Republic’s position as gateway to SE Asia luring more venture capitalists

SINGAPORE — In recent years, more and more venture capitalists (VCs) have set foot in Singapore, coming from afar to find the next big idea to invest in. As of the end of November, there were 28 VC managers licensed or registered with the Monetary Authority of Singapore (MAS) — about triple the number just three years ago.

The Republic’s strategic location, including its position as a gateway to South-east Asia, the Government’s support for the industry and the growing start-up ecosystem, were cited as attractive factors by VCs interviewed by TODAY.

Singapore-headquartered Vickers Venture Partners is one of the earliest VCs that started its operations here in 2005. It has an investment focus on China, South-east Asia and Singapore. Vickers vice-chairman Jeffrey Chi noted that over the past decade, the start-up scene in the Republic has “grown phenomenally”. He said: “In our earlier years, most of our investment activity was focused on China. We became more active investing in South-east Asia since five years ago.” Today, about one-third of the firm’s portfolio companies are from Singapore, with investments amounting to over S$50 million.

Vickers invests in the early stage development of disruptive companies in areas such as digital media, financial services innovations, healthcare and life science sectors. Its investments in each firm fall within a range of US$1 million (S$1.43 million) to US$10 million.

Unlike individual angel investors, VCs typically do not provide seed funding. Instead, they invest larger amounts in business ideas that are more established and in need of cash to finance their accelerated growth stage.

Last month, Deputy Prime Minister Tharman Shanmugaratnam, who is also the chairman of MAS, said that the central bank was working with the VC industry to grow the funding landscape for start-ups in Singapore and the region. It is reviewing the regulatory regime for VC managers, specifically looking to “significantly simplify and shorten the authorisation process for new VC managers”, Mr Tharman said. A public consultation will be conducted in January next year, with MAS aiming to introducing the changes by July.

Data from research portal Preqin Private Equity Online showed the number of VC deals in the Association of South-east Asian Nations (Asean) region is on the rise exponentially: 28 deals in 2009, 58 deals in 2011, 191 deals in 2013 and 318 deals last year. Within the first four months of this year, there were 94 deals.

Operating in Singapore since late last year, Hong-Kong-based Nest decided to set up shop here because it felt that the Republic was a strategic hub to look for investments in the rapidly developing Asean markets. With a focus in companies related to areas such as smart mobility, financial technology and digital health, Nest currently has 17 companies under its portfolio, including two Singapore companies.

“The start-up scene (here) was nonexistent back in 2006 — all attention was still on the United States and China at that time. The scene only really started to pick up since around 2009/2010 and we are just starting to see more market validation through actual exits and larger investment rounds — Lazada and MDaq being perfect examples,” said Mr Emmanuelle Norchet, director at Nest Ventures in Singapore.

Nest has set up a club called Metta to connect people, ideas, resources and opportunities. The company also runs programmes such as innovation challenges and thought leadership events for entrepreneurs and corporations.

Early this year, another VC, Jubilee Capital Management, set up base in Singapore, with the goal of being a bridge between Israeli technology start-ups and the Asian market. It has set its sights on start-ups in South-east Asia, China, Israel and the US. “Singapore is a bridge, a multicultural and highly international market … it is a good place to test products and also a good place for Chinese businesses to bring their companies into the South-east Asia market,” said co-founder Gan Fong Jek.

To start-ups and fledgling companies, VCs are, however, not always a godsend. There is a dark side as well, given that companies relinquish board control in some cases and not all investments end well. VCs themselves, are wary of the risks and they carry out due diligence on the companies that they are interested to invest in.

Singapore-based Venturecraft was established in late 2014 to provide working capital and market access assistance to growth-stage and late-stage enterprises, primarily in the medical technology, biotechnology and digital health sectors.

Venturecraft’s CEO and general partner Isaac Ho noted that the company invests in enterprises and entrepreneurs that it “believes in”, and it does not interfere in their day-to-day running. When it comes to critical developments, it helps for both the investors and the companies to be “on the same page”, he said.

Despite its rapid growth, the VC scene in Singapore faces some challenges including its small market size, VCs said. For example, Mr Ho pointed out that an e-commerce platform that requires volume and scalability will need to pursue a regional growth plan in order to succeed, and Singapore can only serve as a test market.

Still, Singapore’s attraction lies in its strong regulatory framework, infrastructure and conducive environment. “As collaboration (among companies) with universities in Singapore and overseas grows, we will start to see more spin-offs and tech-heavy types of ventures,” said Mr Norchet. “With government support and lower operating costs, there are advantages to setting up a company in Singapore as opposed to the US.”

Mr Ho added: “I believe Singapore will do well in its Smart Nation initiatives. With our connectivity and infrastructure, we are well-placed to develop and adopt Internet of Things innovations in the areas of robotics and smart manufacturing. The life sciences, medical technology and biotechnology industries are also promising for Singapore with our established framework of research institutions with global standing.”