Vincent Lauria, Class 17
Justin Cornelius Hall
A densely packed city-state of 5.3 million people in an area smaller than New York City, Singapore is geographically centered in Southeast Asia and possesses the most developed entrepreneurial ecosystem in the region. Unlike its Western counterparts, Singapore’s government is directly involved in the growth of entrepreneurship. Although there is still room for improvement, Singapore is often cited as a model for its culturally diverse region; Malaysia, Thailand, and Indonesia are already emulating some of Singapore’s more successful initiatives.
Regions all over the world have tried (or are trying) to replicate some of the venture success of Silicon Valley—and Singapore is no different. We are both investors at the firm Golden Gate Ventures, making direct investments in Southeast Asia. Vincent Lauria previously cofounded two startups in Silicon Valley, while Justin Hall was a scholar from the NUS Lee Kuan Yew School of Public Policy focusing on entrepreneurship policy in Singapore. In this article, we examine the Singapore government’s model and its development over time, present one example of a local startup, and consider the short- and long-term future of entrepreneurship in Singapore.
Context: Singapore Policies on Entrepreneurship
Singapore draws many parallels to Israel, with its unique place in its region: At less than 50 years old, Singapore is quite young as an independent nation, and has a small land area, a lack of natural resources, a very active government, and strong military defense. Singapore has traditionally relied heavily on its neighbors for basics such as clean water, minerals, and materials for construction. Therefore, policies for creating a sustainable business hub (i.e., more than shipping and finance) have been forefront in the government’s agenda, which has created a strong drive for direct government investment and programs to support entrepreneurship, self-reliance, and sustainability.
Central governments are typically considered unable to manage the rapidly changing technological shifts and fluid workforce dynamics intrinsic to entrepreneurship. As such, it’s a common perception among entrepreneurs that “a government that stays out of our way is the best kind of government.”1
Singaporeans do not share that sentiment. Given its classification as a “developmental state” (a title applied to governments that promote state-led macroeconomic planning), Singapore has a long history of centrally managing the economy.2 Indeed,Singapore’s technology-intensive industrial development was facilitated by its being a “paternalistic developmental state…a unique cocktail of state planning and capitalism.”3 Within three decades, Singapore was transformed from a poor, developing nation into a modern, industrialized powerhouse with a per capita GDP of $60,688 (in 2011 USD), the third highest in the world (for comparison, the United States ranks 8th, at USD$48,112).4
From the late 1990s, largely as a result of the Asian financial crisis and Singapore’s relatively slow re-emergence in the aftermath, the government began to “focus on indigenous technological innovation capabilities, the formation of local high tech start-ups, and increasing shift towards basic R&D and the development of new science-based industries.”5 The state, industry, and academia worked to create a new innovation system to lay the foundation of this new economy, resulting in a flurry of industrial programs intended to nurture innovation and entrepreneurship, and transform Singapore into a globally competitive “knowledge-based” economy.6 Many of these initiatives, such as the “Industry 21” and “Technopreneurship 21” campaigns, were broad frameworks intended to redirect the state toward knowledge-based innovation and entrepreneurship.
New Initiatives to Address the Lack of Capital
Singapore is rich in later-stage, traditional ventures, which helps connect the region to international deal pipelines; with this economic foundation, later-stage venture is taken for granted at the government level. It was only in the mid-2000s that Singapore’s government began formulating specific policies to address the most significant problem facing its entrepreneurs: the lack of capital, especially early-stage investment.
Taking a new track, the government began to focus on building a sustainable, tiered venture capital roadmap by providing investment capital from pre-seed to exit-stage (see figure 1).7 Ideally, Singaporean entrepreneurs would be able to obtain pre-seed grants, apply for subsequent seed stage funding, and (at the appropriate time) receive Series A funding.
This money would come from government coffers, but would be invested by highly-trained technocrats and select private institutional investors. Typically, these third-party investors would be given the option to buy out the government’s equity stake at a small premium, three to five years from the date of the original investment. From its relatively modest beginnings in 2007, government investment programs have grown significantly.
The Singaporean government now offers a number of investment programs, available at different stages of funding and offering different arrangements. Three of its most important programs are shown in figure 1.
Figure 1. Singapore Government Capital Funding Programs.
Authors’ image. Data from Janus Corporate Solutions, “Government Funding and Assistance Schemes,” GuideMeSingapore, 17 June 2013.
The next section provides a case example of how one startup successfully utilized government investment programs to support its growth.
