XiD on ST: Bright ideas aplenty, but where's the money?

I read this with interest as I have interacted with Dr Roberto Mariani in my previous job. He is a good chap, and an entrepreneur through and through.

From ST, Joanne Lee wrote:

IF ROBERTO Mariani gets the latest application of his patented face-recognition technology off the ground, Singapore might well be the birthplace of a new Internet phenomenon.

With just a two-dimensional photograph, FaceTheater will allow web surfers to render their very own avatar into 3D, dress up their character and interact with others in various online communities.

It has potential for use on social networking websites and computer games popular with Netizens everywhere.

But all this is moot unless the 40-year-old French scientist is able to raise venture capital for his Singapore-based company XID Technologies.

Venture capital is essential for technopreneurs like him. The seed money helps them survive the lean years as they develop their technology.

Often, they need a further injection of capital before they can deliver the final product to the mass market.

In return, venture capitalists (VCs) or angel investors get a stake in the start-up - a gamble that could produce a handsome payout or end up a complete write-off.

In recent years, Singapore has seen an influx of VCs setting up their Asian offices here.

After the dot.com bubble burst in 2000, American start-up financiers like Walden International Investment Partners and Draper Fischer Jurvetson hailed Asia as the next frontier in early-stage technology investments.

Walden struck gold with Singapore's Creative Technologies when it listed here in 1994.

But Creative remains one of the rare home-grown technology companies that VCs call a 'double-digit-bagger' - an investment that returns more than 10 times the initial investment.

The problem is that until there are more Sim Wong Hoos soundblasting their way to the big time, there seem to be few angels willing to bridge the financing gap.

This funding purgatory is precisely where Dr Mariani is trapped right now.

In 1997, the physics and computer science PhD-holder from France's National Geographical Institute moved to Singapore to work on a mobile robot project between A*Star and the Japanese government.

He quit his job in 2003 when he raised US$1 million (S$1.4 million) from angel investors here and founded XID. Since then, he has registered three patents and expanded his team to 17 staff members.

He is now looking for US$12 million to expand and break into the international security and mobile consumer markets.

His hook to reel in the VCs is the possibility of an initial public offering in 2011.

Exits, he knows, are all-important to VCs. The shorter the runway before the company's profits take off, the higher the returns on investment. The longer this period, the less willing the VCs to stomach the risk.

Over the past five years, he has dealt with at least 15 VCs, almost all of whom told him to come back when he had secured a million users for his product.

His retort: 'If I have a million users, I won't need to come back!'

Lamenting the lack of risk-taking VCs here, he said: 'We have a solid story, proven revenue streams and clear growth. If we had started up in Silicon Valley, we'd probably be overfunded by now.'

What keeps entrepreneurs like him based here are the considerably lower business costs and taxation.

But of course, they need revenue before tax even becomes an issue. It is a chicken-and-egg problem that has plagued entrepreneurship here for a long time.

Of the estimated US$20 billion of assets under management here, Singapore Venture Capital Association chairman Kelvin Chan estimates less than US$100 million is invested in local companies.

He says: 'The focus here remains on later-stage pre-IPO investments. They mature quicker and offer better returns.'

There appears to be a lack of entrepreneurship among the VCs themselves.

Mr Carmelo Pistorio, founder and managing partner of Upstream Ventures, who invested in XID Technologies in the first round of funding, explains: 'The larger VCs here are just not comfortable with the smaller deals. Their minimum bitesize before they invest is usually US$5 million when the company is already preparing to IPO.'

Aside from common complaints about the lack of talented entrepreneurs and internationally-scaleable ideas here, early-stage investors say local start-ups are averse to relinquishing meaningful ownership stakes.

They want the funds, but are not willing to part with their shares or sell stakes to perceived competitors who might add value to the business.

Mr Mark Thornton, who co-heads British investment house 3i's Asian business in Singapore, says: 'It seems to be the culture here for entrepreneurs to hang on to as much ownership as possible until they list on the stock market - even if they get a good offer from other players who might be in a better position to develop the business.'

