Singapore as a Tech Startup Hub, not by being Low Cost, but by being Capital Efficient

I was involved in a 7-way conversation 2 afternoons ago at the JFDI office at Block 71. Meng and I had scheduled for 3 different meetings at the same time, and used the opportunity to introduce a whole bunch of people to each other while getting stuff done all at once. Apart from Neoteny Labs, we had representation from Evernote, Yahoo, JFDI, Retronyms, TinkerTanker, JustESOPS and even a visitor who used to be a product manager at Opera. Talk about diversity!

I’d like to say a few words about two of the topics that we discussed, and combine them with this post; the first being the state of Singapore’s tech ecosystem, and the second being the cost of operating and living in Singapore. Both are intertwined to some extent, and going by the views I heard that afternoon, I thought it would be meaningful to share a different perspective to help entrepreneurs and tech startups think about it and decide if Singapore is the right place to be.

Singapore != Tech Hub?

The Singapore Government’s efforts at fostering innovation and entrepreneurship at all levels has come under the review of press time and time again. It’s not that surprising really; cynicism and caution is a trait that comes a lot more naturally to us humans who have learnt to navigate the perils of life through our mistakes and that of others. Just 5 hours ago, the World Bank said Singapore remains the world’s easiest place to do business. The island state’s meteoric rise in all sorts of global rankings is deemed by many as the result of a methodical and ongoing social engineering experiment at a national scale. If it’s too good to be true, the cynic in us would like to think it probably isn’t. Foreign press pounce on every misstep our rulers make in glee. They have adjudged entrepreneurship, creativity and innovation as the final pillars Singapore’s ruling mandarins have yet to master. The verdict is still out on this one.

The Fallacy of High Operating Costs in Singapore

At one point during our 7-way conversation, someone claimed it was expensive to operate in Singapore. Housing expense was mooted as a significant proportion of overheads, as is the cost of providing equivalent benefits like dental and healthcare to employees. These were put forth as detrimental to Singapore’s chances of becoming a tech startup hub for the region.

It’s not the first time I’ve heard someone state that Singapore is not a cheap city. They’re not wrong, but they’re not right either. Here’s why.

Whether something is cheap or expensive is an extremely subjective statement. What you arrive at depends on the basis you’ve established for comparison. It is true that Singapore is not as cheap as India, China, Philippines, Indonesia or even Pakistan. It is also true that Singapore does not have as vibrant an investment community and pool of entrepreneurs as Silicon Valley or even New York. Yet, cheap does not always equal bang-for-the-buck. Smart alpha geeks who are startup-friendly (i.e. more risk loving, good code fast instead of great code slow, etc) prefer higher standards of living in as cosmopolitan a city as possible. Nothing can be cheaper, faster and better at the same time; you optimize for two and cede on the other trait. For tech startups gunning for global domination, efficiency is typically preferred to utility and commodity.

I say it’s a fallacy to claim that operating costs in Singapore are high because the truth is the exact opposite – Singapore is an extremely capital efficient place to be doing business in. It may not seem that way if you’re an American, because Uncle Sam is taxing you wherever you may be, but for almost everyone else and especially naturalized foreigners, you can really get bang for your buck here.

Case in point – a startup that raises US$10M in Silicon Valley and New York and spends it all on software engineer salaries will see anywhere between 40 – 50% of that money leak out of the value creation cycle in the form of federal and state taxes. Conversely, another startup that raises US$10M in Singapore will see anywhere between 5 – 30% of that flow back to the Singapore Government’s coffers in the form of personal income taxes at the employee level, depending on the proportion of local engineers it hires. What this means is investors in the US have to inject greater amounts of capital to make up for the tax situation to ensure that its startup’s employees will have the same levels of disposable income as employees of an equivalent startup based in Singapore. The Valley makes up for this by being a great talent magnet and having a funding syndicate equal to none. Having said that, if we look at things strictly from the taxation front, Singapore’s capital efficiency gives it a good beach head to work from.

Critical Mass

I won’t be passing judgment on whether Singapore is or can be a tech startup hub; not yet, and certainly not when I’m in the thick of it. You can’t be the judge, jury and defendant at the same time. I’ve previously written about what I think the tech ecosystem here lacks; namely a critical mass of exits and startup-friendly engineers. It helps that there’s strong macroeconomic headwinds causing a slow but steady brain drain away from incumbent nations. Couple that with Singapore’s talent friendliness, capital efficiency, and developments over the past year at the grassroots level; all of which have left me quietly confident. The community is shaping out nicely and all sorts of interesting and cool folks are starting to peek their heads out from their closet and mingle around. Give the community another year or two for more serendipity to happen and I’m confident we’ll reach greater heights.

Cheers to that~

Photo courtesy of Wikimedia Commons

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+.