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Tapping the VC opportunity
SINGAPORE'S 2017 Budget, which built on the recommendations of the Committee of the Future Economy, has sounded the clarion call for businesses here to upgrade their capabilities, upskill their workers and expand abroad. It is a message that, while not entirely new, has gained fresh impetus as the country focuses on maintaining and improving its competitive edge.
There is clear recognition that it takes more than a nudge to get Singapore's businesses, including the multitude of SMEs that form the backbone of the economy, to set their sights beyond the here and now. Initiatives such as those under the SMEs Go Digital Programme to help firms build digital capabilities as they embark on their journey of innovation will certainly go a long way.
The Monetary Authority of Singapore's (MAS) proposal to relax rules to make it easier for venture capitalist (VC) managers to set up shop here is also cheer-worthy for a number of reasons.
SUPPORT THAT GOES BEYOND FINANCING
First and foremost, it makes for a different approach towards how financial support, which has largely taken the form of grants, is extended to local businesses. VCs, through taking direct equity stakes, will be an added source of funding especially for budding enterprises which may have limited access to more traditional forms of financing.
Indeed, there could be potential to take this further. There is the possibility of public-private collaborations, where the government can partner with established VCs, to provide the necessary funding for our local businesses. In these collaborations, the government may provide and administer the necessary capital for these VCs to invest and manage. After all, startups are best advised by entrepreneurs who have run businesses before. This public-private collaboration could also take the form of referral - startups and SMEs that approach the government for grants could be referred to its VC partners for further evaluation. This would be in line with the CFE's recommendation for the government to review the roles and functions of public agencies in supporting enterprises to grow and internationalise.
There could be another positive spinoff from this exercise. Companies that approach the government agencies for help would also be incentivised to come up with more detailed business plans, knowing that they could gain access to VCs in the process. In doing so, budding business owners would be compelled to take stock of their business model, gain a deeper understanding of their markets and customers, and refine their strategies to succeed in the new economy.
VCs go beyond providing funds - they also bring with them management expertise, contacts as well as market access. VCs often have a big portfolio of companies that they fund and manage. Within their stable of companies, VCs are able to create opportunities for seemingly disparate companies to collaborate even across geographical boundaries. Further, VCs often come together to set up communities for startups to share their experiences and learn from one another. This in turn could enable startups to shorten their learning curves and have better chances of succeeding in the market place.
Silicon Valley is a shining example of such communities - it is hailed for its conducive environment of public, private and community sector collaboration as well as its robust business infrastructure, including financial and specialised services, that support nascent entrepreneurs.
MAKING IT ATTRACTIVE FOR VENTURE CAPITALISTS
A lighter regulatory touch will certainly help attract more VCs to Singapore. But it bears remembering that VCs ultimately thrive on ideas and gravitate towards businesses with the potential to break the mould.
It will take time to create a steady stream of such businesses and it will also require an environment that supports the generation, incubation and sharing of ideas. On the part of individuals, it takes gumption and derring-do to attempt the untested. The sea change that is happening within Singapore's education system - towards a greater emphasis on promoting innovation and the entrepreneurial mindset - is hence a big step in the right direction.
It is however not a straightforward case of "out with the old, in with the new". Encouraging the creation of businesses that venture into previously uncharted waters - technology or fintech startups come to mind - is well and good. But Singapore also boasts many "old economy" companies in F&B, fashion or healthcare. Some of these companies have what it takes to become regional or global brands. A number of homegrown brands have expanded abroad successfully. However, there are still many which may lack the management expertise, market access or knowledge to venture abroad. To this end, there may be the need for concerted efforts to woo a broad range of VCs, beyond those that typically focus on tech startups. It may also be helpful to have platforms or public forums that enable Singapore businesses to raise their visibility and showcase their ideas and proposals to the VC community.
But for VC activity to be vibrant and sustainable, it will take more than a steady flow of attractive deals. There should also be ample opportunities for these VCs to exit their investments within a reasonable amount of time. Singapore will therefore need to develop an active secondary VC market. Ideally, a good secondary market or platform would allow seed-stage VCs to "trade" or sell their companies to other VCs or investors like private equity (PE) funds. This will allow staging whereby early-stage VCs could recycle and re-invest their capital into nurturing and helping other startups while private equity funds could "take over" from the early-stage VCs and continue to grow startups and even bring them to an eventual public listing.
In the US, platforms such as Nasdaq Private Market and eShares have successfully provided private businesses with capital market support and access to liquidity through their vast network of shareholders, investors and entrepreneurs. In addition, these platforms provide a vibrant market for privately held shares to be traded, which not only attract large institutional investors, but also enable employees of these startups to sell their shares - a move that could help startups to attract and retain talent.
Some industry players have also brought up the idea of "limited partners" where local institutions and even non-profit organisations can be incentivised to invest in VCs. This idea of collaboration can go a step further. Beyond investing in VCs, large Singapore corporations can also partner them in providing advice and even corporate resources to help these startups and SMEs.
VCs have the potential to play an important role within the financial ecosystem that supports Singapore's businesses, complementing financial institutions, government schemes and other sources of financing. As Singapore promotes a spirit of enterprise and nurtures its businesses for growth at home and abroad, the ability to successfully tap the vast community of VCs is going to be a critical part of the equation.
- The writer is chief financial officer of OCBC Bank