The Story of a Singapore Startup: TenCube
The National University of Singapore (NUS) has a program called the National Overseas College (NOC), which hand-picks undergraduate students and sends them to Silicon Valley for one year, to study at Stanford and then be placed as an intern into a high-growth technology firm. This program is subsidized by the government. Two NOC students studying and working abroad in 2003, Darius Cheung and Varun Chatterji, became friends and got a taste for Silicon Valley-based entrepreneurship. Shortly after graduation, they joined forces to form a startup, TenCube, helping people locate their stolen or lost mobile phones.8
Cheung and Chatterji entered a local business-plan competition that was supported by a number of Singapore government agencies as a means to encourage entrepreneurship through networking events, competitions, and cash prizes. TenCube won the competition in 2006 and took home the USD$24,000 cash prize, which gave them the first few months of runway to start building their product and raise a seed round of USD$475,000 shortly thereafter. This seed round was part of a government 1-to-1 matching investment program called Spring Seeds. NUS was a private investor in the round and brought the TenCube founders into an incubator, providing mentorship and office space (which extended for a few years and provided the firm a significant savings in expenses).9
From their government-matched seed investment, TenCube secured their first customer, the Singapore Police Force. They also released multiple versions of their product, and started bringing on larger, brand-name customers such as Nokia, SingTel, and the mobile telecom Telenor Group.10
During this high-growth stage, the government continued to add support in multiple ways. Non-equity-based grants were issued through the Technology Enterprise Commercialization Scheme (TECS), a program to subsidize the cost of hiring fresh graduates for small- to medium-sized enterprises (SMEs). This program enabled Cheung and Chatterji to hire high-quality engineers at less than half the market cost, expanding their team to 20 employees before raising a Series A round. Additional government support came in tax incentives; the Singapore government has a 0% capital gains tax rate, which increased the overall financial incentives and motivations of the founders and investors.11
TenCube was incubated by the National University of Singapore’s private incubator NUS Enterprise, and went on to raise a Series A round in 2009 wholly from a private strategic investor, One97—India’s largest telelcommunications application service provider. Eighteen months later, TenCube was acquired by McAfee for USD$9.5 million to broaden McAfee’s security capabilities on mobile.12 This acquisition resulted in an IRR of 99% for NUS Enterprise; One97 benefited even more, with an IRR of nearly 290%.13
If You Build It, Nothing May Come
From a policy standpoint, government intervention to mitigate a market failure is preferred—even expected. If we consider venture capital funds as “supply agents,” and startups as “demand agents,” then a market with too many startups and too little venture capital could be construed as an “incomplete market,” thereby necessitating government intervention.
There have been countless attempts to centrally plan and manage a technological cluster like Boston or Silicon Valley. These “cluster initiatives” rely on the support of particular industries, state capitalism, and the unfettered influence of the free market to create new economies. They follow the old adage of, “if you build it, they will come.” Unfortunately, most of these attempts fail because, in our analysis, they do not take into account a region’s intrinsic advantages—or more likely, its disadvantages. The adage simply doesn’t hold up when it comes to entrepreneurship policy: just building the stadium does not guarantee a world-class team.
Governments, especially those from regions without a history of entrepreneurship, should involve themselves in the formulation and implementation of policies intended to improve entrepreneurship. In such work, however, policymakers need to be acutely aware that such initiatives must facilitate, not replace, a dynamic, self-regulated entrepreneurial ecosystem.
Success Through Evolution in Policy
Singapore is quite active in addressing policy effectiveness through measuring the value created (follow-on funding, acquisitions, government buy-outs, employee hiring, etc.). The government also actively collects feedback on its programs from both entrepreneurs and private investors, constantly tweaking its policy—sometimes within two years.
For instance, the Technology Incubation Scheme or TIS, shown in figure 1, brought in a new breed of investors to follow the investments made by iJam incubators. Singapore implicitly understood that as companies grow, they will seek different stages of investment. Through the Technology Incubation Scheme, companies that received pre-seed investment from iJam can then seek larger, seed investments from TIS investors.
Among the changes that came with TIS were requirements for a stronger commitment to hands-on mentoring from the investors, physical shared spaces for the teams, and a network that could be leveraged for product development, distribution, and follow-on funding. Golden Gate Ventures was one of the firms selected for the TIS Seed Investment program due to its partnerships with the 500 Startups organization and the Founder Institute, both of which are actively looking globally for the next generation of entrepreneurs.
