Covid-19 turmoil creates fresh openings for new startups

Singapore

THE economic downturn can in fact be an opportunity for entrepreneurs to launch new ventures, startup veterans and investors tell The Business Times. While funding may be tougher to secure, new startups can capitalise on permanent disruptions created by Covid-19.

The founders of two Singapore startups that were set up around the 2008 Global Financial Crisis reckon that turbulence can actually help startups sharpen their business strategy.

One of them is Royston Tay, former chief executive of Singapore software startup Zopim, founded in 2008. In six years, the startup was famously bought by US giant Zendesk for a reported US$30 million.

Mr Tay says the recession did not factor into the decision by him and his three fellow co-founders to start Zopim that year. They were then fresh graduates from the National University of Singapore.

"In retrospect though, the recession played a big part in helping Zopim take off. When we conceived the idea in 2007, e-commerce was dominated by big players. But we were convinced SMEs would start selling online soon, so they would need a simple and affordable chat solution on their site to talk to customers," Mr Tay told BT.

"The recession in 2008 really accelerated this. By 2010, we were already profitable and growing robustly on the back of this trend."

Another entrepreneur, Jeffrey Tiong, echoes this sentiment. Mr Tiong is founder and chief executive of PatSnap, which runs an intelligence platform for intellectual property and R&D. Just one year after its inception, PatSnap ventured into China in 2008, after the GFC had erupted.

Mr Tiong says the GFC did not deter him from seeking growth in overseas. Even though venture capital (VC) funding was scant then, PatSnap survived its early years with S$55,000 in grant money and a simple aim to "just find some customers", he recalled. The vibrant Chinese market gave him the answers when it came to lowering cost structure.

"From day one, you should look beyond Singapore. If you just focus on Singapore, then it's very hard to build a tech business," he said.

With Covid-19 roiling markets now, Mr Tiong believes that entrepreneurs are in a prime position. "Opportunities only come when there are changes... Everyone is now reshuffling their decks, so you have the chance to deal a new hand of cards."

Of course, launching a startup in a crisis is only suitable for those able to cope with the high financial risk. The impetus to start a business should also come from "self-realisation" rather than external conditions, said Joseph Phua, co-founder and former chief executive of digital entertainment startup M17 Entertainment.

But for those who are ready, one opportunity could be to target sectors that have been throttled by the pandemic said Mr Phua, who now advises startups, while remaining non-executive chairman of M17.

"Competition is so little, and it gives you a lot of time to ramp up your knowledge. Starting in a sector that is already booming already may not be the best thing... because there will be tons of people already thinking the same way as you," he said.

He also suggests that to be pragmatic, new entrepreneurs could consider holding a part-time job while building their venture.

For their part, investors are excited to back the new enterprises coming out of the crisis. Heang Chhor, managing partner of venture firm Qualgro, says if he were younger, he would not hesitate to dive into the startup world now.

He cites three key factors: the greater availability of talent due to the soft job market; new business opportunities created by the pandemic; and the dry powder that many South-east Asian venture funds still have.

"Despite taking a cautious stance in this Covid-19 time, many tech investors will still have to deploy capital, and they will compete for supporting talented entrepreneurs. In particular, given the usually-small size of funding required for new startups, good entrepreneurs with good ideas will have no difficulty finding investors," he said.

He is especially excited about startups that target sectors undergoing "fundamental and structural shifts", such as human resources in the age of remote working, or supply chain management.

Edward Tay, chief executive of Sistema Asia Capital, similarly sees tailwinds in the healthtech and social commerce segments. Given the downturn, valuations could also become more attractive for investors.

He said: "There are businesses that will still be heavily supported by VCs if they see that the quality of the team is really good and the business model is applicable during the pandemic."

Amit Anand, managing partner of Jungle Ventures, is seeing momentum in logistics and warehousing tech, edtech, healthtech and SME technology.

"Times of adversity present a great opportunity and the best businesses are often born during a crisis. The onus is on the founders to identify the right market gap or opportunity and execute it," he said.

Dr Damian Tan, managing director of Vickers Venture Partners, is more cautious, as he reckons that funds may conserve capital to help their own portfolio companies through the crisis. He believes that the "most resilient" companies will emerge in deep tech fields such as biotechnology and clean energy.

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