by John Kim
In a dimly lit private dining room at the Tower Club, 10 wide-eyed alumni from the University of Pennsylvania had the opportunity to welcome Messrs John and Arthur Sculley, two of our University’s most illustrious alumni.
After a brief introduction that simply could not do justice to these two scions of business, Mr John Sculley, who is most well known as the former chief executive officer of Apple, turned to us and asked: “What do all of you think about the future of innovation and entrepreneurship in Singapore?”
It’s a question on the minds of thousands who have gathered for Echelon, Asia’s largest tech conference that starts today, here in the Lion City. It’s also a question that has become increasingly important to policy makers, who have made great efforts to support the Singaporean ecosystem for entrepreneurs. The Government has over a dozen schemes in place to fund start-up companies. In one example, the National Research Foundation (NRF) selected 15 private incubators for the Technology Incubation Scheme where investments of $88,000 are matched with up to $500,000 of government money.
Just how effective such funding is in grooming successful start-ups is a matter of much debate. But there is no doubt that these programmes have drawn some corporate worker bees into the start-up scene and incentivised regional entrepreneurs to relocate to Singapore.
Innovation and entrepreneurship become more critical in driving economic growth when countries can no longer rely on cheap labour or manufacturing prowess for gains. This is one reason why governments of developed countries around the world are looking at similar initiatives.
Another reason is that with a natural widening of the income gap, governments come under immense pressure to help those who feel left behind as the top earners in their countries benefit. Entrepreneurs are underdogs in the commercial world, and supporting them is far more politically palatable than supporting big businesses.
But as with all policies, execution is key.
In one example of poor execution, after bailing out banks and bashing “fat cat bankers”, United States President Barack Obama announced a plan in 2009 to support companies in the clean energy sector as part of his stimulus plan. Nineteen of these companies went bankrupt and created problems for Mr Obama’s re-election campaign last year.
Though I have great respect for the President’s public speaking skills, very few would call him an investor of any stature. This begs the question: “Why was the President making decisions on investing in individual companies?” (It’s interesting to note that executives from Solyndra, the most high profile failure, donated over US$100,000 to Mr Obama’s campaign and visited him 20 times in the Oval Office before receiving US$535 million in funding).
In a more successful instance, the government of South Korea has also recognised the importance of venture funding, but managed to stay acutely aware of its limitations in investment capability. Hundreds of millions of dollars have been poured into the venture capital market, which is now the world’s fourth largest despite South Korea having only the 17th-largest economy.
But rather than choose investments directly, Seoul has hired professional managers to select specific companies with government guidance on sector focus, specifically in entertainment, information technology and manufacturing.
Though Samsung and Psy never directly received venture financing, the ecosystem created by government funds in their industries certainly helped them to achieve global leadership.
But while funding is necessary for innovation, it is certainly not sufficient. In Silicon Valley and Route 128 in the US, the intersection of engineers, entrepreneurs and investors creates an environment where exciting research can be brought to market and then scaled.
Singapore does a great job of attracting top researchers and supporting entrepreneurs with funding, but a vibrant ecosystem requires more opportunities for interaction between these three groups of constituents.
There are several other challenges in fostering innovation and entrepreneurship here. One of those is the “Death Valley”, or the gap in series A funding where institutions first invest in start-ups. (The Technology Incubation Scheme funds from incubators and the NRF focus on earlier “angel” rounds, which typically consist of friends and family.)
Another hurdle is a legal system that discourages risk-taking. Many of America’s great entrepreneurs, including real estate magnate Donald Trump, are one-time bankrupts, whereas a bankrupt in Singapore will find it difficult to get a broadband subscription or car loan, let alone set up a business.
But perhaps the most structural of challenges is the fear of failure or “kiasi” mentality that pervades Singaporean society. During a launch event for his recent book Hearts, Smarts, Guts And Luck, Hsieh Tsun-Yan shared that only 1 per cent of Singaporeans who have thought about starting a business actually go on to become entrepreneurs (compared to 2.5 per cent globally).
In our discussion with the Sculley brothers, perhaps the most interesting takeaway was Mr John Sculley’s point that failure implies learning in the US, but often implies inferiority in Asia. Leaving a stable job to start a company takes a hearty risk appetite, which some might argue is not in Singaporean DNA because of attitudes about failure.
Still, nothing succeeds like success, and a billion-dollar exit for a local entrepreneur would go a long way in overcoming cultural challenges.
With Reebonz’s recent funding round at $200 million plus valuation, a billion dollars doesn’t sound quite as far-fetched as even a year ago.
In the backdrop of continued initiatives from the Government to support and cross-fertilise top entrepreneurs, investors and researchers, there are reasons to be cautiously optimistic on the future of Singapore’s position as a leader in innovation and entrepreneurship.