While it is not typical to think of government as a viable partner in the formation of an entrepreneurial ecosystem, Israel and its Yozma financing program provide perhaps the best example of government management in the implementation of successful entrepreneurship policy. Yozma was perhaps the single most important catalyst in starting Israel’s now-flourishing venture capital industry.14
Singapore is fortunate enough to possess the kinds of advantages that make possible these deliberative entrepreneurship policies. Beyond its importance as a regional economic hub, Singapore has a dynamic economy, stable governance, and a culturally-vibrant, desirable living space.
Equally important, however, is the government’s willingness to learn and improve on existing entrepreneurship policy. Israel’s Yozma program worked well for early-stage investment, for example, but has since been phased out in favor of working with a more mature ecosystem. Singapore has shown surprising flexibility and dynamism in this regard: iJam Reloaded was implemented because the original iJam program was considered too slow and too small to meet the needs of Singaporean entrepreneurs. Whereas iJam could take up two years to disburse a grant of only USD$44,000, iJam Reloaded provided up to USD$200,000 in a significantly shorter period of time.15
In another example of Singapore’s ongoing adaptation, the purposeful implementation of the Early-Stage Venture Funding (ESVF) program showed a nuanced, clear understanding of both the short- and long-term needs of entrepreneurs. Whereas TIS was introduced to support iJam-incubated companies, ESVF is intended to continue the financing pipeline by provided TIS-supported access to Series A investors.
Growing into the Future
Singapore has demonstrated a commitment and ability to consistently evolve its programs to match a maturing ecosystem. The Singapore government is researching and planning for the next stage of investment programs to work with companies at later stages in their life cycle.
Value is being created in the ecosystem through larger rounds of investment, such as with Bubble Motion, which has raised over USD$50 million to date, led by Sequoia. Bubble Motion CEO Thomas Clayton has directly benefited from government programs to grow his company over the past few years, such as USD$1 million in grants to subsidize salaries of new hires up to 50%. In describing the benefits, Clayton commented that, “coming from the [Silicon] Valley, I would never expect to receive this sort of government support.”16
Singapore has done exceptionally well for itself in the last three decades. Despite its scarcity of resources and small landmass, Singapore has nevertheless grown into a significant economic and technological hub in Southeast Asia. The real challenge—for Singapore as well as its neighbors—is to ensure sufficient sources of private capital for companies progressing to higher stages of funding.
Despite the strength of its political mandate and enormous budget, government financing is not nearly as flexible or fast as private (especially earlier-stage) financing. Moreover, private sources of capital generally possess a far greater appetite for risk, specialized skills, and strategically valuable networks in their partners and portfolio companies. In general acknowledgement of this fact, Singapore’s most prominent schemes are public–private partnerships allowing private funds to leverage government money.
However, a self-sustaining ecosystem requires sources of capital that are largely divested from government leverage and, more importantly, are willing to invest in Southeast Asia without the need for governmental support. Unfortunately, that decision to focus on Southeast Asia is largely out of the control of the Singapore government.
Only when lucrative venture capital deals, high-multiple exits, and prominent startup formations reach critical mass will private sources of capital begin flocking to Singapore and the region. So far, the trend seems positive, with Rakuten’s acquisition of Singapore’s Viki for a reported USD$200 million,17 500 Startups and Sequoia’s new funds to invest in the region,18 and a new generation of successful entrepreneurs.
A More Measured Outlook
While readily available sources of financing are integral to a dynamic entrepreneurial ecosystem, when placed against the larger backdrop of Singapore’s viability as a technology ecosystem, other challenges emerge. Of these, the most significant are Singapore’s small market size, the difficulties of expanding regionally, and the inability to easily source great talent.
Singapore is a very small market, with just 5.3 million citizens; for companies to scale successfully, a sizable local market is extremely benificial in sustaining operations until regional expansion becomes a viable option. Singapore’s relatively small population provides a very small foundation upon which regional or international companies can make their start.
While the larger region is home to over 600 million people, there are a number of obstacles for any startup wanting to expand. Language, cultural differences, and the extreme variability of spending power from one country to the next create setbacks to distribution and monetization. The success of a particular business model in Singapore, for example, does not guarantee success in poorer countries such as Vietnam or Cambodia. Startups heavily dependent on credit card transactions will invariably suffer in countries with single-digit credit card penetration rates like Indonesia. Remaining exclusive to desktop or web-based platforms may be successful in countries with great broadband penetration, but it is a recipe for failure in places like Cambodia and Myanmar.
