Without big bucks, Singapore start-ups may face Valley of Death

Govt funding a big help for fledgling firms but local investors can do more to help start-ups

When the 18th edition of TechVenture opens in Singapore today, one crucial topic of discussion that will likely hog the spotlight is funding.

South-east Asia's leading start-up conference, held at the Marina Bay Sands convention centre, is expected to draw more than 1,000 people from the start-up community, all keen to learn how they can grow their young companies into thriving businesses.

And key to all this is, simply, cold, hard cash. Without it, business ideas remain proposals on paper, and even companies with solid technologies and business plans would not be able to take their products and services to market.

The good news is that last year, some start-ups in Singapore - there are about 5,400 in the country - were able to raise more than US$850 million (S$1.2 billion) from local and foreign venture capital firms.

A review of the funding schemes available here indicates that cash can be secured from many agencies but, in practice, most of the funds come from the National Research Foundation (NRF) and Spring Singapore. The NRF's financing schemes are aimed at creating a start-up ecosystem. It provides seed funds by supporting incubators, which, in turn, help Internet firms. It also co-invests in start-ups with venture capital firms here.

Since 2010, the NRF has invested about $168 million through two schemes, helping 173 start-ups in all. Its Technology Incubation Scheme (TIS), rolled out in 2010, signed up 15 incubators. The NRF has since invested $68 million under this scheme, funding about 140 start-ups.

With its early-stage venture fund, the NRF has also invested $100 million in 10 venture capital firms. So far, $42 million has been invested in 28 start-ups. This scheme seeks to take the risk out of venture funding by co-investing with the venture capital firms.

Spring Singapore also provides funding through two major programmes. By the end of last year, its technology enterprise commercialisation scheme had given out $78 million in grants to 209 projects. Its Spring start-up enterprise development scheme has, since 2001, committed almost $80 million in co-investments with investors to more than 200 firms.

While many start-ups do fail, some of these financial efforts have also borne fruit. Several of the start-ups that received help from these schemes have gained follow-on funding from private investors, and a smaller number have even been acquired or publicly listed.

Under the TIS scheme, for example, sentiment analysis firm Brandotology was acquired in 2011 by Australian firm iSentia, while car-sharing start-up iCarsClub raised US$60 million last year.

Funding will continue to remain paramount to building up Singapore's start-up ecosystem.

To that end, the Government might unveil new funding schemes at TechVenture but these will likely have a more targeted approach.

For some time, the Government has said there has been an overemphasis on information and communications technology (ICT) start-ups, such as restaurant reservation system Chope and online streaming service SyQic.

Now, it wants to see more diversity with start-ups, for example, in areas such as biomedical science, hardware innovation and engineering.

So, the start-up community can expect the NRF to announce that it will fund new incubators with expertise in high-tech industries, aside from ICT. Another way that the Government could open up new industries to start-ups is to work with large local companies.

The Infocomm Development Authority, for example, is supporting local players such as Singapore Press Holdings (SPH) to start corporate accelerators - programmes that help nurture and grow start-ups.

SPH has an accelerator that helps media and media-related start-ups refine their business ideas.

In a parallel move, the NRF could have a scheme to financially support such corporate ventures, especially those that aim to invest in start-ups in industries such as semiconductors or engineering.

In the United States, companies such as semiconductor firm Intel and search giant Google use their venture arms to fund new start-ups that have technologies they can use. Having support from the

NRF could encourage firms in Singapore to do the same.

Another area that the Government could look into is the streamlining of the numerous financial grants and schemes available to start-ups. It can be confusing and time-consuming for start-ups to plough through the mound of information to find out which scheme is most suitable.

Another key area that TechVenture participants might want to look out for is whether the Government rolls out a scheme that could encourage more local investors to step up.

While government financial support will continue to be essential to help start-ups with their first steps, private money - from venture capital firms and private equity firms - is needed to provide the big cheques needed for further technological development and business expansion.

But there are only a handful of local venture capital firms today that are able to write these big cheques of between $2 million and $10 million. Larger nine-figure ones remain in the hands of foreign venture capital firms who have multibillion-dollar fund sizes.

Without access to larger funds, local start-ups could face the Valley of Death - so called because start-up development could skid to a stop and the business could fall off a cliff due to a lack of funds.

There is space for more local investors to play an active role in the start-up community.

But really, everyone in the start-up community is waiting for the one, big, uplifting announcement: Which local start-up will be the first to be successfully floated on Nasdaq?

Keep your ear to the ground. This tidbit of information may just make the rounds at TechVenture today.

A version of this article appeared in the print edition of The Straits Times on September 21, 2015, with the headline 'Without big bucks, S'pore start-ups may face Valley of Death'. Print Edition | Subscribe