Admittedly, it has been longer than I’d like since I last met with VCs and founders in Singapore. Much longer still, since I last frequented my favourite Pho Ga spot in the 6 Battery Road basement food-court or had fried chicken biryani on Stanley Street. The upside of my absence, though, is that the distance gave me a fresh set of eyes for viewing how, and how much, VC has changed in Singapore.

As I digested the chock-a-block meetings and recent reports, four themes emerged. VC has gone mainstream, and relatedly, has more players and more money than ever before. Concomitantly, questions as to whether Singapore and Southeast Asia could produce a stable of unicorns have abated; there are 10, of which three are Singapore headquartered – Grab, Sea and Razer.

1. Venture Capital is mainstream

When I started my academic research on the rising VC market – and the government policy facilitating that growth – in 2010, it was relatively easy to map out the ecosystem. There was a modest list of VCs, and an excitable, but relatively small, startup crowd.

Fast forward to 2018, startups and venture capital fundraising are part of everyday life and lexicon in Singapore. People order a “Grab” and everyone – especially my Grab drivers – knew that Indonesia’s rocket-fuelled Go-Jek launched in Singapore the last week of November. There are eleven WeWork locations, two on Cross Street alone; you learn that the hard way, not asking if its 8 or 22 Cross Street where you are having your meeting!

Venture capital went from being a boutique activity to one that Singapore’s corporate and financial folks are active in. Corporates are testing innovation labs and platforms. Private bankers and wealth managers are interested in advising on VC investments.

I was invited to give a talk organised by SAGE and the CFA Society Singapore on the role of the state in building venture capital markets in Singapore, as well as Israel, Hong Kong, Taiwan, and even Silicon Valley. As a testament to the interest in the topic – and the organising powers of Kevin, Stephen and Victor – rather than my ability to draw a crowd, 100 people showed up for the lunchtime talk. Attendees came from family offices, private wealth managers, and other segments of the banking sector. In the past, my talks on VC would draw NUS students, angels, a venture capitalist or two, and some founders. Today, there is a serious blurring of lines between ‘traditional’ and ‘alternative’ strategies in Singaporean finance; venture capital-style investments feel like a new gold rush, and everyone has their picks and axes ready. Law firms have growing practices dedicated to venture deals and trade sales, and the MNCs have innovation labs, accelerators and funds.

2. More VC players

The mainstreaming of tech investments has meant that there are new players in the landscape. Family offices are dipping their toes in as direct investors, moving beyond the LPs position that they held for years. They invest early, in seed rounds, as they want to get in on the action. Increasingly they have been asking: why hire a VC manager and pay the fees? Can’t we do it ourselves?

It’s not only the family offices. In Singapore as elsewhere, there has been a remarkable increase in corporate VC arms, and corporate accelerators. For years, when I pictured corporate venture capital (CVC) in Singapore, it was the large (tech) corporates, like Singtel, who came to mind. I remember covering the launch of Innov8 in September 2010. Now CVCs include the funds run by successful startups: Go-Jek launched their CVC, Go-Ventures, in May 2018 and Grab followed suit shortly thereafter, announcing Grab Ventures in June 2018 .

All the while, the cohort of world-class VC managers based in Singapore grows. A notable example is Golden Gate Ventures’ Techcrunch announcement of the closing of their 3rd fund, with $100M coming from LPs including Temasek, Korea Venture Investment Corporation, Hanwha and Naver.

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3. More money

The government’s priming of the VC pump, through the ESVF amongst other funding mechanisms, has paid off in boosting world-class VCs investing early stage. GIC and Temasek – who are at the top of the SWF leader-board as the most active LPs, at 77 and 41 commitments respectively, according to Pitchbook data – continue to invest in VC managers running SE Asia strategies.

There was $3 billion in VC investments in Southeast Asia in 2017. These Southeast Asia funds are overwhelmingly domiciled in Singapore, with money then being invested around the region. 2016 was an all-time high for ASEAN-focused fundraising, and now that money needs to be invested.

Whilst the headline-grabbing fundraising and deals fuel the exuberance about Southeast Asia VC strategies, many wonder if there’s not too much money chasing too few (good) deals. Some VCs I spoke with said that it’s a really competitive market, and that it’s tough to get into the hottest deals. This is a double-edged sword, of course, as more money helps boost startups’ growth, but can also drive up valuations to an unsustainable level.

In the previous boom – around 2011 when I first started researching VC in Singapore – the exuberance was followed by down-rounds and a resetting. Chua Joo Hock, Managing Partner of Vertex Ventures Southeast Asia & India, remarked on his awareness of a similar potential reset now, in the October 2018 Vertex-Preqin report, “Southeast Asia does not operate like Silicon Valley, where ballooning valuations lead to further ballooning. Inflation inevitably leads to down rounds when startups are unable to produce the exits their exuberant investors wanted.”

4. Arrival of the unicorns

When I first started talking to VCs, founders and policymakers in the region, the refrain was “when we have unicorns, we will know we made it.” Well, by that metric, Southeast Asia is firmly on the booming ecosystem map.

Depending on how you count it, there are 10 unicorns in Southeast Asia: Grab, Go-Jek, Lazada, Bukalapak, Revolution, Razer, Sea, Traveloka, Tokopedia and VNG. These unicorns serve as important tech role models in their respective markets. They are Southeast Asia’s Steve Jobs and Jack Ma, and they motivate and normalise startup activity even further.  

So what now?

Mostly, my sense is that the private sector fever for venture capital in Singapore is proof positive that the government’s injections (think the NRF’s ESVF) have done their job. VC fundraising in Singapore is not reliant on the state’s investment or tax breaks; foreign companies, institutional investors, and high-net-worths are active LPs because of the growing market opportunity.

But, there are concerns.

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First, there is a sense that the community is waiting for exits to rival – and hopefully exceed – the booming fundraising environment. For the big funding rounds to pay off – and for VC to prove sustainable as a result – there needs to be more exits. The source of these exits will most likely be trade sales, and there are worries that there is a limit to how big these acquisition pricetags can be. So the refrain becomes: we need more unicorns! Well, for me, I hope for more numerous $200-300M exits that prove VC funds can produce attractive IRRs on their portfolios. Not holding out hope for a unicorn to return the fund.

Two, there’s hoping – or ensuring – that the influx of money and players that has entered Singaporean VC is ‘smart money’. Venture capital has been revered as “humanity’s last great hope” because of the best VC managers’ ability to add value to high-risk growth companies’ strategy and operational decisions. The tremendous promise of venture capital, that excites governments around the world, is not their phenomenal ability to spot talented teams and disruptive products. Its venture capitalists’ skill in helping those teams deliver on their potential.

I hope my next trip to Singapore coincides with the opening of the ‘Jewel’ at Changi airport in early 2019. I would love to see well-attended workshops on how to add value as an early-stage VC investor. And, I hope to wake up early enough for kaya toast meetings with founders and VCs who are targeting sizeable – but not unicorn-sized – exits.

** Thank you to the VCs, founders and lawyers in the Singapore startup ecosystem who took time to speak with me – and risked getting caught in the afternoon rain – to provide their views on today’s events.

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Photo by Victor Garcia on Unsplash