Singapore, with its available capital, strong intellectual property rights, and vibrant economy, is often considered the best starting point for startups looking to expand into the rest of Southeast Asia; in fact, the opposite is true. Startups are more likely to scale and expand horizontally if they begin in places like Malaysia, Thailand, or Indonesia, where trends regarding purchasing power, broadband and mobile penetration rates, and consumer behaviors are relatively consistent across the entire region as a whole. Singapore lacks that commonality, making it harder for successful Singaporean startups to find the same economic conditions elsewhere. Moreover, while Singapore is often compared to Israel, it lacks the global diaspora that would help it step into markets like the United States or China.
The inability to hire top-tier talent is frequently cited as a pain point for startups. With Singapore’s near-zero unemployment rate, attracting talent away from high-salaried careers can be difficult. Direct paths to well-paying, stable jobs lower the appetite for risk seen in neighboring countries. Additionally, Singaporean startups frequently complain of difficulties obtaining visas for foreign talent, as there is a growing backlash against foreign labor (which has significantly increased the cost of living).
Given these challenges, the Singapore government’s choice of venture capital as its selected policy lever for growing the technology ecosystem is revealed as carefully considered: compared to the aforementioned challenges, venture capital support is far easier to implement and modify accordingly. In that respect, Singapore’s policies have been positive, and have brought much-needed capital into a region that had been devoid of smart, institutional investors. We hope to see Singapore’s government continue to successfully iterate on its entrepreneurship policies—and so far there is no evidence that it will not.
Vinnie is a founding partner at Golden Gate Ventures, an early-stage incubator and seed fund for startups in Southeast Asia. Additionally, he is an active mentor and advisor to startups around the globe through organizations such as the Founder’s Institute. Previously, Vinnie built two startups in Silicon Valley: Meetro.com, a location-based chat service which was dissolved with many lessons learned in 2007; and Lefora.com, a hosted forum service which grew to over 100,000 communities and was acquired in 2010. In 2006, Vinnie founded the Silicon Valley NewTech Meetup, which has featured 300+ startups to a monthly audience with thousands of followers. Prior to his time in San Francisco, Vinnie spent four years at IBM, helping to shape how the company approached social software for the enterprise.
Justin is an Associate at Golden Gate Ventures. He is a scholar from the Lee Kuan Yew School of Public Policy, having specialized in entrepreneurship policy, and graduated with Honours at Trinity College Dublin in History and Political Science. In addition to his responsibilities at Golden Gate Ventures, Justin has organized a number of community-building events, including SuperHappyDevHouse.sg, WalkAbout.sg, and FailCon.sg. Before Golden Gate Ventures, Justin was an Account Manager for Rakuten LinkShare Corporation, based in New York, and managed online ecommerce sales for prominent web-based retailers and service providers.
1 Steve Case, “On Entrepreneurship: A Conversation with Steve Case.” Interview. McKinsey & Company (November 2012).
2 Johnny Sung, “Singapore as a Developmental State: Workforce Development and the Emergence of the ‘Developmental Worker,’” in Explaining the Economic Success of Singapore: The Developmental Worker as the Missing Link (Cheltenham, UK: Edward Elgar, 2006), 47–75.
3 Govindan Parayil, “From ‘Silicon Island’ to ‘Biopolis of Asia’: Innovation Policy and Shifting Competitve Strategy.” California Management Review 47 no. 2 (2005): 50.
4 The World Bank, “GDP Per Capita, PPP (Current International $),” World Development Indicators database. Database updated on 16 April 2013, available from The World Bank.
5 Parayil, “From ‘Silicon Island,’” 54; Poh-Kam Wong and Annette Singh, Public Innovation Financing Schemes in Singapore (Singapore: National University of Singapore, 2011), 2.
6 Parayil, “From ‘Silicon Island,’” 54.
7 Wong and Singh, Public Innovation Financing Schemes in Singapore.
8 Darius Cheung, interview, 15 May 2013.
14 Gil Avnimelech and Morris Teubal, Venture Capital Policy in Israel: A Comparative Analysis and Lessons for Other Countries (Jerusalem: Hebrew University, 2002).
15 Michiel Wind and Chun Dong Chau, interview, 21 May 2013.
16 Thomas Clayton, interview, 17 June 2013.
17 Terence Lee, “What Viki’s USD 200M Exit Means for Singapore’s Startup Ecosystem,” Tech in Asia, 2 September 2013.
18 Jacky Yap, “500 Startups Appoints SEA Venture Partner to Oversee US$10M Fund,” e27, 30 May 2013; Victoria Ho, “Sequoia Capital in Singapore After a Year, Has Yet to Invest in a Local Startup,” TechCrunch, 29 March 2013.