Singapore start-ups: Another option

Fatfish Internet Group, a technology incubator and venture investor established in Singapore, went public on the Australian Securities Exchange (ASX) last summer. The firm is targeting IPOs for at least four of its investees over the next 18 months, mostly likely also on the ASX. Singapore gets short shrift.

Catalist was introduced as a light-weight version of the Singapore Exchange's (SGX) main board; a sponsor-supervised listing platform for growth companies that need not meet minimum requirements in terms of track record and profitability. But Kin-Wai Lau, CEO of Fatfish, baulks at the expense involved, estimating that a listing costs up to S$2.5 million ($1.8 million).

"The sponsorship and legal fees all add up and it is probably one of the most expensive exchanges in the region to list," he says. "Then there are various unwritten rules. If your business is not profitable it is almost impossible to list; the sponsors won't back you."

Lau is not alone in expressing frustration at the capital-raising options for start-ups in Singapore. Indeed, when Fatfish listed in Australia, the move was not driven by a need for funding as much as a desire for the discipline that being accountable to a broader pool of investors who interests are minded by a regulator.

However, it appears Singapore is about to take a step in this direction. Last month, SGX and Clearbridge Accelerator announced plans to develop a capital-raising platform for small and medium-sized enterprises (SMEs) in Asia. The remit is to address financing gaps "by providing transparency and more efficient access among the investing community."

Early days

While the platform has been announced, details of how it will operate and the investor guidance is still being discussed. However, a number of critical functions are clear even at this early stage.

First, the presence of SGX indicates a connection to the full public markets, albeit not a direct one. "The platform is not an exchange - it is a capital-raising platform - but our hope is that companies going through campaigns with us on the platform will become candidates for a liquidity event, either by way of an acquisition or an IPO," says Steven Fang, a partner at Clearbridge.

Second, this is not crowdfunding. While one of the key tenets of crowdfunding is inclusivity on the investor side, the SGX-Clearbridge platform will work exclusively with accredited investors. Retail participation has not been ruled out, but at present it is not being considered.

The Monetary Authority of Singapore (MAS) already has criteria through which accreditation can be established. Individuals must have net personal assets in excess of S$2 million or income from the preceding 12 months of no less than S$300,000, while the minimum requirement for corporations is S$10 million in net assets.

Third, companies admitted to the platform are likely to have been through Series A funding, which implies they are revenue generative and may be on a clear trajectory towards profitability.

"There is a general sense that the post-Series A space, which used to be occupied by the VCs, is getting thin," Fang adds. "To have something like our platform to match buyers and sellers more efficiently we feel is required in the market. We still need to tap the market and speak to people but so far our discussions indicate there is a gap."

Leslie Loh, managing director of early-stage VC firm Red Dot Ventures, believes there is now sufficient interest at the Series A stage (S$2-3 million) to take his portfolio companies further down the road towards profitability, but Series B practitioners (S$5-10 million) are still relatively few in number.

As such, the SGX-Clearbridge platform is viewed positively, particularly as an option for companies that are stable but no longer in hyper-growth mode.

"Some start-ups are unable to attract the VCs because they are no longer on course to deliver 5-10x returns, although they are still good companies," Loh says. "There might be click-and-mortar companies that appeal to general investors who can relate to these businesses. They are also stable so the risk isn't so high."

How many backers?

This begs the question as to how many investors who meet the MAS' accreditation standards might be interested in backing start-ups. Opinion is divided on this issue. While some industry participants envisage family offices that don't want to invest through funds committing small sums to higher-risk VC deals as part of their wider portfolio, others are skeptical.

Meng Weng Wong, co-founder of accelerator JFDI.Asia, argues that tech start-ups have gained traction in Australia simply because local investors have the temperament for this kind of risk. In Singapore, by contrast, there is greater appetite for perceived safe plays such as real estate. "Most investors would rather put their money into SingTel than into a start-up," he says.

Anything that reduces friction and improves transparency while making risks clear to investors is a good thing, Wong adds, but should the door be opened to retail participation - or if retail investors find another way in - it remains to be seen how regulators respond when people get burned.

For now, Clearbridge's focus appears to be on helping start-ups move into a position where they are ready to behave like public companies - "If you bring up a child prim and proper they have a greater propensity to grow up well," says Johnson Chen, the firm's managing partner - and this involves tasks such as improving governance and reporting standards. The bigger picture has yet to be addressed.

It is tempting to suggest that, in the absence of further details on the SGX-Clearbridge venture, investors are pinning hopes on the platform as a solution to wider issues tied the suitability of Singapore's public markets for technology companies.

"Singapore is a major financial hub for Southeast Asia and the internet encroaches upon all kinds of areas - so why does SGX only have one internet company listed?" asks Fatfish's Lau. "Appetite for tech companies in Singapore is not as wide as in other places."

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• Topics
• Southeast Asia
• Early-stage
• Venture
• Fundraising
• Exits
• Southeast Asia
• Singapore
• Growth capital
• Venture
• Technology
• Fundraising
• Exit
• JFDI.Asia