Professor Wong Poh Kam, chairman of a group of early-stage investors called Business Angel Network South-east Asia, explains that Singapore is new to the ways of knowledge-based businesses.

He notes: 'Even Silicon Valley took a while to build its venture-capital support. Until Singapore has more successful entrepreneurs who understand the start-up model and are willing to take risks, angel funding and VC will continue to be lacking here.'

Prof Wong notes that like the VCs, angel investors here still tend to stick to old-economy industries which they made their fortunes in.

However, as an entrepreneur-turned-angel who is currently invested in two IT companies, he is confident that this will change.

'We just have to give the industry more time to produce entrepreneurial venture capitalists.'

--

So let's analyze this:
- we have an entrepreneur, with a potential technology that is very Web2.0 (if you don't know that, stop dunking your head in the sand"
- While we wait, the government RIEC (Research, Innovation and Entreprise Council) meets in the next couple of days, and I suspect based on the noise being made by the NRF since Dr Tony Tan's visit to Israel, would now include a VC component
- The question is: will they have a TIF Ventures Redux, or will they look and adopt a model that is more local enterprise and VC friendly. Case in point is all the VC's mentioned in Joanne's article above with the exception of Walden is no longer around.

I think this article is timely because 2 days in a row,we have see what our own local technopreneurs can do with how little resources that they have available to them in Singapore. So I think it's about time the scholars and policy makers at MTI and MOF and PMO start looking at how to deploy Singapore surplus locally to generate local content and companies instead of bailing out foreign one, even though it should be done as they will return a profit. But bottom line is now is the time to take a risk, a risk for both the investor and the entrepreneur.

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Cutting Subsidies for Non-Singaporeans

I have written in the past about the reduction in subsidies for non-Singaporeans, and what I thought about it.

In this week's the Edge Singapore, an article was also written on this topic, as part of the larger review of where Singapore currently finds herself in.

To this article is quite an eye opener. For instance some of the statistics qouted are quite jarring.
1) By cutting the subsidies for PRs and foreigners, the total savings realized per year is only 66 million, which is 0.86% of the total Singapore healthcare spending. The article goes to qoute that only 7% - 9% of PRs and non-PRs' treatment is subsidized, which means most PRs and non-PRs either do not use the public heatlthcare system here or are already going through the private route.

2) By increasing the GST, the cost of living and doing business in Singapore would have increased by 2% points, which could translate to roughly 3 - 4 billion in increased takings for the government. The GST cost will be bornes by everyone, regardless of whether they are visitors, Singaporeans, PRs, Expats, Aliens, Cats, Dogs and the like. BUT the support package will only benefit Singaporeans.

I hate to say it, but how fair is this? I most probably could say that it would not affect me much, but it would definitely affect the average factory operator who are PRs and non-citizens (and I believe there will be a lot of them!) I recall that when I was working in production, while we preferred hiring Singaporeans, we find that most Singaporean operators we hire would not last long due to the perceived hardship of the job.

3) The other area of the article that I was truly surprised was the GINI coefficient.

Wikipedia explains the GINI coefficient as:
"The Gini coefficient is a measure of inequality of a distribution.....

The Gini coefficient is often used to measure income inequality. Here, 0 corresponds to perfect income equality (i.e. everyone has the same income) and 1 corresponds to perfect income inequality (i.e. one person has all the income, while everyone else has zero income)."
Source: http://en.wikipedia.org/wiki/Gini_coefficient

Singapore's GINI coefficient is 0.425, which sandwiches us between Burundi and Kenya. (Source)

The most ideal country: Azerbaijan, Denmark and Japan.
THe least ideal country: Botswana, Lesotho and Namibia

Now isn't it shameful that Singapore, which prides itself as a first world country could have such a low (relatively) GINI index?

So what happened? Is it the relentless pursuit of wealth? Is it the relenless pursuit of attracting high net worth individuals to relocate to Singapore that skewed the index? Or is it that the wealth that Singapore has amassed is actually concentrated on a few thousands of people, whereas the rest of the people still struggle.

