Early-stage Capital Crunch: Chicken or the Egg?

Chicken or the Egg?Every week, I hear some entrepreneur whine about the early-stage capital crunch faced by startups in Singapore. It’s really gotten to the stage where I could add that line to my CV as an activity that I engage in weekly.

Depending on whether you prefer the Chicken, or the Egg, the above is either an understatement of the current state of affairs, or an indication of the perceived quality of the majority of entrepreneurs and startups in Singapore.

The chicken in you might ask, “Perceived by who?”

Certainly not their neighbours, nor their pals. Unless they’re serial entrepreneurs with successful exits and enough financial muscle to fund their own ventures, these entrepreneurs are going to care most about what their investors think of them and their ideas. But really, even then, these prospective investors aren’t really going to miss many emails on their Blackberries worrying over the commercial viability of their ideas. These dudes-with-the-moneybags are more likely going to be keeping an eye out for the quality of the team.

I once attended a conference where Lip-Bu Tan, Chairman and founder of Walden International was a panelist, and when asked on the top three things he looked out for in every startup, he responded,”I invest in people, people, and people.” If the startup has a bad idea but a strong team, they could junk the idea and probably come up with a better one. If the startup has a weak team, any self-respecting investor should reach for the exit door faster than one could spell “I-P-O”.

I met the Singapore-based Executive Director of a strategic US$250 million investment fund formed from a joint venture between financial and media entities, who shared with me her less-than-favourable experiences with several early-stage startups based in Singapore. “These guys lack the passion and confidence that I’m used to seeing.” The nationalist in me attempted a feeble and futile attempt at preserving our entrepreneurs’ honour by reminding her that Singapore wasn’t quite Silicon Valley, and got countered very nicely.

“I thought so at first, but the Chinese can do a much better job of making their product (which is probably worth $0) sound like it’s worth a million bucks. Isn’t Singapore largely Chinese?”

So much for trying.

On the surface, Singapore appears devoid of any significant early-stage investment activity. Try throwing that statement at a government officer and you’re likely to receive responses such as “but there’s SEEDS Capital which matches every third-party dollar raised dollar-for-dollar up to S$300,000”, or “business angel groups such as Spectrum and Sirius invest in early stage deals”. Sounds real good on the surface, but if you dig deeper and examine the overall investment scene, it’s really just loads of hot air. I can count the number of active VCs on one hand. I am also hard-pressed to find a newly-funded startup in Singapore in the last 3 months – those that I missed would hardly make an impression, much less a dent on the overall Technology, Media and Telecommunications landscape in Singapore.

In the end, my vote goes to the Egg. Our brood of chickens have been sitting on a bunch of eggs that are finding it hard to hatch, and our Government really needs to go beyond worrying about the Chicken or the Egg, and do something to make Singapore a more attractive location for other hatchlings to locate, grow and succeed. Our entrepreneurs need to stop whining. Only then can the investors come out of their coops and place their bets on which eggs to brood.

This (imho) is the only way out for Singapore’s hi-tech sector to avoid being sidelined in the global innovation landscape. In the face of intense competition from China, India, and increasingly Vietnam, Indonesia and Philippines, we no longer have the luxury of time to let our entrepreneurs go through additional learning cycles.

Fly, we should not. Soar, we must.

About James Chan

James Chan is an entrepreneur, investor, geek, photographer and husband/father based out of Singapore. Apart from frequent travels to Vietnam, Myanmar and Indonesia for work, James can also be found online via his trusty 15" Retina MacBook Pro or iPhone 6+.