had to deal with life or death situation that the Israelis had to. In short, the culture that many Singaporeans are accustomed to is one that stable, and oftentimes, risk averse.

 

But the fact is that there are many people, mostly of the younger generation, both Singaporeans and foreigners alike who have seen and experienced entrepreneurship and coupled with the fact that entrepreneurship is being taught at many institutions from universities to secondary schools mean that the younger generation may be prepared to be less risk averse to chase their dreams.

 

 

Economy 1.5 – Finale

 

So in an economy where the venture economy is highly inefficient, I believe that the government has no choice but to play the role of kingmaker. But should the same model that was used for the initial TIF fund be re-used?

 

I believe that model is outdated, and should be replaced with a more updated model that takes into account the scenarios of today. That model should aim to go global by first being local. What this means is that end goal for the use of this funding is to fund companies that must be able to eventually compete on a global stage.

 

The fund should be strictly administered as a Fund of Funds (FoF) to as to allow the funa managers to have clear objectives, responsibilities and outcomes. For the FoF receipients, preference should be given to those already active in Singapore or local Venture Capitalists who are able to provide a sound investment thesis to the fund managers. For areas where expertise is lacking, the fund managers should not play the role of matchmaker, but instead, that responsibility should fall on the VCs vying for investment from the fund managers to form networks, be it formal or informal to tackle new areas of growth being funded through the various R&D organizations in Singapore.

 

However, one clear objective for the FoF fund managers is that the funds must be invested in Singapore companies, with a strong emphasis on home grown technology. This will allow the R&D outcomes to have a natural pipe to the market. The alpha and beta testing, clinical trials can all be conducted overseas which is a realistic view as the Singapore market is just too small to gain any meaningful insight.

 

In addition, due to the high risk nature of the investments being made, the FOF fund managers and in essence the ministries that disburse the funding must realize that the Return of Investment may not necessarily be in the form of monetary returns, but in intangibles, such as job creation, contribution to the Gross National Product. In fact, for the seed stage funding, it is plausible that the fund will loose some of its investment monies due to the fact that seed stage funding is typically the riskiest investment, but where the returns are the best if successful. Measure of success should also include success of follow-on funding by external investors, and not just on exits.

 

For the later stage funding, the manner of the fund administration should follow the norms of how FoF manages such funding worldwide.

 

I believe that it is time for Singapore to take stand to take ownership of its own future well being, by mostly thinking local and not to be so besotted by foreign firms bearing well known brands and names for they do not have any roots in this country to anchor them for the long terms and through bad times. If these foreign firms were to come, it must be on our own terms and conditions.

 

 

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