With my very own eyes, I see that the riches of the country is spread among the upper strata. Those who could dish out 2,000+ psf for a 99 year leashold apartment, or give blank checks to property agents to "chope" choice units at 6th Avenue.

So much so that even I, who humbly consider myself in the slightly upper-middle class find it hard to swallow and comprehend how to survive in such a market. In the words of Alan Greenspan: Irrational Exuberance in the property market, and it sure looks like another bubble is forming or has formed.

Yet on the other side of the coin, we see families with 6, 7 people living in a 1 room flat, with the older kids resorting to sleeping at the void-decks or parks to get more "fresh air".

So what should the assistance package comprise of? GST offset for Singaporeans? Cheaper h0using for Singaporeans? More New Economy shares for Singaporeans? One time disbursement into Singaporean's CPF SA account?

THe problem with many solutions traditionally tried and tested recently results in an instant gratification feeling among those the package was meant to help. No long term plan, just instant redemption of the benefits.

I feel instead the government should allocate the money into education and pre-sickness education.

Perhaps better would be to not to raise the GST at all and then identify inefficiencies in the system to find ways to reduce cost.

But then again, how do you resolve robbing from peter, paul and mary and give back only to peter?

Singaporeans and non-Singaporeans

Now how does one account for who is Singaporean and who is not. Simple right? The Singaporeans are those carrying the pink or red IC with them.

And correct is the answer.

Why all the debate? It is because starting about 5 years ago, the government has started to differentiate the difference between Singapore and non-Singaporean. Previously the joke was that the difference between a Singaporean and a PR is that Singaporeans get to vote, which essentially means the same as PR as most of the time Singaporean hardly need to think about who to vote for (again this has changed in the past 5 years)

So it has come to this. Singaporeans get to enjoy better reimbursements for healthcare, education, welfare, workfare bonus, etc etc etc and the list goes on and on and on.

Where as PR, get to enjoy some, but not all of this.

And foreigners.. well enjoy none of this.

In today's Today paper, it seems that some foreigners are starting to raise a stink about this. It was said that would Singaporeans living overseas stand for having multiple classes of service or payment if they were living in say, the US or UK?

Which has got me wondering... I've spent a good amount of my time in the US, Malaysian and now Singapore.

And I have to say this.

I think the government is right to differentiate between Singaporean and non-citizens. Why? Because it's real duty is first and foremost to the country and the citizens of the country.

Now comes the hard part. Foreigners (including PRs) make up 25% of the population, therefore, not small change.

Differentiate too much and it becomes discriminatory. Even now, you hear people saying that jobs should go to Singaporean first and then only foreigners. THis is also the same in the US where before an employer can hire a foreigner, they must "proove" (in the loosest sense of the word) that no citizens can meet the criteria for the job. I've heard that this is something easy to overcome as the employers would just find some kink in the guy's resume that no one else has and then make this criteria why he's hiring this foreign guy.

Therefore, a PR or foreigner in Singapore, in the typical sense, would be upper-middle class family, with possibly 1 or 2 income earners, and thus do not require much financial assistance from the government. However the opposite was true as well, in arguing that these people also pay taxes to the government, thus should also enjoy some benefit of the services provided by the government to all people residing in Singapore.

Therefore, how do we distinguish such services? Roads are equally shared amongst the people irregardless of what IC and passport you carry. Water, Electricity but these are not subsidized (at least not that I know of) by the government. And healthcare and education is most likely one of the most important services that is common across all spectrum of people in Singapore.

With the exception of those going to international school, I do believe that it is not justifiable that foreigners pay full-rate for the public school system and healthcare system. All foreigners going to a restructured hospital is automatically considered a full paying patient.

So unless the government is able to clearly and transparently show that even "full paying" students and patients are partially subsidized by the government, then I fear that Singapore is headed down the path of discriminatory practices for her PRs and resident foreigners.

