Singapore VC: Redressing the balance

The proliferation of venture capital players in Singapore, and the growing availability of Series A funding, can in part be credited to the Early Stage Venture Fund (ESVF) initiative. It is one element of a government-led drive to develop a start-up ecosystem - but this ecosystem is imbalanced, with most activity in the information and communication technology (ICT) sector.

"VCs have typically focused on ICT because the time to market is shorter and the capital outlays are smaller," says Philip Ong, deputy CEO at the National Research Foundation (NRF), which operates the ESVF.

Now efforts are being made to redress the balance. The previous two tranches of the ESVF, in 2008 and 2014, saw capital committed to independent VC funds, with the NRF matching private capital investments in local start-ups on a 1:1 basis. The recently-announced third tranche offers the same deal to funds established by large local enterprises. It is hoped this will prompt corporates to play a fuller role in the ecosystem.

Corporate venture funds are one way for us to spread into areas of financing outside of ICT, such as financial technology, medical technology, engineering and advanced manufacturing - Philip Ong

"Corporate venture funds are one way for us to spread into areas of financing outside of ICT, such as financial technology, medical technology, engineering and advanced manufacturing," Ong explains. "It is also useful to partner with corporate VCs because they are investing in start-ups as part of their larger corporate growth strategy. They take a longer view as to when they expect financing to be paid off and how start-ups can contribute to corporate growth."

The scheme allows corporations to benefit from the specialist technological innovation by smaller start-ups, while the start-ups can tap into the resources and networks of these larger companies. However, as in other markets, it is unclear how easily a start-up can develop truly disruptive solutions under a corporate agenda.

The missing piece

In the first round of ESVF, NRF provided S$10 million each to five VC firms, including Bioveda Capital, Extream Ventures, New Asia Investments, Raffles Venture Partners and Walden International. The second tranche saw Walden receive another S$10 million, as did four newcomers: Jungle Ventures, Golden Gate Ventures, SBI Venture Capital and Monk's Hill Ventures.

Jungle is now raising its second fund of $100 million, and has already received $65 million from LPs, including Temasek Holdings. A final close is expected within three months. With Golden Gate recently reaching a $35 million first close on its second fund, which is targeting $50 million, there appears to be strong investor appetite for exposure to Singapore's start-up scene.

"Programs like ESVF anchor Jungle and other VC firms' investments, which enable us to raise $50-$100 million today. Our first fund was $10 million and the second will be $100 million. That wouldn't happen if we didn't have support from local investors like ESVF and Temasek," says Anurag Srivastava, managing partner at Jungle.

Local corporations are also becoming more engaged with start-ups programs. In the past they set up in-house products innovation departments but most of these often didn't work out due to internal conflicts. Establishing a corporate VC affiliate is therefore helpful because it makes decision-making easier and faster.

"Corporations see the value in helping start-ups develop products useful for them; and ultimately when the start-ups are matured, they can acquire them," says Alex Lin, head of Infocomm Investments. "Corporate venture funds have been around for years but usually they're restricted to multinational corporations (MNCs). Other medium-size corporates aren't doing that yet because they're resource strapped."

More than 3,500 MNCs have set up regional headquarters in Singapore. The likes of SAP, IBM and Microsoft already run corporate VC funds, while home-grown players are catching up. Singapore Press Holdings and MediaCorp are among those getting involved.

ESVF III is intended to establish ties between more local companies and start-ups. NRF's Ong says it is important that the corporate VC arms have strong management support and are structured so there is alignment with corporate strategy as well as the incentive to innovate.

Hugh Mazon, co-founder of Singapore-based incubator JFDI, observes that this makes sense in Southeast Asia, which is fragmented by multiple cultures, regulations and currencies. "One of the challenges for start-ups is it's easy to be the biggest player in Singapore but it's a market of only 5.5 million people. The advantage of large local enterprises is that they potentially can bring start-ups to scale effectively."

In this sense, large corporations can supplement what generic VC accelerators lack: a customer base, infrastructure and domain knowledge in specific industry. However, the culture within a venture capital firm is very different to that of a corporation's core business, and integrating the two can be a challenge.

"Imagine a telecom company's monthly board meeting," says Mason. "The people from consumer sales and enterprise sales say how much money they are making, and then the VC fund guy says, ‘I've invested $5 million and maybe in five years there will be something to show for it. "It's like having a café alongside a factory - two completely different businesses."

Bigger checks

Infocomm believes that one way to avoid these conflicts is by developing corporate accelerators. It is working with Jungle on an accelerator in which corporations will participate but without providing capital. Only once start-ups are ready will corporates make follow-on investments.

JFDI is also launching a "collaborative innovation" program through which MNCs will be able to work with start-ups in areas outside of their existing expertise to discover new business lines. For example, an insurance company might want to launch new products based on data supplied by wearable devices.

Ultimately, the role Singapore wants corporations to play comes after the Series A, for which there are already ample providers. They may come in early to support start-ups but it is the Series B gap they are expected to fill.

"Family offices put small amounts of money into venture funds, but their primary interest is co-investments. They want deals where they can write bigger checks. This trend will extend to corporate venture funds and family venture arms," says Jungle's Srivastava.

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• Topics
• Venture
• Southeast Asia
• Fundraising
• Technology
• Technology
• Venture
• Fundraising
• Singapore
• Southeast Asia
• Jungle Ventures
• JFDI