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.'

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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.

Blogged with the Flock Browser

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....