Rather than leaving this commentary hanging, perhaps in a too simplistic sense, the government should tier the payment for the 3 classes of residents: 80 or 90% payment for foreigners residing in Singapore, 40 or 50% payment for PRs, and full subsidy or token payment for Singaporeans.

THe only thing I can say is that I can appreciate the difficulty these bureaucrats have in trying to determine the line, for it is a fine line between making the citizens feel like citizens and the foreigners feeling discriminated against.

GOOD LUCK !

Singapore of the Future

Over the weekend, there was an op-ed that was written by Mr Teo MK, who is the Perm Sec in charge of R&D as in the Prime Minister's office and Ministry of Finance.

I think his article quite interesting about how R&D can be developed to benefit Singapore.

If I were to imaging his plan, it would be an inverted pyramid, where at the base would be the smallest portion and the top the widest portion. It starts whentechnology is created, protected and then commercialized and brought to the world. In the ideal circumstances, a single platform technology could be used to create many different products.

Example could be something like bluetooth technology. At the base, bluetooth is a communication protocol between several devices at short ranges, aka PAN (personal area network). One product at the now quite ubiquitious wireless headset that we use with our handphones. Next, we now see AD2P which is stereo bluetooth headset, and we also see bluetooth enable storage, etc etc. Therefore, theoretically from one technology there are multple spin-off opportunities to be exploited.

However, as great as the concept sounds, there are distinct difficulties in doing this. Primarily, bluetooth technology is not something cooked up by one party but a consortium of companies , plus not every technology being created is platform in nature. Therefore how does one pick winners?

I once had an interested (albeit short) conversation about this. I believe that industry would dictate what it wants, and thus drive R&D whereas my esteemed colleague at that time, was of the opinion that R&D should drive industry. So which comes first? The chicken or the egg?

I still believe that R&D should be guided in principle by industry. Why? Primarily because industry would have taken the effort to determine user requirements. Too often I have seen project requests for funding, not because it was what users had said they wanted, but because it was the neat thing to do. But perhaps that is the academia's way to exploring the outer limits of technology.

But what is most important is how much of this technology is commercialized. Even if we take the altruistic position of bringing benefit to Singapore companies, in the end, commercial returns from this R&D effort must be measured. If the industry is not taking up the exploitation of R&D that has been paid for by the government, then it shows that either:
a) These local companies have no clue how to exploit the technology
b) These technology are of no use to them
c) or the answer lies somewhere in between.

If C is the answer then, this is where Venture capitalists would come in, as they would provide the opportunity and platform for the reseachers, or creator of the said technology to commercialize it own their own behalf.

But I do not see how local VCs are being supported for this endevour. Admittedly, Singapore is muct too small a market for a company to base its business plan on, especially a technology company.

But how does one break the conundrum of the VCs not having enough dealflows, and technopreneurs not having enough funding sources.

What do you think?

GST Increase

The PM had announced the GST increase in FY2007 from the current 5% to 7%.

The primary reason behind the increase was to assist the lower income group to close the income gap between the bottom and top quartile.

As a consumer, I do not look forward to this increase, as it would impact everything that we do on a daily basis. However, it has been eluded that the corporate and individual (not sure about this) tax would be lowered to maintain the competitiveness of the country. If it means lower taxes, then it is good.

But how does it stack up? I guess the rationale is that the rich folks would not mind spending more to purchase that $ 10,000 plasma or LCD TV or home theater system, but the not-so-rich would only spend, perhaps $200 to buy a normal TV. Therefore, the state coffers would increase without taxing the no-so-rich too much.

While I have not taken the time or effort to analyze all the possible scenarios, I do worry about how the government would spend the extra money to assist those who need the financial help. Many commentators have openly questioned if this was the start of a welfare state?

More intriguingly, I see some commentators pushing for early childhood education as a way to get the needy get out of their povertry trap, and I think this is a fantastic idea. While I am a proponent of the meritocracy system here in Singapore, I do see certain downsides to this system, especially when it comes to awarding scholarships to students.

