The corporate venture capital conundrum in Singapore
Singapore
IT was with much aplomb back in 2016 when the Singapore government announced the third instalment of the Early Stage Venture Fund (ESVFIII) programme, targeted at encouraging local enterprises to set up their own corporate venture capital funds (CVCs).
CapitaLand (now known as CapitaLand Investment), agriculture player Wilmar, digital business builder Declout and logistics player YCH Group jumped right in.
But 6 years on, the CVC segment in the Singapore startup ecosystem hasn't been active. The scheme has only spurred 2 new CVCs - ST Engineering Ventures and Comfortdelgro Ventures, while the fate of the other 4 has been mixed.
This is in stark contrast to the venture scene in neighbouring Indonesia and Thailand, where regional blue chips like Siam Commercial Bank and Telkomsel have been active. Investments by Siam Commercial Bank's SCB 10x include a recent round by HR software startup Darwinbox, now valued as a unicorn. The portfolio of Telkomsel's MDI Ventures includes fintech unicorns Nium and Kredivo.
CVCs globally has been slowly increasing funding, growing from 14 per cent of the US$283 billion in VC investment in 2017, to 21 per cent of US$370 billion in 2020.
In Singapore, the Early Stage Venture Fund initiative was aimed at getting large local enterprises to turn to investing in startups to source for innovative technologies and business models. The broader objective: to help build Singapore's startup ecosystem.
The National Research Foundation (NRF) administered ESVFIII to seed 4 corporates with S$10 million on a matching basis to kick start their corporate venture capital funds. It was an extremely attractive proposition as it de-risked a portion of any investments made with the initiative.
Yet 2 funds have since left the NRF scheme. Wilmar and NRF mutually agreed to end the partnership after 1 deal. Declout left the scheme due to an ownership change after being acquired by a Japanese engineering company Exeo Group, but only did 1 deal during its time in the scheme, according to data from VentureCap Insights.
CapitaLand's C31 Ventures has been largely dormant after a flurry of 4 deals between 2017 and 2018. As for YCH Group's Supply Chain Angels (SCA), the CVC has done an investment deal almost yearly since 2017, except for 2019, according to data from VentureCap Insights.
NRF on its part will no longer be seeding any CVCs or VC funds in the foreseeable future, as these efforts have been passed on to EDBI. Startup funding is now the remit of Enterprise Singapore's (ESG) SG Equity Scheme.
"The consolidation is aligned with ESG's mission to grow the vibrancy of our startup ecosystem, and will better leverage ESG's expanded funding and mentorship networks to support the growth and international expansion of startups as well as EDBI's proven track record of managing fund investments and investing in successful growth companies," said an NRF spokesperson.
The challenges that Singapore CVCs faced were many, not just in terms of financial returns, but in operations as well.
Getting buy-ins
The patchy deal flow during Declout's time in the scheme came from the ad-hoc nature of the CVC then, according to Lim Swee Yong, chief executive officer, Declout Ventures.
CapitaLand's C31 Ventures declined to comment for this story.
Rather than just running the CVC arm full time, Lim had other roles in the corporate development and legal departments. It was only after the Exeo acquisition that he was able to fully concentrate on the CVC.
"IT wasn't a fully-fledged unit then, which would explain the lack of deal flow in making the final decision to invest in more startups," said Lim.
For YCH's SCA, having access to Y3 Technologies, a YCH unit specialising in logistics solutions, has been helpful for technical due diligence. "Now we need to drill down into the unique point of the tech, which is why we also leverage on our tech arm, Y3 Technologies. So for some of the high-tech deals, we actually run it past them so we can get some feedback," said Isaac Chua, head of investment, SCA.
Furthermore, there needs to be buy-in from the top for a CVC to thrive. Media reports on C31 Ventures had said that the change of CapitaLand's chief executive officer had led to the fund being mostly dormant now.
At SCA, YCH chairman Robert Yap has bought into the CVC. "Robert (Yap) is very committed and sits on a lot of councils, and quite a lot of deal flow comes from him," pointed out Chua.
Mixed reactions
A number of large local enterprises currently have a CVC arm, including SPH Ventures, Singtel's Innov8 and PSA's PSA unboXed.
SPH Ventures have made investments into startups like financial services lead generator MoneySmart and regulation tech provider Jewel Paymentech. Innov8's portfolio spans sectors such as healthcare with Halodoc, to digital asset bank Sygnum. PSA unboXed has focused on the logistics and supply chain space, investing in first-mile trucking platform Haulio and digital freight forwarding platform Shipp.
NRF acknowledges that CVCs operate in a different environment from typical VCs, with the need to align investment decisions with corporate strategy. Rather than just multibagger returns, the startups will need to have synergies with the parent of the CVC.
"Although the selected large local enterprises (LLEs) had the ambition to utilise NRF's co-investment funding to source for innovation as part of their overall corporate strategy, there was a subsequent mismatch between the technology maturity of the pipeline of deep tech startups and the LLEs' corporate venture mandate," said a NRF spokesperson. "This led to the LLEs' low utilisation of the funds, and 2 of the 4 funds have subsequently left the programme."
Singapore is still working with corporates in their venture journey, with the Economic Development Board launching the Corporate Venture Launchpad programme. The S$10 million programme aims to support large corporations to launch new ventures in areas outside their existing businesses with appointed venture studios.
NRF still works with Wilmar, supporting its corporate laboratory within the National University of Singapore. The Wilmar Laboratory carries out clinical nutrition and synthetic biology research to create healthier food products, and devises green production technologies for industrial enzymes and biochemicals.
Still, CVCs play an important role. According to both Declout's Lim and SCA's Chua, some deals are just for getting exposure to new segments that aren't necessarily synergistic to the core business. For instance, Declout has invested about US$1.4 million into digital asset exchange ADDX according to VentureCap Insights, as a way to understand financial services better.
More value can be extracted from investing in early stages, rather than using CVCs as a traditional merger and acquisitions finder with late stage investments, as most companies have been doing according to a Bain report.
And CVCs can provide more than money. "A lot of deals we invest in, we help bring them overseas; when we go to a new market, we can bring them with us," said SCA's Chua.
