Economic Affairs

Start-ups are getting blue-chip attention

Singapore's biggest firms are investing in disruptive technology, which is a good way to prepare themselves for the future, consultants say

Just five years ago, it was rare to hear of big blue-chip companies getting involved in the world of start-ups.

These days, hardly a week goes by without news of a big firm like Singtel, CapitaLand or Singapore Press Holdings (SPH) investing in a start-up, launching a venture fund or organising programmes to "incubate" young companies.

The growing trend is a promising sign that, instead of ignoring the threat of technology, well-established corporates are paying attention to the innovations that might disrupt their industries in the near future.


ST ILLUSTRATION: MANNY FRANCISCO

But more companies should be doing the same, or they risk being left behind by the unrelenting progress of technology.

Most big companies that have invested in start-ups have yet to reap the financial rewards.

But this actually makes it the best time for more companies to jump into the fray and explore how to get their hands into the disruptive technology pie too.

EARLY DAYS

You can almost see Singapore's biggest firms feeling their way around this new technology scene, with each of them making its moves in different ways.

CapitaLand, for example, said last month that its unit The Ascott Limited was leading a consortium to invest US$50 million (S$71 million) in Tujia, an online apartment-sharing platform that has been dubbed China's Airbnb.

Others are going beyond one-off investments. DBS, Singtel, StarHub and SPH, for example, have set up their own venture funds to seek out and invest in promising start-ups.

They also run incubator or accelerator programmes, through which they provide advice and sometimes funding to young start-ups and eventually identify the most promising ones to acquire or form partnerships with.

Business consultants say their clients are more interested than ever before in learning all they can about disruptive technologies in their specific industries and how to get involved in the start-up community.

"We've seen a big push in the last 12 months," says PwC Singapore's technology, media and telecommunications leader, Mr Mark Jansen. "In the financial services sector five or six years ago, we had conversations with our clients about digital technology but there was pushback. They had experimented with digital forums and video technology and found no traction. But now there's a big change."

Similarly in industries such as media and telecommunications, companies are quickly realising that they have to step up their game, says EY Singapore's corporate finance strategy service leader, Mr Joongshik Wang.

"Previously, they worried that adopting digital or mobile platforms would cannibalise their traditional business, but now that they are losing out to new players, they realise it's a must and not an option to make a move."

These big boys are seeing that consumers have embraced digital and mobile technology wholeheartedly, whether to book taxis, pay their bills, buy clothes or even find love. And they are also witnessing an army of start-ups launching innovative apps and services that are winning these consumers over day by day.

The example that every technology or business expert likes to cite is Uber. The taxi app has stolen so much market share from traditional taxi companies that it is now valued at a mindblowing US$50 billion - more than Delta Airlines, FedEx, Credit Suisse and many other global firms.

The rapid rise of Uber and other similarly stellar start-ups in other fields has sent a strong signal to companies across all industries and all over the world that just one brilliant new entrant could threaten their entire business.

And so big businesses are "looking to learn to innovate, how to grow and be agile", says Mr Jansen.

Getting a handle on innovative technology and being an early investor in promising start-ups is a good way for these big boys to prepare themselves for the future. And it's a win-win, as it benefits the start-ups too.

"If start-ups are engaged earlier (by a big company) they get structure, guidance and potential access to customers much earlier than they would otherwise," notes Mr Ron Wee, managing partner of venture capitalist firm IncuVest.

A veteran venture capitalist, Mr Wee has in recent years received a sharp increase in queries from big firms looking to tap his expertise in identifying start-ups that they can invest in. And while he works with these big companies to spot promising investments, he also helps start-ups make wise decisions about how to engage potential investors.

"If a corporation invests in my start-up, I make sure it doesn't dominate the majority of the investment - it shouldn't have a 100 per cent say in how the start-up is run," he says.

"In such cases, the investor could tell you what to do, how to run your business, and that might stifle innovation. Given that the start-up scene here is still growing, start-ups can be more selective about investors."

ACT NOW, OR LOSE OUT

This early in the game, both start-ups and big corporates are still sussing out each other and learning more about how to work together.

Most big companies that have invested in start-ups have yet to reap the financial rewards.

But this actually makes it the best time for more companies to jump into the fray and explore how to get their hands into the disruptive technology pie too.

With technology, consumer behaviour and business trends moving as rapidly as they now do, companies have to act now or risk losing big when their industry seemingly changes overnight.

It seems that many companies are still at a stage where they have yet to figure out how best to invest in innovation.

Mr Lyon Poh, head of digital innovation at KPMG in Singapore, notes: "In our experience, most organisations in Singapore are at the early stage of their digital journey. Many are beginning to realise the need to act but often don't know where to start or how to go about it."

So far, the companies that have been making headlines for investments in start-ups and accelerator programmes are the biggest firms in Singapore. This does not need to be the case.

A company with a smaller treasure chest and fewer resources could still make inroads, for example, by teaming up with venture capital firms.

Mr Simon Squibb is the chief executive of Nest, a Hong Kong- based venture capital firm that has partnered several corporates to develop specialised incubator or accelerator programmes.

"Corporates who align themselves with innovation are considered as exciting and nimble and far more in line with the way an industry is developing than those who choose not to embrace evolution," he says.

EY Singapore's Mr Wang says: "It's a must now and no longer an option for incumbent players in any industry to make a move in innovative technology."

NO WINNERS AND LOSERS YET

Even those that have embarked on the digital journey and acquired stakes in start-ups will not yet know whether these investments will bear fruit in the long run.

"For most established businesses, not more than 10 per cent of their revenues come from their non-traditional businesses," notes Mr Wang.

"They are still exploring how to increase contributions and returns from their investments. Whenever they make an investment in a new business, they could even be losing money - sometimes they are willing to pay up to 10 times the revenue that the start-up can bring in. So it's a long and big bet."

This is the next challenge for blue-chip firms - how to harness the innovations in the start-ups that they have invested in, to create disruptions of their own.

But for now, it is certainly better for a company to think about how best to get into the innovation game than to bury its head in the sand and hope for the winds of change to somehow leave its business intact.

A version of this article appeared in the print edition of The Straits Times on September 09, 2015, with the headline 'Start-ups are getting blue-chip attention'. Print Edition | Subscribe