Most scholarships are based on grades (even if not, a big chunk of the consideration is based on grades), but if 2 persons of the same age, but not of the same social status were to compete for the scholarship, the odds are that the student whose parents are from the upper-middle class to upper class strata would have better grades than the one who is not on this strata.

Why? Primarily because this kid would have had the benefit of the best pre-school, tuition, enrichment and whatever classes that you can think of, that money can buy. Whereas the other kid (from the not well to do family) may not such opportunties, but nonetheless strives to suceed the best they can.

So who deserves to get the scholarship? If it were me as the parent, I'd let the poorer kids have a chance, especially if I could already pay for my kids' education by myself. If the poor kid who got the scholarship goes on to become a manager, a VP, a minister, then the system would have done its job for this kid.

What do you think?

Virgin Post

Well this is my virgin post.... well perhaps not exactly. I also blog under another pseudonym, and good luck to you if you can find it.

In essence, this blog is my candid view of the Singapore economy, and perhaps the world in general. I felt the need to produce a dichotomy of myself, one as a serious viewer of the economy and investments, and the other, a naughtier part of myself.

For today's post, I would like to pick on the article that was written on The Edge Singapore about 2 weeks back on the Singapore economy and the need to perhaps restructure the economy now rather than wait for another bubble or correction to happen.

The article (I shall have to come back with the title and the name of the author) rightly pointed out that the Singapore economy has not had it so good in the past 5-6 years, and may not see such good times perhaps for awhile.

All this while, the government has been harping on the ever growing divide between the have's and have not's and the sacred cow is that of some sort of welfare. This I will leave for another time.

The point I wanted to stress on was the point that much of the Singapore GDP is reliant on MNCs and GLCs and a few successful private enterprise. While GLCs are ever reliant to be anchored in Singapore, I can't say that much for MNCs. It is and will always be a business decision on whether to stay rooted in Singapore or to move to a lower cost country.

THe fallacy of the MNC approach and how it benefits the Singapore economy is that the MNC is, if you will, at the top of the food chain pyramid. In the second tier there are suppliers to these MNCs. Some of these will be MNCs themselves (ie, Applied Materials, KNS,etc) and some will be local players. Of late, we have been seeing the local suppliers having a good run on the SGX, like MMI and Jurong Tech, who supply to MNCs such as Seagate and Motorola.

What would happen if Seagate or Motorola were suddently up and relocation to another country? These companies would certainly have to move with them as their lifelines depend on the MNCs? And so what becomes of the Singapore economy? Jobs would naturally be lost and the impact would be felt on the lower income group people.

Instead, I think not enough attention has been put to develop our own companies that market to the world, instead of just to MNCs. These guys chase dollars whever the dollars may be. These guys bring Singapore's cutting edge to the world.

Prior to the bubble of 2000, there were dreams of making Singapore into another Silicon Valley with the TIF Venture FoF, etc etc. Lately it seems that it has all be quiet on this front. Even with the latest announcement by EDB on the Business Angels Scheme, I'm amazed at what is termed as business angels in this context.

THe manager of one such scheme has stated that he'd like to see some revenue as part of the consideration for investment. THen it defeats the purpose of angels as angels are people that entrepreneurs turn to when Venture Capitalists (VCs) fear to tread.

In Singapore, there is a lack of such risk taking angels, with most VCs preferring to invest in Series A or expansion stage companies. I know a friend who has tried to raise an early stage fund to no avail. There are some early stage VCs such as Upstream, but these are too few and far in between.

What is the use of spending all those billions of hard earned money on R&D where commercialization or future economic impact of these R&D projects are an afterthought? There are foreign VCs that specializes in helping technopreneurs develop their companies from such an early stage and I think there are opportunities for Singaporeans or locals to develop such a niche and prosper. But beware, it may take a few cycles of losing ones pants before striking it rich. And the investment value chain needs to be beefed up.

VCs tell me there is a dearth of good investible projects in Singapore, but as I see it, technopreneurs have a hard time getting into the radar scope of such VCs when they can't get access to early money.

TO be continued....