INITIAL public offerings (IPOs), not mergers and acquisitions (M&A), form the dominant exit outcome for startups - and on this Singapore's track record has come up short.
Jeffrey Chi, chairman of the Singapore Venture Capital & Private Equity Association (SVCA), told The Business Times that fund managers here have "no track record" due to the lack of startup IPOs or exits. This pointed to an ecosystem that has not "come full circle".
"IPOs show depth in the market. When investors look at investing in funds in a country, they look at the IPO situation. Unless there is a record of a string of trade sales (M&A) . . . IPOs are an important box to check."
While there has been a dearth of startup IPOs, notable M&A activities this year include Alibaba's US$1 billion acquisition of a controlling stake in Singapore e-commerce site Lazada, and Filipino consumer tech firm Xurpas's US$45 million buyout of local mobile advertising firm Art of Click.
Dr Chi was speaking on Tuesday on the sidelines of a session to formally welcome to the Asean Venture Council (AVC) its third member, the Thai Venture Capital Association (TVCA).
The AVC is led by SVCA to boost the VC industry in South-east Asia. Indonesian counterpart AMVESINDO joined the council in August at an event graced by Indonesian President Jokowi Widodo.
Dr Chi, who is also managing director of Vickers Venture Partners, believes that there is a silver lining to the current situation. He said: "The exits will happen, in about three to five years. Until those exits happen, there will be money on the periphery, waiting to come in."
In the meantime, money has been trickling in, going by the latest Preqin report. In 2015, assets under management (AUM) of Singapore-based PE and VC fund managers reached US$28.5 billion, up 8.7 per cent from 2014. There was no growth from 2013 to 2014; AUM stood at US$23.6 billion in 2012.
TVCA president Thanapong Na Ranong noted that an exit was the most important thing for a startup. Whether it's via an IPO or M&A, Thai VCs are seeking more "success cases" to promote entrepreneurship in a country where its tech startup ecosystem is only about three years old.
He told BT: "Startups are new to the Thai government. We hope that the AVC can help us start a dialogue with the government, and help make it easier for our startups to expand beyond Thailand and exit."
Donald Wihardja, vice-chairman of AMVESINDO, said that an IPO was validation that the startup is "actually worth something". However, it has been a challenge to get Indonesian startups to go public.
"Indonesia is big enough for startups to serve just the domestic market, and because of that, there is a lot of room (for growth). So at this moment, startups aren't that keen on going public. They will only go public if they run out of money from the VCs."
Mr Wihardja added that Indonesia's tech startup ecosystem is "on fast forward", having raised three unicorns in the last one year. The trigger point, he said, will be when "serious IPOs" start to happen. Indonesia is reportedly exploring a secondary listing board for growth companies.
Unicorns are private companies valued at over US$1 billion. The three in Indonesia are motorbike on-demand service GoJek, e-commerce platform Tokopedia and flight and hotel booking site Traveloka.
Asked what role the AVC would play, Dr Chi said that because the nature of venture investments was cross border, the AVC would ease collaboration across South-east Asian VCs. "The AVC's role will evolve over time to facilitate the growth of the region."
Mr Thanapong said that South-east Asia was seeing growing interest from foreign markets and investors. "The AVC will be the centre point, and stimulate investments into this region."
Mr Wihardja said that the question ought to be if VCs would be relevant in a hundred years' time. He noted that the VC industry in the US has evolved over the last century and is still relevant today, "just more mature". He added that Indonesia was unique, in that most of its VCs are former entrepreneurs, not traditional investors. "We hope to learn from Singapore (through the AVC) on how to do proper business investing."