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IPF scheme in right direction, but SMEs must not be passed over: industry watchers
INDUSTRY watchers expressed concern that the International Partnership Fund (IPF) announced in Singapore Budget 2017 may not benefit smaller enterprises, even though further support to help companies become globally competitive is a positive step.
Finance Minister Heng Swee Keat announced on Monday that up to S$600 million of government capital will be set aside to co-invest with Singapore-based firms to help them scale up and internationalise, with a focus on the Asian region.
The criterion of up to S$800 million in revenue cap for qualifying companies has spurred debate if larger enterprises with a track record will be prioritised over small and medium-sized enterprises (SMEs). SMEs have revenues of less than S$100 million or employ not more than 200 workers.
In addition, the fund will be managed by Heliconia Capital Management, a subsidiary of Temasek Holdings. Enterprises in its portfolio are typically in the more established end of the SME spectrum which already have a regional or global footprint, such as gaming company Razer, bathroom product maker Rigel Technology and store fixtures firm Futuristic Store Fixtures. It was also a cornerstone investor in food and beverage business Jumbo Group's initial public offering in 2015.
In response to queries from The Business Times, the Ministry of Finance said that the fund will not focus on particular sectors, and will be launched at the end of the year. But without more specifics on the IPF, the devil could be in the details.
OCBC economist Selena Ling said: "For the government to put the money where its mouth is - this is an important policy signal. The risk may be that preference would be given to larger companies with a recognised track record while crowding out SMEs." According to DBS economist Irvin Seah, it's the SMEs that need more help to internationalise.
"Sometimes, smaller can mean more nimble, and such companies can actually do better internationally even without that kind of scale."
He hopes, however, that individual projects can be validated on a case by case basis instead of excluding certain industries or companies based on size.
Mr Seah added: "We shouldn't be picking winners as even traditional industries can have significant upside. The bottomline is for a more flexible, adaptable approach for operationalising this fund."
Dr Nitin Pangarkar, Associate Professor of NUS Business School, suggested imposing caps on the investment amount offered for each company.
"I'm surprised they put S$800 million as the revenue cap - that's pretty high. But you can tweak the amount co-invested with each company, and that way you can tilt the balance to smaller companies that need it more."
He believed a sum of about S$500,000 to S$1 million to co-invest with each company would be ideal to attract smaller enterprises which would prize the amount and use it well.
OCBC's Miss Ling pointed out that the government's co-investment strategy is similar to what venture capitalists (VC) are doing.
"It's no different from the VC industry where you invest in a company that you think can make it. While it's not about choosing winners per se, it's about having the appropriate credit selection to choose from all the companies out there."
Venture capitalists, who usually invest in startups, say they welcome this new fund as it validates their approach. They also point out Heliconia's track record and experience in investing in local enterprises.
Sameer Narula, managing partner of ACP, a Singapore-based VC, said that the government's approach of partnering with private investors "ensures that tax payer money is utilised in the most efficient and commercially viable manner".
He added: "We would be very happy to see a stronger emphasis on smaller companies, family-owned enterprises and tech startups as well."
But for such co-investment funds to work, Dr Steven Fang, CEO of CapBridge, a fintech platform for institutional fundraising, said that it will need investors and companies to be more open to sharing deal flow and their experience.
Local enterprises that BT spoke to are adopting a wait-and-see approach with regards to the IPF.
Melvin Tan, managing director of Cyclect Group, said: "We hope the government will be clear on how to qualify for the fund and make it easy to understand. If the process is onerous with a difficult set of conditions, SMEs would prefer not to apply."
Quek Siu Rui, co-founder and CEO of Carousell, hopes the fund can help support the company's breakthrough into new markets, especially with hiring costs of local talent, localising their product, marketing, as well as for strategic acquisitions.
He said that the company recently acquired a Malaysian-based startup and is on the lookout for more.
"If the IPF can be used to co-invest in similar acquisition ventures, we would be more inclined to explore more of such opportunities that come by to strengthen our international presence."
According to Sunny Koh, managing director of Chinatown Food Corporation, many factors determine if the fund will ultimately create more globally competitive companies.
For example, plans for bigger enterprises to partner with the smaller ones have not quite taken off, despite initiatives such as Partnerships for Capability Transformation (PACT), he observed.
But his belief is that SMEs must take the first step to go overseas and create demand.
"The government can have all kinds of funds and schemes to scale up and internationalise, but at the end of the day, the SME must have keen interest to step out of their comfort zone."
The Ministry of Finance also confirmed on Wednesday that the fund is the first time that the government has committed capital to co-invest alongside Singapore-based firms, excluding fund managers and financial investors, to support firms' growth and internationalisation.
Previously, co-investment was typically done alongside fund managers and financial investors, such as through the Co-Investment Programme.
The government also supports overseas investments through IE Singapore's Global Company Partnership and Market Readiness Assistance Programmes.