Startups in spotlight last year for driving record venture capital outlay in S'pore

Singapore

2016 was a heartening year for startups, which were propelled into the limelight for driving record venture capital (VC) investments in Singapore, being recognised as vehicles for disruption and innovation, and invoking concerns about their sustainability and burn rates.

Tech startups, in particular, led the Republic's US$3.5 billion worth of private equity and VC investments in 2016, its best showing in the last five years based on a Duff and Phelps report. Among the most notable investments were Alibaba's US$1-billion acquisition of a controlling stake in Lazada, and Softbank's US$750-million investment in Grab.

It was, in fact, a banner year for local VC firm Wavemaker, in terms of exits by its portfolio startups. Pie, a chat app, was acquired by Google for an undisclosed sum. Mobile advertising firm ArtofClick was snagged by Philippines-based firm Xurpas for US$45 million. Cosmetics e-commerce site Luxola's buyout by LVMH won VC Exit of the Year, an award handed out in October by the Singapore Venture Capital and Private Equity Association (SVCA).

There were also acquisitions by local startups of global big-names, which turned the world's gaze on Singapore. These included gaming company Razer's buyout of George Lucas's theatre sound company THX, as well as YuuZoo's purchase of a majority stake in Beverly Hills-based movie studio Relativity Media.

Mergers and acquisitions aside, Singapore startups exited through IPOs (initial public offerings) as well, though a few were overseas. CMON, a board games company, and Anacle, a property and energy management systems startup, both filed for a public listing on Hong Kong's GEM (Growth Enterprise Market) board, citing greater publicity and liquidity.

Even as Singapore lost IPO opportunities, it is now home to two of South-east Asia's largest tech unicorns. Garena is reportedly the highest-valued unicorn in the region with a US$3.5 billion price tag, while Grab is the highest-funded, having raised US$1.43 billion since its incorporation in 2012, going by the same Duff and Phelps report.

More funds were set up this year, many of which were backed by Chinese investors. Pang Shengdong invested S$5 million in Tembusu's S$70-million ICT Fund I, while Stanley Zhang and George Gong co-founded Jubilee Capital Management, which rolled out a US$100-million tech fund. Venturecraft, whose investors are Alibaba co-founder Sun Tongyu and Xiamen Meitu Technology executive chairman Cai Wensheng, launched a S$50 million medtech fund.

Jeffrey Chi, SVCA chairman, said: "2016 has been a good year for entrepreneurship and startups in Singapore. The ecosystem is becoming more mature. Funding, talent and opportunities are becoming more readily available than before. We are currently in a virtuous cycle that will continue to feed itself as the ecosystem continues to develop."

Meanwhile, startups have been acknowledged as vehicles for disruption and innovation by the Committee on the Future Economy (CFE), an entity set up by the Singapore government to develop strategies to build a vibrant and resilient economy. Janil Puthucheary, who chairs the CFE's Group on Disruptive Technologies, said the government will work towards becoming a "flexible regulator", so that legislation can catch up with startups and their new technologies and business models.

Coworking spaces - popular enclaves for startups and innovators - multiplied in 2016. A*START Central, a co-innovation lab for medtech and biotech firms, opened at the JTC LaunchPad @ one-north. Hub Singapore and The Working Capitol unveiled new coworking facilities at Cuppage Terrace and Robinson Road, respectively. Hong Kong-based The Work Project became the coworking space partner of OUE's Downtown Gallery in Shenton Way. New player, Spacemob, opened in Claymore Hill with US$5.5 million in seed money.

Focal sectors - among them fintech and cybersecurity - saw prominent activity. For instance, there were at least three inaugural festivals held to celebrate entrepreneurship in these areas - the Singapore Week of Innovation & TECHnology (SWITCH), the Singapore FinTech Festival and the Singapore International Cyber Week.

Isaac Ho, chief of Venturecraft, said: "The fintech industry is receiving a lot of interest with the Singapore FinTech Festival and the Monetary Authority of Singapore's Regulatory Sandbox for fintech experiments. I believe that fintech will continue to grow and receive strong investment interest locally and regionally."

For all that, the startup space saw a few upsets during the year, raising age-old concerns about sustainability of new business models and VC funding. Several startups in Singapore closed down, including e-commerce sites Rakuten and Ensogo, ridesharing app Karhoo, and wireless charging solutions provider Novelsys.

Homegrown accelerator JFDI shut down its startup bootcamp programme, after it had raised some S$3 million to support over 70 startups, and is said to be a stalwart of South-east Asia's tech startup ecosystem. JFDI cited high costs and a tight market for tech talent.

Additionally, e-grocer service RedMart was sold to Alibaba-owned Lazada for a reported US$40 million - an underwhelming price tag given that RedMart had raised over US$55 million from investors. The startup had reportedly chalked up an operating loss of US$21 million for 2014 and an operating loss margin of 78 per cent maintained from 2014.

A spokesman from Cocoon Capital, an early-stage VC fund, said: "The failure of RedMart to return a profit to its investors has surely been a slight damper. But overall, the market capitalisation of startups has seen a strong growth and a high number of follow-on funding rounds have been completed." (See table)

Alex Lin, head of Infocomm Investments Pte Ltd (IIPL), said that the year's developments point to Singapore being at the midpoint of a five-year strategy to transform its startup ecosystem. The strategy - initiated in 2014 by IIPL and now led by new entity SGInnovate (of which IIPL is a part) - has since accelerated over 300 startups. Of these, over 100 have gone on and raised Series A funding.

Dr Lin told BT: "This intensity has drastically changed the Singapore startup ecosystem and resulted in more stakeholders jumping on board the startup bandwagon."

The spokesman from Cocoon Capital noted that there still needs to be more activity (such as acquisitions) to really put Singapore on the map. "However, we definitely see that South-east Asia and Singapore in particular are getting noticed by the global investor community."

Xavier Pavie, a professor at ESSEC Business School, is hopeful. He said: "Singapore loves ecosystems. You can easily find partners, institutions and potential clients here. Universities and startups are very close, which is useful for finding fresh eyes and a young, motivated labour force. This diversity means there are greater chances to develop disruptive ideas."