Soaring rental and labour costs have pushed manufacturing companies out of Singapore and in its place the government of Singapore is nurturing high-technology startups to be the next Alibaba of Asia.
Ayer Rajah Crescent, dubbed as the new Silicon Valley of Asia has eclipsed Bangalore as the top spot for entrepreneurial and startup activity. Singapore, by official figures, can boast to have the best startup environment in Asia. Startup founders can register a business or a company and be up-and-running in less than a week. The Singaporean government has put in place various grants and programmes to assist the startup entrepreneur to get off the blocks. It has a vibrant venture capital community and startup incubators are accelerating startups to become regional players from day one. Initial success stories from the likes Trakomatic, Zalora, and Trade Hero are attracting investors from India, China, Americas, and Europe. Life.Sreda, a VC based out of Moscow is relocating its funds to Singapore because of the promises Ayer Rajah holds. But, as far as public opinion goes, success stories are far and few between and for some, Alibaba ambitions ring a little hollow.
Herbert Eng, founder of Fessup, a local Singaporean startup, who is also aspiring to be the next Jack Ma said the investment community in Singapore is highly risk averse. The investors, like most part of ASEAN only invest when startups have demonstrated irrevocable and tangible evidence of feasibility, such as live traction, or when an idea can be protected with a patent. “There is a significant dearth of positive risk taking and it seems that they prefer going for the low hanging fruit instead of supporting socially innovative solutions. Much of it sounds a lot like sub-par investors who run after the ‘next chip’ in Silicon Valley of old, instead of ideas with transcendental potential. Whether government affiliated or institutional VC, all the same,” he said.
Jeffery Paine of Golden Gate Ventures, a VC based out of Singapore, feels that some startup founders are simply barking up the wrong tree. He went on to explain that Singaporean startups are distracted with the local and the ASEAN markets, and as an after-thought added the USA to the mix. He said, “Choosing the wrong idea addressing a small or early market is one major reason they cannot scale and raise funds.”
Even though ASEAN is home to about half a billion people, the market is fragmented and some VCs feel that the markets are too early for high-technology adoption. And the USA, on the other hand, is too mature for local companies to compete effectively. If we were to take that argument to its logical end, the other global markets have their own drawbacks and challenges as well. China has ring-fenced its high-tech sector and a bad place to go because they’ll copy our products. It’s like selling refrigerators to Eskimos when it comes to selling high-technology products in India, no point going down that road. Europeans have their own debt and austerity issues and have no money to spend anyway. And Africa needs to overcome the Ebola crises and it is not worth risking life over an upstart. It turns out that chasing that startup dream is no walk in the park.
But this situation has not deterred the Singapore government in pursuing its Alibaba dreams. Riding on its initial success at Ayer Rajah, JTC Corporation has expanded the Ayer Rajah facility to include another two blocks in January this year.
There is no shortage of motherhood statements at Ayer Rajah: In an unprecedented manner, government officials tell startup founders to fail fast. But the word failure does not seem to exist in the current lexicon of these startups. At Ayer Rajah, startup founders are confident that they can build and exit their startup within three years.
Dressed in jeans and t-shirts, startup founders dance at one leading incubator’s pitch event when asking for money and get S$25,000 (US$17,800) for their idea. However, they leave other institutional investors musing whether the founders get funds for their dancing or their startup idea. One investor remarked that these founders have form but lack substance. Few of these companies ever go on to raise any serious money from the investment community making their startup life short, pointless, and in vain.
Ayer Rajah, a place known for startup successes takes failures in its stride too. The ecosystem is flushed with funds from the government, angel and institutional investors. So, there is plenty of cash to experiment. No idea or concept is too small or frivolous. When a founder fails in her first attempt, she simply moves on to her next idea, signs up with another incubator and raises funds.
Startup founders learn a thing or two about the harsh realities of running a startup. They only take home a meagre allowance of S$1,000 (US$715) per month while building their prototype and it doesn’t take them very long to realise that traditional banks and financial institutions treat them like financial outcasts for their lack of credit worthiness. They forego quite a bit in terms of money and quality of life compared to their peers from university who earn three to four thousand dollars a month.
Unlike second-rate startups that fail and rejuvenate, crummy investors go on to raise their next round of cash for their funds without having to reincarnate, without rationalising why they failed and they keep perpetuating the poor investment decisions that led them to their failures, or their lack of astounding success. Still, fund managers still take home top salaries. The equation seems ominously lop-sided at the moment.
Some say, getting investments is like a game of chance and those who get any substantial funds are considered lucky and the only reason why they are funded is because their stars are aligned. Cynicism also comes in abundance at Ayer Rajah.
In a country where entrepreneurialism and risk-taking was unheard of just two generations ago. The climate of innovation and invention is driving the decibels up at the pitch events and the initial success of the startup acceleration programmes has become highly infectious. Successful startups have become the envy of their peers and with more sophisticated investors entering the fray from lands afar, Ayer Rajah is hopeful that patently poor investment decisions are a thing of the past. Finding Singapore’s Alibaba is possible after all.
The article Silicon Valley or Death Valley: Singapore’s search for Alibaba comes with 40 thieves first appeared in The Independent.